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To counter China’s economic influence, rebuild the American Heartland – Brookings Institution

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With the $1.9 trillion American Rescue Plan Act signed into law, the Biden administration’s attention has turned to a massive jobs, infrastructure, and clean energy plan. Meanwhile, some members of Congress want to advance bills on topics such as immigration, voting rights, and gun control.

But that’s not all. On March 10, The Washington Post reported that momentum is building for another priority: a bill aimed at “countering China’s economic influence” with an array of investments to restore U.S. technology leadership, rebuild its supply chains, and improve industrial competitiveness. Although coming at a moment of spiking outcries regarding the treatment of Asian Americans at home, the new legislative discussion—and this commentary—speaks solely to the debate regarding China’s rising economic and geopolitical sway.

On first glance, a China-response bill—with its focus on international geopolitics and a faraway superpower—might seem like a shift away from President Joe Biden’s professed urgency about helping working families here in America. However, the emerging bill is emphatically not a shift of focus. Rather, it represents a serious effort to renew America’s economy by investing in the nation’s high-value, good-paying industrial economy, and so provide better livelihoods in more communities around the country.

China, after all, lies at the center of the U.S. advanced-industry competitiveness challenge, which has influenced so much of the nation’s pre-pandemic economic drift and division.

Between 1990 and 2007, surging Chinese import competition played a large role in “hollowing out” the U.S. economy both nationally and locally, as low-cost imports undercut American producers and drove massive declines in decent-paying U.S. manufacturing jobs, especially in the heartland.

Since then, the initial China “shock” has evolved into an ongoing crisis exacerbated by a broader ebbing of U.S. advanced-industry competitiveness. China, for its part, has positioned itself as America’s main economic rival through an array of tactics, including unfair and illegal trade practices, intellectual property theft, manipulative terms of market access, and lavish subsidies for Chinese enterprises.

At the same time, U.S. industrial slippage has been exacerbated by broader U.S. disinvestment, offshoring, and decline. Federal R&D expenditures—necessary for technology leadership—have slumped to levels lower as a share of the gross domestic product (GDP) than prior to the Soviet Union’s launch of the Sputnik satellite in 1957.

Fig1

In the meantime, the U.S. has been running all-time-high trade deficits. The nation’s trade gap on electronic products hit $212 billion in 2019, while exporting only $18 billion in high-tech manufactured goods to China.

Such trends have been devastating for the nation’s economy and communities. Over the last 15 years, the share of U.S. employment in advanced industries has flatlined, meaning there are now relatively fewer of these good-paying, often accessible jobs.

What’s more, the presence of these critical industries—ranging from aerospace and chemicals to pharmaceuticals, software, and scientific research—has been dwindling in most American regions, contributing to stark regional imbalances. Fifty-eight of the nation’s 100 largest metropolitan areas have seen zero or negative employment growth in their advanced-industry sectors in the last decade, with most of those metro areas in the industrial Midwest and South. Since 1990, 71 of those metro areas have seen their concentration of advanced industries slip.

Map

The result of this has been the slide of whole swaths of country into stagnation, with grave implications for the nation’s economic, social, and political health. At the economic end of the equation, such unhealthy trends are wasting talent, thinning regional supply chains, and depressing communities. In social terms, the current geographic imbalance contributes to inequality because it deprives millions of workers who live in the “wrong” places from quality advanced-sector employment in the “right” places. It also remains likely that the drift of these “left-behind” places has exacerbated the nation’s political divides.

All of which is why a response to China matters so much. Reclaiming shared prosperity—especially in the heartland—will require restoring the nation’s technological advantages in order to reduce U.S. weakness in the global economic competitions that are now harming so many communities.

For that reason, a variety of often bipartisan measures have either already been drafted or are being developed to complement legislation aimed at expanding federal R&D. For example, numerous Republican senators have co-sponsored bills with Democrats on a range of measures related to China, including shoring up U.S. supply chains, expanding production of semiconductors, and asserting U.S. leadership on 5G technology.

Central to the emerging package is a bipartisan bill that Sens. Chuck Schumer (D.-N.Y.) and Todd Young (R-Ind.) have introduced along with Reps. Ro Khanna (D-Calif.) and Mike Gallagher (R-Wis.) entitled the Endless Frontier Act. The bill proposes expanding the National Science Foundation into a renamed National Science and Technology Foundation and giving it $100 billion over five years to invest in technology research and testing. The bill also includes $10 billion to create 10 regional tech hubs that would position regions across the country to become global centers for the research, development, and commercialization of key emerging technologies.

Aimed at spreading tech growth into the heartland, these hubs pick up on ideas Robert D. Atkinson, Jacob Whiton, and I (as well as our colleagues Jonathan Gruber and Simon Johnson) have advanced on restoring the dynamism of up-and-coming inland metro areas. In that vein, the Endless Frontier Act, its tech hubs, and related measures represent an important recognition that rebuilding America’s strength abroad requires the nation to rebuild itself at home.

With that said, the emerging response to China isn’t perfect. For one, care needs to be taken to shape the many swirling potential topics—including R&D, 5G security, domestic semiconductor manufacturing, fair trade, and human rights—into a  cohesive “mission.” Otherwise, the sheer number of these topics could turn any potential bill into a grab bag of disconnected reactions. Likewise, some leaders in the heartland worry that the national security framework of the bill could tilt the focus away from creating regional hubs and offsetting the “hollowing out” of the economy. On this front, the goal of speeding up the development of highly sophisticated emergent technologies could make it difficult for many noncoastal metro areas to benefit, since new investment funds could wind up flowing to the same coastal universities that are already dominant. For that reason, it is important for heartland lawmakers to insist on the regional focus of tech hub development.

Finally, it is critical that the any tech hubs program be both intentional and holistic in efforts to foster the emergence of prosperous new advanced-industry centers in America. If the goal is to create such new centers of inclusive growth, it will take more than injecting billions of dollars’ worth of R&D into selected universities. Lawmakers should therefore consider drawing into the Endless Frontier Act additional ideas from last year’s Innovation Centers Acceleration Act—an excellent parallel act sponsored by Sens. Chris Coons (D-Del.) and Dick Durbin (D-Ill.), as well as Reps. Joseph Morelle (D-N.Y.) and Terri Sewell (D-Ala.). Most notably, instigating the takeoff of advanced industries in heartland metro areas would be well served by adding in more provisions for complementing R&D with racial inclusion, workforce development, affordable housing, and high-quality placemaking.

In any event, the need to counter China’s rising global power now stands as an urgent prod to revitalize America’s drifting, uneven economy. Hopefully, the fear of falling behind will provide enough motivation to spur that work even in a hyper-partisan time.

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Global economy projected to show fastest growth in 50 years – UN News

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In its new report released on Wednesday, the agency said that the rebound was highly uneven along regional, sectoral and income lines, however.  

During 2022, UNCTAD expects global growth to slow to 3.6 per cent, leaving world income levels trailing some 3.7 per cent below the pre-pandemic trend line. 

The report also warns that growth deceleration could be bigger than expected, if policymakers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity. 


Two women check industrial looms in a rug factory in Mongolia. International rules and practices have locked developing countries into pre-pandemic responses

Differences in growth 

The report says that, while the response saw an end to public spending constraints in many developed countries, international rules and practices have locked developing countries into pre-pandemic responses, and a semi-permanent state of economic stress. 

Many countries in the South have been hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for maneuvering their way out through public spending. 

Lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade”. 

“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD. 

“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.” 

Lessons of the pandemic 

UNCTAD includes several proposals in the report that are drawn from the lessons of the pandemic. 

They include concerted debt relief and even cancellation in some cases, a reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment. 


Women sell fruit and vegetables on a sidewalk in the Philippines, where workers in the informal economy are in danger of having their livelihoods destroyed by the impacts of COVID-19.

ILO/Minette Rimando.

Women sell fruit and vegetables on a sidewalk in the Philippines, where workers in the informal economy are in danger of having their livelihoods destroyed by the impacts of COVID-19.

Even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945. 

Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices. 

After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again, according to the trade and development body’s analysis. 

Food prices and global trade 

Despite current trends on inflation, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis. 

Globally, international trade in goods and services has recovered, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier. 


Lack of monetary autonomy and access to vaccines are also holding many developing economies back

Lack of monetary autonomy and access to vaccines are also holding many developing economies back, by ILO/K.B. Mpofu

The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. Still, the consequences of the crisis will continue to weigh on the trade performance in the years ahead. 

For director of UNCTAD’s globalization and development strategies division, Richard Kozul-Wright, “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.” 

“In less than a year, wide-ranging US policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.” 

The report highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine-related intellectual property rights.  

UNCTAD warns, though, that these proposals “will need much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyperglobalization and the deepening environmental crisis in a timely manner.” 

For the UN agency, the biggest risk for the global economy is that “a rebound in the North will divert attention from long-needed reforms without which developing countries will remain in a weak and vulnerable position.”

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From Coordination to Collapse in Rigged Economies – Physics

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September 15, 2021• Physics 14, 129

A game-theoretical model of a rigged economy predicts the emergence of cartels followed by a risk of instability as the economy becomes more complex.

Hans Holbein (1543)

Figure 1: King Henry VIII and the Barber Surgeons by Hans Holbein the Younger. Medieval guilds played negative as well as positive roles by rigging the economy: They acted as cartels to privilege their members while at the same time working in concert to promote property rights and to prevent the arbitrary use of power by monarchs.King Henry VIII and the Barber Surgeons by Hans Holbein the Younger. Medieval guilds played negative as well as positive roles by rigging the economy: They acted as cartels to privilege their members while at the same time working in concert to promo… Show more

“The economy is rigged!” This claim, which was voiced by both Bernie Sanders and Donald Trump during their 2016 presidential campaigns, might be the only belief shared by people from opposite ends of the political spectrum. But what does “rigging” mean for the economy and its dynamics? Luís Seoane at the National Center for Biotechnology in Spain has now addressed this question by modeling the economy as a system of “games” that agents can rig—for a price [1]. The study reveals that the rigged economy undergoes a sequence of transitions as its complexity and size increase, with “cartels” forming and then dissolving. Although these transitions appear to imply that economic development will ultimately make the economy fairer, Seoane shows that if an economy’s size does not keep pace with its rising complexity, large fluctuations in wealth distribution can occur, causing inequality to rise steeply and making the economy liable to collapse.

The use of games to study economic phenomena dates back to the work of John von Neumann in the middle of the last century [2]. The theory quickly became the lingua franca for economists and subsequently emerged as an area of inquiry for the physics community. For example, statistical physicists have shown that versions of the “minority game”—in which several agents choose between two possibilities, with the option chosen by fewest agents becoming the winning choice—can be used to explore the rich emergent properties of simple adaptive systems [3].

Minority games can be used to model situations in which agents compete for scant resources—including financial markets. However, the economy is also marked by phenomena in which the advantage lies with those in the majority, for example, when positive feedback reinforces a particular choice, such as joining a boycott [4]. Seoane shows that rigged economies exhibit features of both minority and majority games [5, 6].

In Seoane’s model, multiple agents engage in a number of games simultaneously. Each game involves choosing one of two possible actions. An agent can also choose to pay to rig a game to favor its choice. The winning choice in each round is the action chosen by the majority of the agents who have paid to intervene. Increasing the number of games played in each round increases the degrees of freedom in the economy and is thus a measure of its complexity. After each round of a game, the winners share a fixed amount of money equally. The value of the winnings multiplied by the number of games played defines the total “wealth” that can be redistributed among the agents in each round. This wealth is thus a measure of the size of the economy and, along with complexity, is a key parameter of the model.

To observe how the optimal strategy for an agent changes as the economy develops, Seoane includes in the model an evolutionary process: Agents can replicate themselves after each round, such that each offspring has a high probability of adopting the same strategy as its parent. Since replication costs a fixed amount, more successful agents reproduce in greater numbers.

Seoane observes that, for a fixed level of complexity, a small economy yields agents with diverse strategies and a general preference to be in the minority when they win (to claim more of the prize pot in each round). As the economy increases in size, more wealth becomes available for agents to create progeny, as well as to pay the intervention costs required to rig games. Then, agents switch from playing minority games to majority games, meaning growing economies transition to coordination between agents (cartel formation), with an accompanying drop in strategic diversity. However, if the complexity (the number of games per round) increases faster than the economy grows, the relative returns per game are diminished, causing agents to seek minority positions across multiple games. This switch leads to the dissolution of cartels and a rise in the diversity of strategies employed by the agents.

Seoane also studies how an economy fares under other size-complexity relations. For example, he finds that when the amount disbursed in each game is constant, such that the size of the economy increases linearly with the number of games, there is a critical “complexity threshold” at which the distribution of agent-population size transitions from unimodal to bimodal. This transition gives rise to extremely large fluctuations in agent populations that threaten the stability of the economy. The distribution of agent wealth also exhibits a crossover at this point, becoming broad-tailed in the large-fluctuation regime, indicating rising inequality among agents. A reader familiar with the world’s economy today will likely see eerie parallels with this regime of the model.

It could be argued that some of the outcomes observed by Seoane come from the specific choices he makes in constructing the model. For example, the transition to coordinated action as the economy grows might result from the assumption that intervention costs are constant. In reality, intervention costs are related to the size of the economy and vary between players. Another important limitation of the model is that all agents are equally able to rig games—an assumption that misses the asymmetric influence of the wealthy in real economies [7].

Even with these limitations, Seoane’s model is significant in that it provides a framework for others to explore the ramifications of real-world rigged economies, such as those in which information is unevenly distributed among agents. Modifying the model might, for example, reveal how informationally disadvantaged agents can use the emergence of coordination to obtain advantage, as seen in other agent-based models [8]. Such counter-rigging of the system by less powerful players is shown by the history of the medieval merchant guilds. Those institutions used the threat of coordinated embargo to resist arbitrary expropriation by powerful local rulers [9], proving that a rigged economy does not necessarily imply that David doesn’t stand a chance against Goliath.

References

  1. L. F. Seoane, “Games in rigged economies,” Phys. Rev. X 11, 031058 (2021).
  2. J. von Neumann and O. Morgenstern, Theory of games and economic behavior (Princeton University Press, Princeton, 1944)[Amazon][WorldCat].
  3. D. Challet et al., Minority games: Interacting agents in financial markets (Oxford University Press, New York, 2005)[Amazon][WorldCat].
  4. T. C. Schelling, Micromotives and macrobehavior (W. W. Norton, New York, 1978)[Amazon][WorldCat].
  5. J. Vitting Andersen and D. Sornette, “The $-game,” Eur. Phys. J. B 31, 141 (2003).
  6. Y. Baek et al., “Market behavior and performance of different strategy evaluation schemes,” Phys. Rev. E 82, 026109 (2010).
  7. J. E. Stiglitz, “The American economy is rigged,” Sci. Am. 319, 56 (2018).
  8. V. Sasidevan et al., “When big data fails: Adaptive agents using coarse-grained information have competitive advantage,” Phys. Rev. E 98, 020301 (2018).
  9. A. Greif et al., “Coordination, commitment, and enforcement: The case of the merchant guild,” J. Polit. Econ. 102, 745 (1994).

About the Author

Image of Sitabhra Sinha

Sitabhra Sinha is a professor of theoretical physics and the dean of the Computational Biology Graduate Program at the Institute of Mathematical Sciences (IMSc) in India. He did his Ph.D. at the Indian Statistical Institute, Kolkata, and postdoctoral research at the Indian Institute of Science, Bangalore, and at the Weill Medical College of Cornell University, New York, joining the faculty of IMSc in 2002. His research falls broadly under complex systems, nonlinear dynamics, and statistical physics, with applications to systems biology, economic and social sciences, and computational linguistics.


Subject Areas

Complex Systems

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Cornwall economy still going strong through pandemic – Standard Freeholder

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An update presented to Cornwall city council on Monday, has shown that despite some hiccups along the way, the local state of economic development has remained for the most part, positive.

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In an optimistic report penned by the economic development department, division manager Bob Peters said the local economy is continuing to rebound from the effects of the pandemic. The six-month update also spoke of the continuing need for new staff members within a variety of workforces.

“Leclerc and Olymel held separate job fairs in August, looking to hire over 100 additional people,” reads the report. “Cornwall’s largest employer, Walmart Logistics, continues to recruit for multiple positions and is making ongoing physical improvements to its facilities. SigmaPoint, Lallemand, Ridgewood, Morbern and other employers are also maintaining high production levels and are very active in recruiting.”

Local demand for retail cannabis has also remained high. Groove Cannabis has opened its doors at the Eastcourt Mall, while work is progressing on the High Ties store in Le Village and the Tokyo Smoke store at the Choice Properties Plaza at Ninth and Pitt streets.

Despite the growth seen locally, landlords are still finding it difficult to fill vacant commercial and office spaces. According to the report, demand for large-scale office spaces has sharply declined and isn’t expected to improve in the short-term.

The department also expects demand for retail space will continue to be weak over the short-term period, with quick-service restaurants and small specialty retail outlets being the exemption.

  1. CMP Advanced Mechanical Solutions -- a company which already possesses a footprint in the Cornwall Business Park -- has decided to lease 40,000 square feet of space at 1020 Montreal Rd. in order to open a mechanical assembly operation. Photo taken on Friday July 23, 2021 in Cornwall, Ont. Francis Racine/Cornwall Standard-Freeholder/Postmedia Network

    CMP expands its Cornwall footprint

  2. None

    Cornwall’s Morbern named among Canada’s best-managed companies, again

  3. Handout Not For Resale

Bob Peters, division manager for the city's economic development department, during the Nov. 23, 2020, Cornwall city council meeting. Handout/Cornwall Standard-Freeholder/Postmedia Network

    Some Cornwall businesses still thriving amidst COVID-19: report

A new initiative will also see a portion of the Cornwall Business Park being developed. Peters confirmed that Titanium Transport — which recently purchased International Truckload Services (ITS) — will take over the spot ITS had intended to develop and plans on constructing a much larger building.

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“In order to accommodate that development, they looked at adjoining parts of land, which was sold a couple years ago to Turtle Island Corp.,” said Peters. “They acquired more land so that they will have a bigger development and to facilitate that, we have agreed to sell 7.5 acres to Turtle Island Corp., subject to the agreement being duly executed.”

In essence, Turtle Island will be moving down the road so that Titanium can build. That will ensure the corporation continues to be a future investor in the park. According to Peters, it’s a win-win situation for the city.

“As in any transaction, there are clauses in favour of both parties to ensure that due diligence is met,” he said. “Until the sell closes, it’s not a done deal. The good news is that with the conclusion, we will see new development in the business park and at a greater scale than we were expecting under the original plans that ITS had.

“It’s very nice to see that Titanium is showing that much confidence in the Cornwall economy and wants to play a bigger role in being a member of our business park.”

fracine@postmedia.com

twitter.com/FrancisRacine

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