Full Text

Infrastructure: U.S. Seaport Expansion BY KURT J. NAGLE U.S. seaports are in an enhancement and expansion mode. While the widening of the Panama Canal may serve as the catalyst for some of the anticipated $9.2 billion in annual facilities investment in the foreseeable future, this is only part of the story. Several other factors are propelling this huge investment of private capital into U.S. ports. One is the rebounding domestic economy: the value of U.S. exports has risen 70 percent and imports have increased by 53 percent since the first half of 2009. Another driver is the increasing overseas demand for U.S. exports, particularly among the growing middle class in Latin America and parts of Asia. In fact, in the next decade, total U.S. exports are projected to surpass imports for the first time in a generation. Yet another consideration is that manufacturing operations are returning to North America, a development known as “nearsourcing.” With rising labor costs overseas, a narrowing labor differential at home and long transit times to market, a Michigan-based AlixPartners survey conducted in 2012 found that 9 percent of manufacturing executives have already taken steps to “near-source” their operations, and 33 percent plan to do so within the next three years. Although seaports and their private-sector partners are investing more than $9 billion each year into marine terminals and related infrastructure, the U.S. government isn’t doing its share. According to the American Society of Civil Engineers (ASCE), the economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs if the $15.8 billion federal investment gap (of the $30.2 billion in predicted “critical need” funding) in road, rail bridge, tunnel, and navigation infrastructure connecting with ports is not addressed by 2020. This is in stark contrast with China which, in just over 10 years, has planned and built the largest marine terminal in the world at Yangshan Port near Shanghai, costing about $12 billion and capable of accommodating today’s mega-containerships. Conversely, U.S. harbor-deepening projects typically take 20-plus years from planning to completion. Seaports: A Vital Economic Link Since the 2008 recession, exports have been a major factor in sustaining and growing the U.S. economy and providing jobs for U.S. workers. In 2012 alone, the growth in the value of waterborne exports from the U.S. was 3.8 percent—a much higher growth rate than the rest of the economy (0.2 percent). The fastest growing trade commodities, in dollar terms, came from automotive products (9.7 percent), capital goods (6.8 percent), and agricultural products such as foods, beverages and animal feeds (5.3 percent). The lack of adequate connections with ports hampers the movement of these and other types of international commerce—both imports and exports—thereby raising costs to domestic industries and consumers and making America’s exports less competitive in the global marketplace. While the administration of President Barack Obama tries to double U.S. exports and boost the nation’s international trade competitiveness, the country’s freight transportation networks are faltering. Given that international trade accounts for more than 25 percent of U.S. GDP, provides more than 13 million jobs, and earns in excess of $200 million in annual tax revenue, prioritizing investments in freight transportation is critical for future U.S. competitiveness. Importantly, it’s not just the coastal states that benefit from this investment. According to the U.S. Army Corps of Engineers, each of the 50 U.S. states relies on between 13 and 15 seaports to handle its imports and exports, which total more than $3.8 billion worth of goods moving in and out of U.S. seaports each day. Most businesses, including those operating far from one of the U.S. four coasts (East Coast, Gulf Coast, West Coast, and Great Lakes), depend on seaports for their very existence. Many rely on imports for supplies and manufacturing components, and many produce goods for export overseas. More than 99 percent of the volume of overseas imports and exports moves through the nation’s approximately 150 commercial seaports, while less than 1 percent of the volume moves through U.S. airports. Yet, many seaport-related infrastructure projects remain snarled by red tape and funding challenges. Cutting through that red tape is crucial, both on the land and water side. More commercial ports need to be able to accommodate the larger ships that will increasingly dominate international trade. At the same time, new land-side infrastructure must be built and existing infrastructure improved to accommodate the trucks and trains heading to or from these facilities. This was borne out in ASCE’s 2013 Report Card for America’s Infrastructure, where the nation’s roads received a D grade, its bridges a C+ and its ports a C. While adequate port-connecting infrastructure funding remains elusive, port project prioritization is making progress. Provisions included in the 2012 Moving Ahead for Progress in the 21st Century Act (MAP-21) streamlines port- and land-side projects. To help move projects more quickly and reduce the infrastructure project backlog, the Act provides penalties to federal agencies if certain deadlines are not met. Under MAP-21, the U.S. Department of Transportation also established a National Freight Advisory Council and an Advisory Committee on Supply Chain Competitiveness, both of which will seek input from shippers and transportation advisers to shape America’s transportation priorities This is a first step toward finally establishing a national freight strategic plan and making sure the U.S. has the funding for it. But to ensure the success of such a plan, federal lawmakers must first appreciate the importance of prioritizing these investments, which will help ensure future U.S. competitiveness in an increasingly interconnected world economy. Back to top Education: Dual Language Instruction in the United States BY KATHRYN LINDHOLM-LEARY A non-English speaker who walked into a U.S. classroom today may well feel at home. As the U.S. has become less monolingual, so has classroom instruction. Students today are just as likely to recite their multiplication tables in any number of languages other than English. Over the past five decades, dual language programs in elementary, middle and high schools have grown from just one program in 1962 in Miami, Florida, to over 800 programs in public schools across the country. While that still represents a small percentage of U.S. schools, the popularity of such programs is not surprising. Bilingual literacy is not only regarded by educators as a critical tool for success in today’s global business environment; it has been shown to improve students’ overall abilities. Although many bilingual programs have been established in high-achieving schools, a large number of dual language programs are aimed at students categorized as “at risk” for underachievement. Such programs integrate English Language Learners (ELL)—students who enter school speaking a language other than English— with native English-speaking (NES ) students in the same classroom for instruction in both languages. In these programs, the partner language (often Spanish, Mandarin or Korean) is used for a significant portion (from 50 percent to 90 percent) of the students’ instructional day. In the 90:10 program, both ELL and NES students spend 90 percent of their day in the partner language, learning content such as math and social studies as well as how to read in that language. The remaining 10 percent of the day is conducted in English. The 90:10 split typically lasts in kindergarten and first grade. Each grade after that adds more English until the fourth grade. By the fourth grade, students spend half the instructional day in English and half in the partner language (50:50) across all grade levels. Although the most common programs are at the kindergarten-through-fifth-grade levels, students in a few middle and even high schools continue to learn through the partner language. While most programs include Spanish as the partner language, there is growing demand for other languages as well, particularly Mandarin. Other partner languages include Cantonese, Korean, Japanese, Arabic, Russian, French, German, Portuguese, and Italian. Initial demand for the program was prompted in the 1980s by the U.S. Department of Education’s interest in developing more effective programs for ELL students—who were failing to learn English proficiently and were thus underachieving—and in promoting more effective foreign language programs for NES students. In the 1980s and 1990s, the U.S. government provided several million dollars in funding through grants and supported research centers at the University of California, Los Angeles, and the University of California, Santa Cruz. Various states (especially California) also provided funding or other technical assistance, which enabled many schools to develop, implement and evaluate the success of their dual-language program. Considerable research over the past 30 years on both the 90:10 and the 50:50 programs in public (and public charter) schools from preschool through high school have demonstrated the programs’ success. Both NES and ELL students who participate in dual-language programs achieve at levels that are at least comparable to, and often higher than, their peers enrolled in English-only instruction on standardized achievement and English-language proficiency tests. Further, compared to their peers in English mainstream programs, middle and high school students in dual language programs are not only less likely to drop out of school; they are as or more likely to be enrolled in higher level math courses and to pass the high school exit exam. In a study I conducted in California, 88 percent of dual-language students versus only 58 percent of English mainstream students in the same state took higher level math courses in the tenth grade. The same study found that 82 percent of ELL and 100 percent of NES students in dual-language programs passed the high school exit exam—a higher passing rate than both the ELL (73 percent) and NES (87 percent) students in monolingual classrooms. And, of course, dual-language students have the additional benefit of being bilingual and biliterate. NES and ELL students who attain the highest levels of bilingualism tend to score higher on standardized reading and math tests compared to English-speaking students enrolled in English monolingual classrooms. However, research clearly demonstrates that these successful results are not always apparent until the fourth or fifth grade, especially for children who are educationally at risk. The reason: it takes time for children to fully develop skills in the two languages. More recently, with increasing interest and connections with China, parents, policymakers and business and community leaders have pushed for more Mandarin programs. The state of Utah leads the nation in Mandarin programs after passing legislation in 2007 to establish 100 dual language programs that would enroll 30,000 students throughout the state by 2015. Since passage, the target date has been moved up to 2014. Mandarin is also emerging as a popular partner language due in part to support from the Confucius Institute, a nonprofit public institution funded by the Chinese government. Still, despite the success and popularity, the future of U.S. dual language instruction is cloudy. Funds available from federal, state and other sources are declining. That has limited the ability of local schools to pay for materials in the partner language, as well as to pay for the professional development of administrators and teachers who run the dual language programs. But dual language programs are critical for success in a globalized world. As former North Carolina Governor James B. Hunt Jr. noted at the 2005 National Language Policy Summit, “If we have a well-educated workforce that knows the languages […] that can be one of the most powerful advantages of a state, of a community and of America.” Back to top Capital Controls:Investment Flows in Latin America BY LUIS OGANES Capital control policies in emerging market (EM) economies have fluctuated for the past two decades as markets have responded to changing global dynamics. This continues to be the case in 2013. The term capital controls refers to a wide array of tools policymakers use to limit the flow of capital in and out of their economies. They typically target short-term portfolio flows—such as the purchase of domestic bonds and stocks by foreigners—that can generate undesired currency volatility. Long-term flows such as foreign direct investment tend to be allowed to move more freely. During the 1990s, EM economies generally liberalized capital accounts and allowed currencies to reflect the swings in economic conditions. In recent years, however, many countries introduced control measures to prevent excessive capital inflows from creating credit bubbles and to contain currency appreciation to a level that could render exports uncompetitive and curb growth. This happened at a time when developed countries’ central banks brought their interest rates to near zero and embarked on so-called quantitative easing, which weakened their currencies with respect to those of the emerging world. This trend is now changing again. In an environment of ample global liquidity, EM fixed-income markets attracted a whopping $220 billion of capital inflows between 2010 and 2012, while another $100 billion went into EM equity markets. While inflows continued early this year, these dynamics changed dramatically in May, when the U.S. Federal Reserve hinted it might wind down its asset purchase program later this year. Since then, two-thirds of the cumulative inflows of $45 billion to the EM fixed-income markets registered through May have exited amid a sharp increase in U.S. Treasury bond yields, while the outflows from EM equities have brought cumulative net inflows down from a positive $33 billion in February to a negative $15 billion as of September 2013. This reversal has forced EM policymakers to de-activate many of the control measures adopted in recent years to contain capital inflows. Some countries in Asia are even considering or enacting new measures to limit capital outflows. Latin America has not been the exception, with various control measures adopted in recent years. Among the countries that experienced large capital inflows, there are examples of relatively mild measures—like the special reserve requirement of short-term bank deposits held by foreigners in Peru, introduced in August 2010—to harsher ones—like the 6 percent financial operations (IOF) tax on portfolio inflows to Brazil unveiled in October 2010. In addition to capital inflows, the currencies of many Latin American countries were also lifted by the Chinese demand-induced commodities boom. That pushed their balance of payments into surplus and forced central banks to accumulate significant foreign- exchange (FX) reserves, which have nearly doubled over the past five years. But the tide has turned. Foreigners are exiting local markets, the Chinese economy has decelerated and commodity prices have declined. With domestic demand still resilient, current account deficits have widened across the region. In Brazil, unlike in previous years, an external gap is no longer being financed by foreign direct investment. As a result, in June 2013, Brazilian Finance Minister Guido Mantega announced the elimination of the infamous IOF tax so that the country could instead focus on attracting portfolio inflows to help cover the current account deficit. While most economies in Latin America have faced the challenge of implementing strategies to manage the avalanche of capital inflows in recent years, the opposite phenomenon occurred in Argentina and Venezuela—which have been grappling with persistent private sector capital outflows. As a result, FX policy in these economies has gravitated toward institutionalizing strict capital outflow controls. With the root causes of capital flight (preservation of capital from the threat of inflation and/or expropriation) left unaddressed in both Argentina and Venezuela, authorities have been trying to limit the sale of central bank reserves that would be required to fund the abnormal outflow of capital. This has led to prioritizing trade and debt service–related transactions at the official rate over FX demand for portfolio rebalancing. And both governments have been hoping—elusively—that the currencies may anchor domestic goods inflation amid loose monetary policy. Capital outflow controls have been evolving in Argentina and Venezuela since 2002 and 2003, but were meaningfully tightened with a variety of new restrictive measures in mid-2010 in Venezuela, and at the end of 2011 in Argentina. In turn, controls have produced de facto parallel FX markets. These shadow exchange rates have diverged significantly from official exchange rates, even when the latter are managed with various degrees of flexibility—a discretionary crawling peg in Argentina and a fixed peg in Venezuela that is complemented by an official alternative FX platform. Since monetary imbalances are the key drivers of the shadow FX and have been influenced by political cycles, it is unlikely that these strict capital outflow controls will be lifted soon. In 2013, Argentina is in a pre-election phase. Venezuela is in a post-election climate, but the politically weak government of President Nicolás Maduro, in advance of the expected municipal elections in December 2013 that are likely to prove a litmus test of his administration, has so far been reluctant to deliver a very strong fiscal adjustment. As the U.S. Federal Reserve unveils the parameters of its tapering of asset purchases in coming months, the hope is that capital outflows from EM economies will eventually abate. Together with the recent signs of growth stabilization in China and the recovery in the U.S. and Europe, Latin American currencies—and policymakers—should feel some relief, although a return of massive capital inflows is unlikely anytime soon.