Click below to view the presentation!
North Carolina once again ranks as the most competitive state in economic development activity, according to a closely watched annual business ranking by Site Selection magazine.
“Businesses big and small, domestic and foreign are investing in North Carolina for the same reasons they have been doing so all along — a healthy supply of workers despite very low unemployment, a favorable climate and location halfway along the East Coast, two international airports and industry sectors like IT, biotech and aerospace that are magnets for new investment,” Site Selection says in its May issue coverage of the Prosperity Cup.
The nationwide 2018 Prosperity Cup is based on measures of state economic development activity in 2017 that include the total number of new and expanded facilities in the state, capital investment and number of new jobs created. It also considers measures of business-climate attractiveness.
The award, which recognizes the most competitive state-level economic development groups, was presented to the North Carolina Department of Commerce and the Economic Development Partnership of North Carolina, which lead business recruitment efforts on behalf of the state.
“The fundamentals that have been drawing companies for a long time really haven’t changed much,” Christopher Chung, EDPNC chief executive officer, told Site Selection. “These include a great quality of life, well-renowned educational institutions and population growth with a lot of people coming out of school or mid-career who are moving here with a job or in search of one, all of which deepens the talent pool. We get a lot of in-migration from the Midwest and the Northeast.”
North Carolina has been a consistent leader in Site Selection‘s Prosperity Cup recognition, ranking No. 1 in 2018, 2017 and 2016. States rounding out the top five in this year’s Prosperity Cup are Tennessee (2), Georgia (3), Texas (4) and Michigan (5).
The 2018 Prosperity Cup announcement highlighted, among other things, the state’s robust population growth and its success in attracting foreign direct investment.
“We’re getting Israeli companies, Japanese companies — we’re part of the global marketplace,” North Carolina Commerce Secretary Anthony Copeland told Site Selection. “North Carolina is the ninth-most populous state in the country now, and we have an economy larger than Sweden.”
The magazine also stressed the state’s strengths in innovation and manufacturing, noting it ranked fourth in the nation in measures of appropriations for higher education as a portion of gross domestic product (GDP). High-tech business formation exceeds the national average by 23 percentage points, and the state’s manufacturing output (as a percentage of GDP) is the fourth-highest in the nation.
Another North Carolina plus is its vast 58-campus community college system, which responds nimbly to growing companies’ specific requirements for worker training, the magazine says. The state’s community college campus network is the third-largest in the U.S.
For full coverage of the 2018 Prosperity Cup, visit Site Selection’s website.
2017 Charlotte Regional Market Outlook
June 1, 2017
Prepared by John Paul Galles and Maryl A. Lane
In what way has this region changed over the last 20 years?
Over the last few decades, Charlotte business leaders have given substantial thought to city and regional growth through various initiatives: Advantage Carolinas; Create It, Make It, Move It; Charlotte 2030; Center City 2020 Vision Plan; Long-range CLT Airport Plan; etc. In a very purposeful way, all of the fundamental assets for economic growth have been put in place:
- Ballantyne Corporate Park was created, developed and sold!
- CLT Airport has grown and continues to grow;
- Our highway system is in place—I-485 is now completed; I-77 expansion is now in process;
- Our transportation corridors are expanding as is our light rail system;
- CSX and NS Intermodal Centers have been established providing access to 5 major ports;
- Merger of US Airways into American Airlines has resulted in greater access to more cities in U.S. and in world;
- UNC Charlotte has become a research university;
- There is an abundance of highly rated private universities;
- CPCC has become a world-class workforce education and training center;
- We have successfully survived banking consolidations and remain the second largest banking center;
- We have an abundance of energy companies with an EPIC focus;
- City development has revived a stagnant uptown and SouthEnd, and continues with NoDa and revisiting SouthPark;
- Our healthcare systems have become top-ranked;
- We continue to expand recreation and cultural center—parks, galleries, hiking and boating;
- Our energy costs are among the lowest in the country and our providers among the best;
- Sports teams have expanded to include the NFL, the NBA, minor league baseball, and some forays into soccer;
- We’ve added nearly 1,000 foreign-owned entities to the business community;
- We’re becoming a headquarters city!
How would you describe where we might be 20 years from now?
- City-state: What was once a mid-tier city, has expanded beyond its confines to a region extending across state lines, and is well on its way to becoming a city-state extending across a 100-mile radius. The population has increased more outside of the city limits and even outside of the county limits, to what will eventually be a center city of Charlotte ringed by towns and cities outside of Charlotte and in South Carolina. Charlotte will be the hub of a huge region and must plan for this with its roads and transportation. Charlotte will be a regional, cross border city-state and development will follow.
- Key Logistical Access to U.S. and Global Markets: The central location of CLT in the Southeast region becomes an even more important asset in the global era as a strategic location for entering and doing business in the United States, and strategic location for manufacturing serving both the U.S. and global markets given its proximity to the ports.
- Enhanced Air and Rail: CLT Airport will have grown from 93 gates and 3 runways to 175 Gates and 5 runways and a new tower. We will be a major logistics hub with daily train routes to the major ports—Wilmington, Charleston, Savannah, Norfolk and Jacksonville.
- Comprehensive CATS: CATS Light Rail will have a Blue line continuing from the city to UNCC, a Red line to Lake Norman, a Silver line running to CPCC Levine Campus in Matthews, Gold line CPCC Center City to Johnson C. Smith University, and a new line running from the city to CLT Airport.
- Get on the MLS Field: Major league soccer is important to Charlotte because of its draw on younger people and its international popularity. Facebook has announced that as of March 18th, it will begin live streaming soccer games. Charlotte’s participation is a NEW avenue for growth.
- More Mixed Use Developments: We will see a greater emphasis in the real estate development for mixed use communities, like the River District, combining commercial with residential embracing diversity and inclusivity.
- New Bridge from Gastonia to Charlotte: To accommodate the growth west of the airport, we will have completed a new bridge from Gastonia to Charlotte and new roads and intersections to accommodate both commercial and residential needs.
- A Medical School: We will have a four-year med school which allows us to take advantage of research money, innovation and technology enhancements. The med school will serve as the catalyst for a medical research and development hub for the East Coast. Every other city we are competing with has this.
- Accommodate and Engage Diversity, Promote Inclusivity: We will do a better job of accommodating and engaging our increasingly diverse population. For example, over 30% of our voters will be Hispanic in 20 years.
- Emphasize Quality of Life: Quality of life should remain uppermost in our planning efforts.
- Increasing Foreign Direct Investment: Currently, Charlotte is home to about 1,000 foreign firms. With an extra effort, we can double that number in 20 years.
- Re-think Job Focus and Supporting Services: With technological innovation, we need to re-think and refine our focus on jobs and job training.
- Broadband Access: There is an increasing amount of evidence that broadband providers are providing better Internet access to their most affluent customers. We need to make sure high-speed broadband access is available across the CLT region. This will be critical to ameliorating the urban/rural divide as well as augmenting upward mobility, two of the region’s most significant weak points.
- Public School Teacher Pay: We need to reevaluate our teacher pay if we want to be a truly globally competitive city.
When you compare where and what we are now, is the ‘personality’ of Charlotte what you expected?
It is on its way. It is headed in the right direction. The foundation is laid.
A collaborative effort through the UNC Charlotte Urban Institute working with 14 counties has developed a core set of values that provide a center point for working together to improve our communities. They are:
- A strong, diverse economy
- Sustainable, well-managed growth
- A safe and healthy environment
- Increased collaboration among jurisdictions
- Enhanced social equity
- High quality educational opportunities
At the same time, we need a better vision for what we seek to become as we grow in our global economy facing continually aggressive technological change. The pace of technological advances will change the very nature of life and living on this planet. The nature of work will change as traditional jobs become more and more scarce.
There is no doubt about it. Charlotte is becoming a global city-state! We have prepared our region for a future of greatness. We need to make sure we perform to pursue, deliver, maintain and continue to than change process for the benefit of everyone in our community. We need to ensure that there are pathways for upward mobility delivering smart, capable, intelligent, talented, innovative contributors to our business growth. We must be inviting and welcoming to those who can participate and contribute even more to our success. It is essential that we appreciate and celebrate diversity and inclusivity.
We need to become more knowledgeable about what the CLT region’s role is in the U.S. and in the global community.
What are the most critical issues we face as a community now? And if not addressed, how will those challenges affect us?
|Public school improvements/Teacher salaries||Urban/Rural Divide|
|Regional infrastructure/Partnerships with NC and SC||Political Disruption|
|Protect our rivers, streams and lakes||Low-income housing|
|Loss of manufacturing jobs||Crime/Drugs/Culture|
Does the leadership in Charlotte have a larger responsibility beyond crafting high quality commercial real estate projects and community planning?
Yes, we need to get out in front of this growth and change and keep planning for it—CLT Airport plans, Regional Freight Mobility plans, etc. We need to expect and anticipate change. We need to become more attractive to international investors, need more comfort with diversity. We want a place where brain-power is welcome and invited and engaged.
If we want to live up to our potential to become one of the most significant city-states of this century, an enviable portal to markets domestic and abroad, this city needs to better define its goals and ambitions. Its citizens need to have a steadfast pride in what the city-state stands for and is trying to accomplish, so much so that every young person and business person in Charlotte becomes an ambassador for the city-state wherever they go or travel.
What about Charlotte’s Upward Mobility? What role does future economic development play in that effort?
From the John M. Belk Endowment, Building an Infrastructure of Opportunity
Taking Action: Priorities and First Steps
A strong infrastructure of opportunity is beyond the reach of any single institution to create: discrete pockets of excellence are insufficient for changing the trajectory of broad opportunity and improving education and employment outcomes at scale. To move from discrete programming to an aligned infrastructure of opportunity requires adoption of a guiding framework for communities to assess and create an action plan that is grounded in a common vision of economic productivity and advancement for the community and its people; design and implementation of research-based policies and programs that can be scaled for an entire population, hold high expectations for educators, employers, and the workforce, and maintain momentum through continuous improvement; and commitment to providing adequate resources that support the common vision. The data and community anecdotes in this report support eight action steps for communities across the state:
- Use local data to understand history, analyze current educational and economic outcomes, and identify gaps in the education-to-career continuum. Good planning requires good data. Communities should begin by disaggregating data, identifying outcome disparities across race, gender, family status, and wealth, and uncover root causes.
- Commit to a common vision for creating pathways to family supporting work that allow more individuals to build wealth and thrive in the community. This integrating vision should focus on the intersection of economic competitiveness and equity to create wealth in a way that lifts people up, particularly those stuck—generation-to-generation—at the lower-end of the income distribution.
- Seek out opportunities to participate in and learn from national, regional, or state-level initiatives and learning communities. There are communities across the region and within the state—including some of those included in this report— that are models of success, suggesting helpful policies and practices communities can adopt and identifying pitfalls they may encounter.
- Embrace planning and implementation practices that engage each part of the system: from individuals to institutions. Good planning requires attention to and engagement of the whole system; that means every level of the education system, small and large employers, and all municipal governments. Whole system engagement requires deliberate inclusion of historically marginalized communities. The places and people in the most extreme distress reveal system failures most clearly.
- Encourage large institutions and employers to take the lead in innovation and cooperation. To support a strong education to-career continuum that aligns with workforce needs, both higher education institutions and employers must be nimble, responsive to local needs, and have the ability to shift focus as economic opportunity shifts.
- Cultivate investment and assume potential in the emergent workforce. Communities with strong institutions and systems are ones where leaders act on a belief that talent is everywhere in their community and invest in people to develop and unleash that talent.
- Free up resources to address gaps in the education-to-career continuum. In environments of scarcity, communities and institutions must have the courage to allocate resources to reflect the challenges identified on the education-to-career continuum. Too often, resources are siloed and spent based on historical habits, not aligned to a vision of the future.
- Seek out local capital to create capacity for collaboration. Risk-taking and innovation require foundational investment. Philanthropy can be catalytic, testing new ideas, building new institutions, and lowering the cost of social innovation by subsidizing risk. Local philanthropy can take the lead to leverage additional local, state, and federal investment. ■
*Focus recruitment of businesses and jobs on those entities which pay wages that will lift workers to the next socio-economic level. Turn resources to targeted business sectors that will pay wages and/or salaries above the current average annual incomes. Of course, workers must be prepared to perform and the skill standards and levels that meet the needs of those companies.
How can we advance our thinking and offer direction in these regards?
One possibility is to establish a 501(c)(3) organization—a CLT Global think tank—to bring together the powerful critical thinking of business and educational leaders within the Carolinas with an ambition to envision a pathway to our future, publishing and disseminating thought pieces of seminal importance on a regular basis to the community at large.
Another possibility is to produce a representative economic development brochure—handheld, comprehensive but succinct, attractive, super-informative—on behalf of all the economic development entities in the CLT global region that demonstrates our region’s superior potential for foreign investment and economic development—to bring all such entities fundamentally interested in advancing our region’s development to the attention of the nation and the international community and enable every person to become an ambassador of the region for world trade.
2017 Economic Development Situation Analysis of North Carolina
By John Paul Galles
Download PDF: 2017.14.04 NC Global Strategic SWOT Analysis 2017
SITUATION ANALYSIS: STRENGTHS
North Carolina has an abundance of assets, resources, and advantages relative to neighboring Southeastern states.
Top Business Climate
The State of North Carolina is consistently identified as among the best business climates in the U.S. having ranked as one of Forbes’ top 5 Best States for business for 10 consecutive years. The state’s success is fueled by a competitive tax climate, low business costs, a favorable legal and regulatory environment and the availability of skilled workers.
In 2016, Forbes ranked North Carolina as the #2 Best States for Business. Site Selection magazine ranked North Carolina as the #2 Business Climate in 2015 and Chief Executive Magazine ranked North Carolina #3 as the Best State for Doing Business in 2016.
Tax Climate Among Lowest in the Nation
Based on the tax climate in North Carolina, the Tax Foundation in 2016 ranked North Carolina with a 4 percent Corporate Income Tax Rate as the lowest in the Southeast. Ernst & Young in 2015 identified North Carolina as #3 in the nation for the lowest state and local business tax burden. In 2015, the Tax Foundation and KPMG ranked North Carolina #5 for the lowest effective tax rate for mature corporate HQs.
Among Lowest for Business Costs
In terms of low business costs, the North Carolina business climate was ranked by Forbes as the #2 state with the lowest business costs, 10.3 percent below the national average. Area Development magazine ranked North Carolina as #5 for competitive utility rates. The RSMeans Construction Cost Index identified that construction costs were 18 percent lower in North Carolina metros compared to the U.S. average.
Low Unionization and Top Labor Climate
North Carolina offers low-cost labor in one of the largest and fastest growing markets in the U.S. As a right-to-work state with a perennially low union membership rate (approximately 3 percent during the last 10+ years), North Carolina has the second smallest union workforce in the U.S. in terms of percent of total employment. The U.S. Bureau of Labor Statistics rated NC as the #2 state for lowest unionization rate in the U.S. The resulting benefit is labor costs that are 11 percent below the national average—fourth lowest in the country.
Area Development ranks NC as the #4 state for labor climate. Site Selection rated NC as #1 for workforce development.
Best Regulatory Environment
Recent tort reform and the strengthening and streamlining of business courts in NC have earned NC rankings among the lowest in the nation. The U.S. Chamber Institute for Legal Reform in 2015 ranked NC as the #7 state and the #5 state for the overall treatment of tort and contract litigation. Forbes ranked NC as #7 for the best regulatory environment.
Attractive to Foreign Direct Investment (FDI)
NC ranks among the highest in the U.S. for job creation from foreign investment projects. More than one out of every five jobs—some 1.2 million—in the state are related to international trade.
About three out of 10 manufacturing jobs in North Carolina are supported directly or indirectly by foreign companies. Foreign direct investment has fueled much of North Carolina’s high-tech job growth, with $2.7 billion and 5,300 jobs generated from FDI in 2015, according to North Carolina Commerce Department, and will top those numbers in 2016. North Carolina ranks sixth in the nation for jobs dependent on direct foreign investment at more than 782,000.
European firms have already had great success in the Carolinas—there is more European investment in NC than the total U.S. investment in China, Japan and India combined. Companies from the European Union account for 69 percent of global investment in North Carolina and 65 percent in South Carolina. And as a result of Brexit and the disruption of the European Union, European businesses are increasingly looking for safe locations to expand their businesses.
Outstanding Educational Resources
Economic transformation has evolved from an initial agricultural economy, to an industrial economy, to a post-industrial/mass production/service economy, and now to the knowledge economy.
North Carolina offers outstanding public and private universities and colleges, among them UNC-Chapel Hill (as well as the other satellite locations), Duke University, NC State University, Wake Forest University, East Carolina University, Appalachian State University, Elon University and Davidson College—adding to the talent supply for NC businesses.
The NC community college system ranks No. 11, while neighboring South Carolina comes in at No. 36. They offer specially designed programs in tandem with area businesses providing specialized workforce training, certification of skills, and classes for transitioning workers, and are especially valuable at developing a globally and multi-culturally competent workforce.
Ease of Access/Superior Location
Located midway between Boston, New York City and Miami, North Carolina is well situated to accommodate successful businesses, reaching more 60 percent of the U.S. population within two hours by air and 24 hours by truck. North Carolina is the only major distribution center midway between the Northeast, Midwest and Florida markets, as well as midway between Canadian and Caribbean markets. Within 650 miles of North Carolina are 164 million U.S. and Canadian consumers and 55 of the country’s top 100 metropolitan areas.
North Carolina provides access to the world through non-stop destinations and one-stop connections through Charlotte Douglas International Airport (CLT), Raleigh Durham International Airport (RDU), as well as the Piedmont Triad Airport (GSO), the Wilmington Airport (ILM), the Fayetteville Airport (FAY) and the Asheville Regional Airport (AVL).
Extensive Highways and Railroads
The highway network in North Carolina is the second largest state-maintained system in the United States. Operating within its borders, North Carolina has access to two Class 1 railroads, Norfolk Southern and CSX, carrying freight across the entire Southeast region of the U.S.
Choice of Ports/Intermodals
North Carolina provides a real advantage to manufacturers in access to five major ports from any point within the state. Besides direct access to the Port of Wilmington and the Morehead Port, manufacturers can easily ship through the ports of Norfolk, Charleston, Savannah and Jacksonville as well. These connections provide shippers with choices of shipping lines and options for shopping when costs are escalating as ships grow bigger and shipping lines consolidate.
Both CSX and Norfolk Southern maintain and operate intermodal centers in the state of North Carolina facilitating transport of raw materials and finished goods to and from Southeast ports. Norfolk Southern’s Charlotte intermodal center has a potential capacity of over 500,000 containers and CSX is in the process of constructing a new intermodal center outside of Rocky Mount that will be even larger.
Competitive Power Supplies
Electricity and natural gas at competitive rates that are much less expensive than in many locations around the world.
Military Installations/Contracting Opportunities
The significant presence of various branches of the armed services offer numerous contracting opportunities for North Carolina businesses. Currently, there are eight military bases in North Carolina. There are two coast guard bases. The United States Army, Navy and Air Force all have at least one base in North Carolina, while the Marine Corps has three.
Superior Quality of Life
North Carolina also provides the highest quality of life for employees and families with easy access to Atlantic Ocean beaches and the blue ridge mountains.
SITUATION ANALYSIS: WEAKNESSES
North Carolina continues to suffer some unique economic and political weaknesses which have impeded its opportunity to compete with neighboring states exhibiting a high-degree of success recruiting businesses from within the United States and from foreign direct investment.
North Carolina has suffered continual and significant declines in manufacturing jobs, which at one point constituted 22 percent of its economy, from which it has
been slow to recover. Having been decimated by the Great Recession and its stress on financial services even before it had recovered from the 2001 recession, it also experiences periodic catastrophic losses from hurricanes and coastline erosion.
URBAN / RURAL DIVIDE
In was reported by the NC Justice Center in 2016, that after nearly four years since the formal end of the Great Recession, rural North Carolina is experiencing a very different recovery than the state’s urban areas. Instead of replacing the jobs lost during the recession, rural parts of the state are continuing to experience job loss, while at the same time the state’s metropolitan and micropolitan areas have experienced employment growth.
Metropolitan areas within the state saw a 5.6 percent increase in employment levels since the end of the Great Recession, with the small cities in the state’s micropolitan areas not too far behind at a 4.9 percent increase. At the same time, rural areas saw their total employment drop by 13.5 percent, suggesting that workers left rural communities in droves and moved to the state’s cities to find employment.
A major factor behind this shift from rural to urban employment involves the long-term trend away from manufacturing employment and towards service employment. Historically, North Carolina’s rural counties have depended on the manufacturing sector to provide the bulk of its employment opportunities, so as rural manufacturing declined due to global economic restructuring, rural workers were faced with a transition to service industries—generally low-skilled and low-wage, especially Leisure & Hospitality and Retail—and overall shrinking job opportunities.
The conclusion of the Great Recession did not create a positive turnaround for residents in rural North Carolina; instead, it marked an even greater depression for the rural economy. Without the creation of more manufacturing jobs, comprehensive economic restructuring in these rural counties, and skills training for a 21st century economy, residents of rural counties in North Carolina, along with other southeastern states, will likely continue to face the hardships of job loss and economic depression.
In both urban and rural areas, there’s a sense that the jobs of the future will require more education and training than the jobs that traditionally helped provide a comfortable, middle-class lifestyle for North Carolinians.
Thus, North Carolina suffers from a significant urban/rural divide. The urban/rural divide is most evident across the rural areas, manifesting itself in abandoned factories and a depressed mood. With only very little success, these communities are not encouraged by growth elsewhere in the state. Left behind, rural counties are angry with the status quo.
It is not surprising, therefore, that even with state coffers slowly recovering and economic growth occurring in urban centers, state legislatures are reluctant to fund economic development incentives that serve urban interests over rural needs.
STATE ECONOMIC DEVELOPMENT COMPETITION/STAGNATION
After 20 years, Republicans took control of North Carolina’s government in 2013, garnering both the governorship and a super-majority of the general assembly. As a result, significant changes were made to NC state government, including a substantial makeover to the NC Department of Commerce, which took until late 2014 to be approved and into 2015 to be fully operational.
With the upheaval in the state’s economic development arm and political leadership, there has been an increasing incidence of losing economic development opportunities to neighboring competitive states. In recent years, South Carolina, Georgia and Virginia have successfully landed competitive bids including Boeing, BM, Porsche, Mercedes Benz, Volvo, International Harvester, Giti Tire, Michelin, Costar and many others.
HB2 AND LEGISLATIVE / JUDICIAL FALLOUT
Even with repeal of HB2 on March 30, 2017, its impact has challenged recognition of North Carolina as a more modern, progressive southern state. Since March 2016, NC suffered the very public and substantial reaction to HB2 legislation and the primarily negative impression it has brought to NC both nationally and internationally. This was only magnified because of the contentious presidential race and North Carolina’s status as a swing state. North Carolina will continue in the national spotlight with all the dissension over HB2 and the legislative and judicial fallout.
The political responses between the democratic governor and the republican legislature have continued to distract from any coordinated business recruiting, attraction and retention efforts. The fallout remains and will take several years to overcome
In many cases, directly as a result of HB2, NC was not and will not even being considered when companies are seeking new business locations or operations. It is currently estimated that NC has lost as much as $630 million (Forbes) in business development as a result of the debacle, including business expansions into the state, anticipated relocations to the state, sporting events, entertainment events—the list goes on.
SITUATION ANALYSIS: OPPORTUNITIES
- Considering recent NC budget surpluses (a record $552.5M this fiscal year ending June 2017, up from $425M last year), North Carolina is positioned to step forward and compete more aggressively. Business recovery is healthy in urban areas and future opportunities are abundant.
- Population growth and inbound migration from other states continues. In fact, population growth in NC is expected to be over 71 percent over the next 25 years.
- Lower NC tax rates offer lower costs for doing business and a greater opportunity to compete with neighboring states with lower state tax rates.
- New intermodal centers by Norfolk Southern in Charlotte and CSX in Rocky Mount offer greater logistical support and distribution opportunities and other locations.
- North Carolina Ports continue their post-Panamax preparation, ordering two New Panamax ship-to-shore cranes as part its plan to invest $120 million over the next few years to accommodate a majority of larger ships transiting the Panama Canal, and a 101,000-square-foot cold storage warehouse.
- Telecommunications remains a state priority with Charlotte and the Triangle having been designated Google Fiber cities and NC continuing its high-speed broadband initiative into rural areas. An FCC Commission report shows that 93 percent of North Carolinians have broadband access compared to an average of 90 percent of people nationwide—but rural areas lag behind the state’s cities.
- North Carolina continues to be a participant in international trade activity. International trade, including exports and imports, supports 1,232,100 NC jobs—more than 1 in 5. Trade-related jobs grew 3.4 times faster than total employment from 2004 to 2014 and are at large and small companies, on farms, in factories, and at the headquarters of NC globally engaged firms. NC exported $31.1 billion in goods and $18.8 billion in services in 2014, including pharmaceuticals & medicines, aerospace products & parts, semiconductors & components and travel services. Of NC’s 10,582 exporters, 87 percent are small- and medium-sized companies with less than 500 workers.
It is valuable to understand the potential of international commerce activities.
- Over 80 percent of purchasing power is outside the borders of the United.
- More than 92 percent of business growth occurs outside the borders of the United States.
- Over 95 percent of consumers are outside the borders of the United States.
- This data affects U.S. commerce as well as U.S. agriculture.
- All of NC’s major universities offer increasing opportunities for research partnering with private industry.
- The new administration has asserted a focus on improving business conditions, offering the promise of more growth and development, and the creation of jobs alongside that growth, including an expansion of funding for infrastructure across the country.
SITUATION ANALYSIS: THREATS
- Poverty in NC has either climbed or stayed steady from 2007 to 2014 with only modest improvements in 2015 and 2016 despite economic recovery, and in the highest quintile in the nation, with the highest poverty rates all in rural counties. To the extent NC leaders enact policies that compound these economic and labor market disparities, it will exacerbate the urban/rural divide.
- NC’s political bottlenecks to economic development continue as the governor and state legislature continue their standoff, awaiting judicial decisions.
- As a result of NC’s economic development impasse, competition from other states continues to be a significant threat as South Carolina, Georgia and Virginia provide more attractive economic incentives.
- To the extent of the HB2 continuing fallout, the ability of NC to attract new businesses, expansions and foreign direct investment may continue to be hampered, as well as the state’s ability to attract business talent.
- NC budgets will inevitably be periodically reduced by unexpected spending on natural disaster relief.
- Expectation of impending recession, especially after such a long, sustained recovery since 2010, looms.
- The new administration may disrupt international trade opportunities which may slow the growth of business development.
SITUATION ANALYSIS: RECOMMENDATIONS
The entire Southeast region continues to show economic strength, as well as nation-leading population growth, and these two factors are making the region ripe for economic development and investment. North Carolina has one of the fastest growing populations (9th in the nation, now over 10M) as well as the fastest growing economy in the country.
It is clear from our strengths that North Carolina has huge potential for growth and economic development and is, in fact, the best place for business and investment in the Southeast. It is equally clear that the state’s economic development activities have become disrupted by politics and its economic incentives less competitive than those of other states.
It is imperative that North Carolina seek and take advantage of economic development opportunities to remain globally competitive and essential that community leaders become knowledgeable ambassadors of economic development, stepping into the void and reaching out to connect interested parties with valuable opportunities.
Community businesses and business leaders who choose to actively participate should experience increased opportunities for business development themselves and perhaps be able to bridge the urban/rural divide even more successfully than state authorities.
The time is ripe to create a network of knowledgeable leaders interested in attracting business and investment to North Carolina, armed with a heightened awareness and knowledge of the state’s economic development opportunities and the tools to communicate to clients and prospects the opportunities in North Carolina.
It is time to enlist key leaders, engage their participation and focus their efforts to attract business entities seeking the best state for location or investment in the nation.
If we intend to participate meaningfully in a knowledge-based economy, it will be important for NC to attract advanced manufacturing as well
as use science, technology, engineering and math to transform industrial production to Industry 4.0.
Types of Industry 4.0 include:
- Additive manufacturing
- Augmented reality
- Big data and analytics
- Autonomous robots
- Horizontal and vertical systems integration
- The industrial Internet of Things
There are opportunities to enlist everyone interested in becoming ambassadors for business growth and development. The NC story is a strong one. There are amazing opportunities for growth and recovery into every region and every community.
The Truth About Immigration
by Steve Rattner
Perhaps the most emotional issue of this year’s Presidential campaign has been the question of illegal immigration, particularly from Mexico. Like much of the rhetoric during the campaign, the question of illegal immigration has been largely devoid of facts.
Contrary to popular impression, the number of illegal immigrants in the United States peaked in 2007 and has been drifting down since then. The number of Mexicans who are in the United States illegally similarly peaked nearly a decade ago and has fallen more sharply than the number of non-Mexican illegal residents.The reasons for that are multiple: The recession that accompanied the financial crisis sharply reduced the number of construction jobs available, a particularly large source of jobs for immigrants. Notwithstanding Donald Trump’s rhetoric, stricter enforcement of immigration laws along the border between the United States and Mexico and increased deportation of illegal residents also played a role. Finally, a drop in the size of the young population in Mexico also contributed – the share of Mexicans between 15 to 29 dropped from 29.4% in 1990 to 24.9% in 2014.
While there are no reliable statistics for how many illegal immigrants cross the border with Mexico, experts use the number of apprehensions as a proxy. By that measure, the number of Mexicans apprehended at the border has dropped from more than 1.5 million in 2000 to just about 229,000 in 2014. Meanwhile, the number of non-Mexicans (mostly from Central American countries including El Salvador, Guatemala and Honduras) rose sharply and exceeded the number of Mexicans apprehended in 2014. A big part of this increase in non-Mexican immigration is accounted for by unaccompanied children.
Meanwhile, under President Obama, the number of deportations has risen sharply, to a record of more than 435,000 in 2013. Between 2009 and 2014, more than 2.4 million illegal residents were deported. More than 40% of those deported are convicted criminals, a group that Donald Trump says he wants to target.
Immigration: the new Godwin’s Law
This map shows the estimated net immigration (inflows minus outflows) by origin and destination country between 2010 and 2015.
Blue circles = positive net migration (more inflows). Red circles = negative net migration (more outflows). Each yellow dot represents 1,000 people.
Hover over a circle to see that country’s total net migration between 2010 and 2015. Click a circle (or tap the circle twice on mobile) to view only the migration flows in and out of that country.
Country-to-country net migration (2010-2015)
The data for this map comes from the U.N. Population Division, more information on how it was calculated at the bottom of the post.
Immigration: the new Godwin’s Law
If you’re not familiar with Godwin’s law, it is an old internet adage that states, “As an online discussion grows longer, the probability of a comparison involving Nazism or Hitler approaches 1.”
Lately, I’ve found a similar principle applies to immigration. No matter what topic is being discussed online, if the conversation goes on for long enough, someone will inevitably tie it back to immigration.
Immigration has always been an important and frequently debated issue. And for many current events, the connection with immigration is clear, for example: terrorism / ISIS, the Brexit, Donald Trump and this year’s presidential race, the refugee crisis. But at some point in the last year or two, I started noticing immigration being mentioned in connection with all sorts of topics I would never have expected.
To see what I mean, here are some of the topics I’ve posted about where immigration came up in a discussion, either in the comment section of the post or on social media:
- Your World Map Is Hiding Something(a post about map projections)
- Prisoners in the Free World(the prison industrial complex)
- Support for ISIS in the Muslim World – Perceptions vs Reality(Muslim support for ISIS)
- Half the World’s Population Lives in Just 1% of the Land(the distribution of the world’s population)
- Two Centuries of U.S. Immigration(no surprise here)
- Presidential Elections Used to Be More Colorful(the state-by-state outcomes of past U.S. presidential elections)
- The History of U.S. Government Spending, Revenue, and Debt(the history of U.S. government finance)
Why is immigration suddenly the cause/result/solution of everything? (Not meant rhetorically. If you have a good answer, I’d love to know.)
Who is migrating from where to where?
For a topic that comes up as often as immigration, I’ve found the debate to be really lacking in factual information. Hopefully, this map is helpful is clearing up at least the simple, basic statistics: how many migrants are there? Where are they coming from? And where are they going?
Please keep in mind, these numbers are only estimates. You can find the full details of how they were calculated at the bottom of the post.
That said, here are a few of the pieces I found interesting.
Between 2010 and 2015, the net migration from Syria to Sweden was more than Syria’s net migration to the rest of Europe and the Americas combined.
Many Middle Eastern countries have been criticized for allegedly accepting few Syrian refugees. In Qatar and the UAE, the net migration appears to actually be negative. Though of the Middle Eastern countries that are accepting Syrian refugees, the numbers they are dealing with are orders of magnitude higher than in the West.
The United Kingdom / Brexit
In the Brexit debate, the loudest arguments in favor of leaving the EU have been about immigration. What strikes me as interesting is how small a portion of the UK’s net immigration is actually coming from Europe.
Australia, another country where immigration has become a highly charged political issue, jumps out as an interesting case.
By these estimates, Australia’s net immigration is negative with every country in the world, except for a small positive immigration balance with Sudan. Australia is the only country in the world to have significant positive net immigration with the US.
Last month, I posted a map visualizing 200 years of US immigration (inflows only). I would have liked to do the same with US emigration, which may be the more interesting direction since it is not nearly as well known. Unfortunately, the US does not keep good emigration records and the best data I’ve managed to find goes back only a few decades. So, I don’t foresee being able to make a historical US emigration map.
Still, I think it’s pretty interesting to see what US net immigration flows look like in the present.
As mentioned above, according to these estimates, the US has significant positive net immigration with only one other country, Australia. The country with which the US has the largest negative net immigration is, perhaps unsurprisingly, Mexico. Though the amount by which Mexico leads is down substantially compared to a decade ago. Illegal immigration, in particular, has fallen off sharply, as demonstrated by this time series of border apprehensions from Pew Research.
When US immigration is viewed by region, the area that really stands out is Asia, which now accounts for just as much US immigration as North + South America (Mexico included).
Immigration between the US and Mexico is particularly complex since it involves both legal and illegal immigration as well as temporary laborers, deportations, and a large number of people living in immigration detention facilities. For that reason, America’s true net migration with Mexico is uncertain, and may actually be much lower than what’s shown here. If you believe Pew’s estimates, net migration with Mexico is now actually negative: more people are migrating from the US to Mexico than vice versa.
Wherever you stand politically on immigration, you have to admit, it’s pretty strange how rarely basic stats like these enter the debate. For all the discussion in the US about border fences and immigration limits, the simple question of “how many immigrants are there?” hardly ever even comes up.
Public opinion about immigration was likely a deciding factor in Britain’s decision to exit the EU. And it may very well determine who becomes the next US president. Yet the majority of Brits and the majority of Americans misestimate the size of their country’s immigrant population by a multiple.
Top 10 Global Risks 2017
The World Enters Geopolitical Recession
The Eurasia Group first wrote about the coming of the “G-Zero” world—a world with no global leader—six years ago. Prescient. While it seemed unconventional at that time, it is becoming increasingly evident. The group’s President Ian Bremmer and Chairman Cliff Kupchan recently presented their Top Risks 2017 report, identifying the most challenging political and geopolitical trends and stress points for global investors and market participants in 2017.
“The underlying shifts in the geopolitical environment have been clear,” according to the report, “a U.S. with less interest in assuming leadership responsibilities; U.S. allies, particularly in Europe, that are weaker and looking to hedge bets on U.S. intentions; and two frenemies, Russia and China, seeking to assert themselves as (limited) alternatives to the U.S.—Russia primarily on the security front in its extended backyard, and China primarily on the economic front regionally, and, increasingly, globally.
“These trends have accelerated with the populist revolt against ‘globalism’—first in the Middle East, then in Europe, and now in the U.S. Through 2016, you could see the G-Zero picking up speed on multiple fronts: the further deterioration of the transatlantic alliance with Brexit and the ‘no’ vote on the Italy referendum; the end of America’s Asia pivot with the collapse of the Trans-Pacific Partnership and the Philippine president announcing a break with the U.S.; the Russian victory in Syria after backing President Bashar al Assad through nearly six years of war.
“But with the shock election of Donald Trump as president of the U.S, the G-Zero world is now fully upon us. The triumph of ‘America first’ as the primary driver of foreign policy in the world’s only superpower marks a break with decades of U.S. exceptionalism and belief in the indispensability of U.S. leadership, however flawed and uneven. With it ends a 70-year geopolitical era of Pax Americana, one in which globalization and Americanization were tightly linked, and American hegemony in security, trade, and promotion of values provided guardrails for the global economy.”
Ominously, the report indicates, “This year marks the most volatile political risk environment in the postwar period, at least as important to global markets as the economic recession of 2008. It needn’t develop into a geopolitical depression that triggers major interstate military conflict and/or the breakdown of major central government institutions. But such an outcome is now thinkable, a tail risk from the weakening of international security and economic architecture and deepening mistrust among the world’s most powerful governments.”
According to Bremmer and Kupchan, at the top of the list in 2017 is the risk presented by Independent America: “The triumph of ‘America first’ as the primary driver of foreign policy in the world’s only superpower marks a break with decades of U.S. exceptionalism and belief in the indispensability of U.S. leadership. Independent America renounces exceptionalism, the notion that the U.S. actively promotes democracy, civil rights, and rule of law.”
Below follows a summary of the top 10 global risks for 2017.
1- Independent America
The world’s sole superpower was once the international trump card, imposing order to force compromise and head off conflict. Now it’s a wildcard. Instead of creating policies designed to bolster global stability, President-elect Donald Trump will use U.S. power overwhelmingly to advance U.S. interests, with little concern for the broader impact. Trump is no isolationist. He’s a unilateralist. Expect a more hawkish—and a much less predictable—U.S. foreign policy. Allies, especially in Europe and Asia, will hedge. Rivals like Russia and China will test. U.S.-led institutions will lose more of their international clout.
2- China Overreacts
China’s leadership transition will create risks that matter far beyond that country’s borders. The need to maintain control of the transition ahead of next fall’s party congress will increase the risk of economic policy mistakes that rattle foreign investors and international markets. In addition, President Xi Jinping knows this is a dangerous time to look weak and irresolute. Provocations from Trump, and the multitude of areas where U.S.-Chinese tensions might play out—North Korea, Taiwan, Hong Kong, the East and South China Seas, and in U.S.-Chinese political and economic relations—make 2017 a dangerous year for China and all who depend on it for growth and stability.
3- A Weaker Merkel
Strong leadership from Angela Merkel has proven indispensable for Europe’s ability to manage crisis in recent years. Europe will face more challenges in 2017—from France’s elections, Greece’s finances, Brexit negotiations, and delicate relations with both Russia and Turkey. Unfortunately, though Merkel is likely to win reelection as Germany’s chancellor in 2017, she’ll emerge as a weakened figure. This will leave Europe with no strong leadership at all—at a time when strong leaders are badly needed.
4- No Reform
Don’t expect a surge in needed economic reforms in 2017. Some leaders, like India’s Modi and Mexico’s Pena Nieto, have accomplished as much as they can for now. In Russia, France, and Germany, reform will wait until after coming elections, and China faces an all-consuming leadership transition next fall. Turkey’s Erdogan, Britain’s May, and South Africa’s Zuma are fully occupied at the moment with domestic political challenges. In Brazil, Nigeria, and Saudi Arabia, ambitious plans will advance but fall short of what’s needed.
5- Technology and the Middle East
Each year, governments in the Middle East lose more of their legitimacy. Technological change is critically weakening an already fragmenting region. The risks are both top-down and bottom-up. The revolution in energy production undermines the stability of states still deeply dependent on oil and gas exports for state revenue. Automation of the workplace will make it even harder to create jobs for growing numbers of young people. New communications technologies continue to enhance the ability of angry citizens to commiserate and organize. Cyber conflict is further shifting the region’s precarious balance of power. Finally, “forced transparency” (think Wikileaks, etc.) is especially dangerous for brittle authoritarian regimes.
6- Central Banks Get Political
Western central banks are increasingly vulnerable to the same sort of crude political pressures that distort economies in developing countries. Britain’s May has blamed the Bank of England for low rate policies that have increased income inequality. In Germany, Wolfgang Schaeuble has argued that low interest rates have reduced the incentives for peripheral European states to reform. Trump accused the Federal Reserve of helping Hillary Clinton. In 2017, there’s a risk that Trump will use the Fed as a political scapegoat, putting new pressure on future Fed decisions. He might also use Janet Yellen’s departure to replace her with a personal ally, undermining the Fed’s credibility for years.
7- The White House vs. Silicon Valley
Trump and the tech sector don’t have much in common. Trump wants security and control. The tech firms want freedom and privacy for their customers. Trump wants jobs. The tech firms want to push automation into overdrive. The two sides differ substantially on investment in science. In 2017, there will be plenty for the White House and Silicon Valley to fight over.
President Erdogan continues to use an ongoing state of emergency to tighten his control of day-to-day affairs, as well as on the judiciary, bureaucracy, media, and even the business sector through waves of arrests and purges. In 2017, he’ll use a referendum to formalize his powers, and his strengthening grip will exacerbate the country’s economic problems and its tense relations with neighbors and with Europe. Turkey is a volatile player in an increasingly volatile region.
9- North Korea
It’s hard to know exactly when North Korea will have a missile capability that poses a clear and immediate danger to the U.S., but the DPRK appears to be approaching the finish line at a time of dangerously deteriorating relations between China and the U.S. Serious tensions will likely arise between the two over additional sanctions. And if President Park is forced from office in South Korea and replaced with a center-left government that favors diplomacy, a tough Trump policy could roil geopolitics throughout the region.
10- South Africa
The deeply unpopular President Zuma is afraid to pass on power to someone he doesn’t trust. Resulting infighting over succession poses an obstacle to any effort on needed reforms and limits South Africa’s ability to offer leadership to help stabilize conflicts inside neighboring countries.
* Red herrings
Bremmer and Kupchan expect that U.S. domestic policy poses fewer risks than foreign policy, because Congress has greater power to impose predictability on an unpredictable new president. Don’t expect a flare-up in India vs. Pakistan at a time when both governments need stability. And Brazil will have an easier 2017 as legislators try to appease public anger for change by making progress on President Temer’s agenda.
Eurasia Group is a leading global political risk research and consulting firm, providing information and insight on how political developments move markets and helping clients anticipate and respond to instability and opportunities everywhere they invest or do business. Top Risks 2017: The Geopolitical Recession was prepared by Eurasia Group, 3 January 2017.
NEW Perspective on Alliances
Post-WWII New World Order Begins
Former Secretary of Defense Chuck Hagel recently addressed the World Affairs Council of Charlotte, after the election results were certain but before the new administration is installed. Secretary Hagel’s global insights and perspective on changing alliances suggest that a post-WWII new world order is emerging.
Here are some interesting points he raised.
I believe what we’re seeing in our country, is a reflection of a new post-World War II order being built in the world today. The world order that was built after World War II has lasted about 70 years. In the scope of history, world orders that last 70 years are rather unique, especially in a world where the demographic has shifted in an unprecedented way. Seven billion people exist today, and that number is increasing every day. Demographers tell us we are hitting nine billion by 2050 by the data.
“A new world order is being built, is being defined, today. It is a different kind of dynamic today than what it was in 1946 for many reasons. Significantly, there was only one economy in the world of 1946 that was left standing; it was the U.S. economy. There was no other economy left with its own military force. That gave the United States a tremendous amount of leadership capacity, confidence and ability to—along with allies—build this new world order.
“These great men and women had such vision after World War II, they did something that had never been done before in the history of man. They built coalitions of common interests: the United Nations, World Trade Organization, international development banks and institutions, IMF, World Bank, NATO, and dozens of other alliance-painted coalitions. They built those coalitions around and predicated on the common interest of most nations.
“Those coalitions have served the world very well for 70 years. They’re imperfect—can’t solve everything—but think for a moment if the world had not had these institutions over the last 70 years. Does anyone really think the world would be safer and more stable and better? I don’t think so. I don’t think so.
“As we are seeing this new world order evolve, develop, we are seeing a natural questioning of the effectiveness of existing alliances. Challenged alliances because of trade, which now connects us into the political world—because you can’t disconnect the political world from the reality of economics, of security, of environment, the big issues. The political world is the vehicle, the highway in nations, in particular democracies, to arrive at some destination as the decision-makers.
“It would be natural that what we saw in this country this year, in the recent election, would follow a manifestation of this concern, this uncertainty, the volatile ‘Where are we going’ disconnect with our government, disconnect with institutions, lack of confidence, lack of trust in institutions in every poll in the country for over two years. When asking the question, ‘Is America going in the right direction/wrong direction?’, an overwhelming 65 to 75 percent of the American people consistently responded ‘America is going in the wrong direction.’
“Where all this goes, I don’t know, but it’s clear to me that in our recent election in America was a political realignment. They tell me that there’s nothing you can do to stop it. It’s like a bad storm. You do two things in a bad storm whether it’s a tornado or a hurricane, whatever the storm. You head for the potato cellar and get out of the way first. Second, you try to think through and plan for what happens a day after the storm blows through and how you rebuild. That’s kind of where we are I think in our country and in the world today.”
Secretary Hagel provided a first-hand perspective from his experience at the Defense Department as a Republican working for a Democratic President. He expressed concern about President Obama’s lack of commitment to his “drawing a red-line in Syria,” relating quite an interesting story about what happened, and expounded upon the global consequences from that lack of action.
He was genuinely concerned that Obama’s lack of action opened the door for Vladimir Putin and Russia to side with President Assad in Syria. That gave Putin the opportunity to lead the way in Syria and to extinguishing the opposition forces to Assad inside Syria. Secretary Hagel was demonstrably upset with the lack of action taken by the United States. It was following that action that he stepped down from the Pentagon.
“The answer to this is a, not just a continuation but a strengthening of alliances, of building new partnerships that aren’t necessarily based on a NATO-type alliance. Mutual security because there is no such thing as just straight military security as we think of security. The security of any nation rests upon the most fundamental of all securities and that’s economic security. A nation is only as powerful as its economy. It’s very simple. Your household. If you don’t have any income you probably don’t have any options. It’s the same thing about nations.”
Secretary Hagel finished his remarks by saying, “It’s going to be a balance. New partnerships, stronger enhanced relationships, alliances and trade. I mean, we couldn’t back away from trade if we wanted to. We are so connected to the world in every way and trade is not a guarantee. Never has been. Trade is an opportunity.
“Trade does so much more than just exchange goods and commerce. It opens doors that allow nations to respond to each other, understand each other, communicate with each other, connect with each other, coordinate with each other in ways that nothing else can. It opens everything up. It can’t do everything—you need all the other pieces of government as well—but those are fundamentals. Alliances and trade.
Former Defense Secretary Chuck Hagel’s remarks at the World Affairs Council in December 2016 are included below, edited for brevity.
I believe what we’re seeing in our country, is a reflection of a new post-World War II order being built in the world today. The world order that was built after World War II has lasted about 70 years. In the scope of history, world orders that last 70 years are rather unique, especially in a world where the demographic has shifted in an unprecedented way. Seven billion people exist today, and that number is increasing every day. Demographers tell us we are hitting nine billion by 2050 by the data.
A new world order is being built, is being defined, today. It is a different kind of dynamic today than what it was in 1946 for many reasons. Significantly, there was only one economy in the world of 1946 that was left standing; it was the U.S. economy. There was no other economy left with its own military force. That gave the United States a tremendous amount of leadership capacity, confidence and ability to—along with allies—build this new world order.
These great men and women had such vision after World War II, they did something that had never been done before in the history of man. They built coalitions of common interests: The United Nations, World Trade Organization, international development banks and institutions, IMF, World Bank, NATO, and dozens of other alliance-painted coalitions. They built those coalitions around and predicated on the common interest of most nations.
Europe had just been through two tremendously destructive world wars in the first half of the 20th century. We were going to avert that. We were going to have to do something radically different. Therefore, these coalitions of common interests were made.
Those coalitions have served the world very well for 70 years. They’re imperfect—can’t solve everything—but think for a moment if the world had not had these institutions over the last 70 years. Does anyone really think the world would be safer and more stable and better? I don’t think so. I don’t think so.
As we are seeing this new world order evolve, develop, we are seeing a natural questioning of the effectiveness of existing alliances. Challenged alliances because of trade, which now connects us into the political world—because you can’t disconnect the political world from the reality of economics, of security, of environment, the big issues. The political world is the vehicle, the highway in nations, in particular democracies, to arrive at some destination as the decision-makers.
It would be natural that what we saw in this country this year, in the recent election, would follow a manifestation of this concern, this uncertainty, the volatile “Where are we going” disconnect with our government, disconnect with institutions, lack of confidence, lack of trust in institutions in every poll in the country for over two years. When asking the question, “Is America going in the right direction/wrong direction?”, an overwhelming 65 to 75 percent of the American people consistently responded “America is going in the wrong direction.”
Now, when you see those kinds of numbers, consistently crossing all socioeconomic lines, something’s going to happen. As the historians will reflect on this time and there will be a lot of books written, a lot of analysis will go on for years. What happened in the United States? It was only a manifestation of the realities of this disconnect, this distrust, this confusion, this concern about not just the direction of our country, but the institutions that have a responsibility of keeping the society together.
Like any of us in our own lives, we are disrupted by what happens around us. Disruption affects our trust. If you lose trust in personal relationships, business relationships, there is no currency. It’s pretty hard to ever get it back. We have lost a lot of that currency, not just here in the United States, but around the world.
Look at what’s happening in every democracy in the country today starting with what happened in the UK a few months ago with Brexit. The presidential election in France is coming up. Elections in Germany, Italy. Half of the countries in Europe are having either presidential or parliamentary elections within the next six months. Some of them are already underway. Like the United States, it is the same feeling about their governments, about their leaders, about their politics.
I don’t think it’s all just a breakdown in leadership but the reality is in politics, and again in especially democracies, the politics always reflects the will of the people. Politics never leads. Those of us who have had the privilege of serving in office, being elected, know that quite well. You respond to the needs, the will of the people.
I suspect other elections that will take place will not be too dissimilar from what happened here in the recent election. Look what happened in the UK and it is in the process of continuing a political realignment.
Where all this goes, I don’t know, but it’s clear to me that in our recent election in America was a political realignment. They tell me that there’s nothing you can do to stop it. It’s like a bad storm. You do two things in a bad storm whether it’s a tornado or a hurricane, whatever the storm. You head for the potato cellar and get out of the way first. Second, you try to think through and plan for what happens a day after the storm blows through and how you rebuild. That’s kind of where we are I think in our country and in the world today.
As we move forward a new government is being formed now in Russia. A new government was formed the last few months in Great Britain. We know there will be new governments being formed in France, Italy, maybe Germany, and even in Austria, and Hungary. We will see how those governments will address the people and how well governments and political leaders in society will adapt and adjust to the realities of the world that we live in today.
We’re playing catch-up here. It’s like regulation in government. The markets are always ahead of regulation. You can only do so much in the way of regulation. You must depend not on government regulation for honesty, for decency, you’ve got to depend on the people. After all, it is about people. No institution is ever better than its people—every institution is only as good as its people, as its leaders. No better, no worse.
Now, this is all swirling around in our country, and all of this causes shift and change and fragmentation of our political philosophies. Really, when you look at the two major parties in this country, what is the legitimate question? What is the governing philosophy of the Republican Party today and the governing philosophy of the Democratic Party today? I would submit that there’s very little governing philosophy in either party today.
To add further evidence, the plurality of registered voters in the United States today are independents. Not Republicans, not Democrats. Every year that increases. We are seeing now is not necessarily an abandonment of political parties, but again a disconnect from political parties because of lack of confidence and trust and all the other things that I’ve talked about.
Now within this boiling cauldron of uncertainty, yes, there is much danger, but I think too a great opportunity because great realignments must occur in the world to respond to these realities and these challenges of our time. Change is not new. We all know that. Every generation in the history of man has had change. The defining moment of change or challenge is how each generation responds.
So far, over our almost 250-year history in the Unites States, we’ve done pretty well. We’ve done pretty well I think for many reasons. First of all, we are a nation of laws, but we also have a system that allows us to self-correct. Now democracies have that, but we can self-correct without guillotining each other, without revolutions erupting. We have mechanics, mechanisms, processes to fix the problem and if the alignments need to be shifted, we can fix those alignments and make them relevant to the challenges of our day.
The United States does it better than anyone. That doesn’t mean we’re any smarter. Doesn’t mean we’re any better or mean we are God’s chosen few. While we’ve got this great capacity to self-correct, that’s what’s happening.
Let me shift a little bit to more current global challenges, to not just the United States but the world, because we are not an island. As we all know there has been a considerable amount of conversation during the election about essentially pulling back and lessening our commitments to NATO, to other alliances, trade issues. I’m not concerned about the challenging of those relationships in the sense that I think relationships should be challenged. Are they working? Are they relevant? Are they good for all the parties involved?
Businesses have to do that every day or you’re not going to be in business anymore. You’ve got to review your product. You’ve got to review every element of your business. Your life, your personal lives. If you’re getting a little bit out of line somewhere, people aren’t buying your product, whatever the signs are, you’re going to have to adjust. You’re going to have to do some things differently. That doesn’t mean you throw away your product. That doesn’t mean you throw away your relationship or you disband the alliance. There’s always a threat of that, of course, in these big global issues. We need to probe a challenge. We need to question.
I was a kid once in the Florida Senate and I was questioning a policy in Iraq and someone said that I was disloyal, and I even had someone call me a traitor. I said on the Florida Senate, “It’s not unpatriotic to question your government. It is unpatriotic not to question your government’s policies.” I further explained in elected office I, like all elected officials in Congress, took an oath of office to a constitution, not to a president, not to a political party. I think that needs to be realigned as well because we have become too brutally partisan.
Both parties are to blame on this I think in too many ways. They have become captive to special interests. I remember all the special interests that we—all almost all of us—were representing. It’s the larger purpose. It’s the larger responsibility than your special interests. If we are to lose that then we will lose our magic. We will lose our self-direction. We will lose our country.
There’s a lot riding here on how all of this plays out and I think we’re in for a bumpy road the next few years as we work through this alignment. It’s not going to be easy because the issues today are so complicated—whether it’s Syria, whether it’s the Middle East, whether it’s North Africa, whether it’s North Korea—because each of these issues is part of this bubbling toxic brew that connects so many pieces now to everything.
For example, ISIS. A lot of different views on ISIS. What do we do about ISIS? Well I have taken the view over the years, whether it’s ISIS, Syria, Iraq, terrorism wherever, that the military of the United States or anyone’s military is not going to fix that problem. Because what we haven’t done very well over the years is try to figure out how did this all happen? What produced ISIS? What produces Al-Qaeda? What produced this fundamentalism?
It just didn’t appear. Something happened. Something deep down in society and I think there’s where it starts to become complicated because ISIS, the Middle East in particular, Sunnis, Shias, Kurds, Persians—all of that not unlike how Catholics and Protestants killed each other for 30 years in the 30 Years War in Europe—all of that has been produced by centuries of cultural differences, religious differences, ethnic tribal differences.
I think we’re still seeing a very disastrous hangover from when the British and the French divided up the Middle East in 1923 and they invented countries that shouldn’t have been invented. They cut across lines of tribal and ethnic areas. The Kurds being a good example. The Kurds are in five countries on those corners. Kurds have never had their own country.
I remember meeting with President Erdogan a number of times. The Secretary of Defense, in fact Joe Biden and I were the first to meet Erdogan when his party just developed, just stepped into power in November of 2002. 2002. Biden and I were in the Middle East for 10 days to visit all the countries. We were talking with Erdogan then which you all know could hold no public office because he was not a member of Parliament. He was a leader of the party. We spent two hours with him and then Biden and I drove into Kurdistan that night, an eight hour drive to speak with the Kurdistan Parliament. This was December 2002 and then we invaded Iraq in March of 2003.
It was an interesting drive. Senator, Vice President Biden is a good friend. That was an interesting experience being locked into an SUV with Joe Biden for eight hours. Some of our staff people said by the time we reached Erbil the Kurdish driver spoke flawless English.
Point being with Erdogan—just to give you an idea of the complications—here is Turkey, as probably an indispensable member of NATO as any country since 1952. My point in telling you this story about when I first met Erdogan, I’ve known him for years and had a very good relationship with him. Last time I saw him, when I was Secretary of Defense, we had a long conversation about trying to get the Turks to allow us, the Unites States, and some of our NATO allies to use the NATO base there in Turkey for short range and into Syria both pilot and pilotless aircraft.
He said to me, “We have a problem, the U.S. and Turkey on this issue.” Because he, Erdogan, was one of the first and the strongest leaders of the area to get rid of Assad. We were trying to get this agreement with him that focuses on ISIS and Al-Qaeda. He said to me, “ISIS is not our biggest problem. It’s a problem. We’re going to handle it, but the Kurds are our biggest problem. You are supporting the Kurds and you won’t go to war with Assad. You won’t help me by setting up a safe zone or a fly zone in northern Syria.”
Now let me stop there. I think you get my point. Here’s a country, Turkey, that has been as close to the United States and as reliable NATO partner as we’ve had. It’s important because before the implosion of the Soviet Union there was only one NATO country that lived right on the border of the Soviet Union republics. The only Muslim country in NATO. Our interests diverged in a very significant way. This is a good example of the complications of not just that part of the world but every part of the world.
We’re going to have to be smarter in how we do things. The military can’t fix the problem. The problem in the Middle East can’t be fixed in the Middle East. The problems in the Middle East aren’t going to be fixed without the Russians. The Russians are there and they’re not going anywhere. That problem in the Middle East isn’t going to get fixed without the Iranians. We may not like either one of them and have major differences with both of them, but then the alternative is to just allow the continuation of the systematic destruction of the Middle East.
That’s just wrong. You go across most of those countries in the Middle East and things get worse in Saudi Arabia. There’s a lot of internal conflict going on there. That isn’t getting better, I don’t think. GCC (Gulf Cooperation Countries) countries are threatened, very concerned about where does this put us.
We’re going to have to think through some things a little differently. I think do some things differently our NATO allies are questioning in many ways our leadership in some of these areas. Afghanistan is another area. We are in our 16th year in Afghanistan and we’ve still got 8,500 troops there taking casualties there. That’s not getting better. Actually, the Taliban control more territory today in Afghanistan than they have in 15 years.
We have NATO partners with us. We also have partners like Jordan in Afghanistan. How much longer their public are going to put up with their troops being in Afghanistan not seeing any kind of turn is an open question. Obviously North Korea, how do you deal with that continued complicated problem, especially now in light of the problem in South Korea. President Park will be soon to leave office.
Our new administration transitioning in from the former administration is always a time of great danger and threat because of countries challenging us, taking advantage of that vacuum. You’re not going to fix any of those problems with the military. There is a military piece to it, but I go back to the two fundamentals that did more to help the world and help the United States. They were the defining platforms of the world order that was built after World War II that I was referencing.
Alliances, strong common-interest alliances and trade. Now both can only do so much but without those you have no common-interest platforms to work together from. Middle East again. There will be no possibility, no hope for any kind of solution or resolution in the Middle East until there is some platform of stability that’s constructive to allow the next stage to start taking shape. We may see it differently at least in borders. The 1923 borders maybe changed once we see a cease-fire that everyone can agree to.
When I say everyone, you’re still going to have terrorist groups that won’t agree. That’s not new. You’ve got to put that in perspective too. Terrorism. Terrorism is not new. The sophistication of terrorism and the empowerment of non-state activists is new because of technology and technology is driving as much of this as any one thing. It has now empowered groups. Social media for example. ISIS is as adept and sophisticated at using social media as any country. In fact, more so than most countries. Their equipment and techniques, strategies. You’re not going to undo that.
Again, I go back to a comment I made early. We’ve got to get underneath this. Stability in the Middle East. That’s going to require enough of the powers there, the governments there. Certainly the Russians, certainly us. You can’t put NATO troops in the Middle East. I don’t think an American president anytime soon is going to put any kind of significant troop strength back in the Middle East. I remember my predecessor Bob Gates said a few years ago, “Anybody who again advises a president of the United States to put troops on the ground in the Middle East ought to have his head examined.” I fully subscribe to that. Fully subscribe to that.
The answer to this is a, not just a continuation but a strengthening of alliances, of building new partnerships that aren’t necessarily based on a NATO-type alliance. Mutual security because there is no such thing as just straight military security as we think of security. The security of any nation rests upon the most fundamental of all securities and that’s economic security. A nation is only as powerful as its economy. It’s very simple. Your household. If you don’t have any income you probably don’t have any options. It’s the same thing about nations.
Our economics, our diplomacy, our trade, our relationships, everything is now connected in the world fabric of security. That is security. Partnerships, new partnerships in Asia-Pacific. When I was Secretary of Defense, I took many Asia-Pacific trips, more than Secretary Kerry did. More than anybody in the administration. United States, in fact the entire Western Hemisphere, the western border of the Western Hemisphere from Canada all the way down to the tip of Chile, border the Pacific, so we’ve always been a Pacific partner. You know all the demographics and the economies and all the dynamics in play there.
I focused on strengthening our alliances there, certainly military, certainly our more refined security interests. Also on new partnerships. I’ll give you an example. I was the first Secretary of Defense to invite all the ASEAN defense ministers to Hawaii for a conference. Never been done. Ten ASEAN ministers to a three-day conference. Half of those three days I put together an agenda having very little to do with military issues. I had the USAID director there. I had senior members from the Agriculture Department, the Commerce Department, Weather Bureau all there meeting with the ministers because I wanted to focus on where the common denominators are of people. Of people. Of your country, your people. How can you improve the lives of your people?
Education, agriculture, everything. The rest of it flows from that. I think we actually did quite a bit of good from that. Then we had a day and a half of military and we showed off all our power. We didn’t have to do that. The ASEAN nations knew that. Give them a little inside sense of that.
It’s going to be a balance. New partnerships, stronger enhanced relationships, alliances and trade. I mean, we couldn’t back away from trade if we wanted to. We are so connected to the world in every way and trade is not a guarantee. Never has been. Trade is an opportunity.
Trade does so much more than just exchange goods and commerce. It opens doors that allow nations to respond to each other, understand each other, communicate with each other, connect with each other, coordinate with each other in ways that nothing else can. It opens everything up. It can’t do everything—you need all the other pieces of government as well—but those are fundamentals. Alliances and trade.
Let’s go back to the Middle East here a moment. How does anyone believe that eventually the Middle East gets put back together? In the destruction of the Middle East and Syria, Syria is unique. It’s a destroyed country, the infrastructure, the housing. Good parts, major parts of Iraq, Libya, Danube, and it just continues to see more destruction, more destruction. What’s happening in Mosul? I mean it’s just how do you put that back together?
It’s going to require immense, immense new building and economic efforts, trade to do that. What do you do with the people? People just can’t keep risking their lives going across the Mediterranean however they want to get to Europe. That, in itself, is starting to seriously fray the EU. That’s probably the jolting gong that led to the Brexit vote. The Syrian refugee issues.
There were other issues too that were more basic and academic contributing to that. Brussels has become this empire of a parliament, a European parliament which is silly. People are fed up with it and I understand that. Why are we having to listen to what the people in Brussels have to say on … We are French, we’re Italian, we’re British, and so on and so on and so on. By the way, to say that just can be said about NATO. That they’ve been likened to these large model, this huge bureaucracy. Now that’s no reason to do away with them, but that’s part of what’s happened here too.
We’re going to need the trade. We’re going to need the relationships to rebuild any part of the world. We don’t often think enough I think and the United States is guilty of this or thinking through these things. Certainly, if the United states military faces another military there is no country whether it’s partnered with Saddam Hussein or Muammar Gaddafi that’s going to stand a chance. No one can on a battlefield against the United States power. This ain’t going to happen because no one has that kind of power. Does that fix the problem?
I think we learned a hard lesson in Iraq, we learned a hard lesson in Afghanistan. Unless there are functioning institutions of governments. This is the biggest problem I think there is in Afghanistan. Afghanistan has never had a central government. It’s never had functioning institutional bodies. It’s still a tribal country. That doesn’t mean they can’t have, won’t have, shouldn’t have. It’s up to them to have democracy but we can’t dictate that. The United States cannot dictate that. The Europeans cannot dictate that. We can help facilitate. We can help support but that’s beyond our capability to do that. We are surely not going to shock and awe countries into new democratic governments and new freedoms. Again we’ve learned some tough lessons the last 16 years and I think that was also part of what happened in this country in the election here this year.
I end with this. Is this fixable? Is this doable? Do we have a future? Yes. Yes. Yes. We do. It’s really within our grasp. The Chinese aren’t going to dictate that. The Russians are not going to dictate that. We control our own destiny with our friends, with our allies. Boy, if there was a time you need friends and you need allies it sure as hell is now. It sure as hell is now. You don’t want to be pushed back.
I used to be asked a question, “What’s it like to be the leader of the largest entity in the world?” The Defense Department is. Most complicated too. I said, I was Secretary of Defense but I never confused that with the reality. The Department of Defense consisted of empires within empires. You had to deal with all these different emperors at times. Once you start believing you’re running things, oh you’re in for a real shock.
Chuck Hagel served as the 24th Secretary of Defense from February 2013 to February 2015. During his tenure, he directed significant steps to modernize America’s partnerships and alliances, advance the rebalance in Asia-Pacific, bolster support for European allies, and enhance defense cooperation in the Middle East while overseeing the end of America’s combat mission in Afghanistan. In addition, he led major initiatives for service members and their families, including increasing resources for suicide prevention, combating sexual assault, and accounting for missing personnel. He is the only Vietnam veteran and the first enlisted combat veteran to serve as Secretary of Defense.
Our World Better or Worse Off?
A History of Global Living Conditions
In an incredibly important article, economist and media critic Max Roser, known for his research on global trends of living conditions and his visualizations of these trends, shows us the history of global living conditions—“the history of everyone.”
Very few people think that the world is getting better. In a handful of charts, Roser instantly communicates the progress of the human population over the last two centuries in poverty, literacy, health, freedom, fertility and education. If you don’t read anything else this week, make sure you make to time to read this and consider its implications with respect to your current world view.
Here are the highlights of Roser’s piece:
Poverty: In a time of unprecedented population growth, increasing productivity—more output from less input—and economic growth—you are better off when others become better off—have combined to give more prosperity to more people and to continuously lift more people out of poverty. Roser points out that because of disparaging media reports, it is easy to miss the slow developments that reshape our world, suggesting that the headlines since 1990 could have read instead, “The number of people in extreme poverty fell by 130,000 since yesterday!”—and that could have run every day.
Literacy: It was in the last two centuries that literacy became the norm for the entire population. If you think science, technology, political freedom are important to solve the world’s problems and you think that it helps to read and write to do this, Roser points out that in 1800 there were 120 million people in the world that could read and write; today there are 6.2 billion.
Health: In 1800 the entire world lived in poor conditions; in all countries of the world more than every third child died before it was 5 years old. For a combination of reasons—rising prosperity, changing social life, improved housing and sanitation, healthier diet, and innovations in science and medicine—child mortality is now down to 4.3 percent—10-fold lower.
Freedom: Using the Polity IV index to measure regimes, Roser points out that the share of the world population living in democracies has increased continuously; now more than every second person in the world lives in a democracy, and 4 out of 5 living in an authoritarian regime live in one country—China.
Fertility: Population growth increases humanity’s demand for resources and amplifies humanity’s impact on the environment. Roser points out that world is well into the demographic transition and global population growth has in fact peaked. Global life expectancy doubled just over the last hundred years; global fertility has more than halved in the last 50 years.
Education: Roser points out that the revolution in how we live was not only driven by education, it also has made education more important than ever. Researchers expect that there will never be more children on the planet than today. Their projection suggests that by 2100, there will be almost no one without formal education and there will be more than 7 billion minds who will have received at least secondary education.
Roser concludes by pointing out that most of us have a very negative perspective of global development and suggests that the media is in part to blame because the media does not tell us how the world is changing, it tells us what in the world goes wrong. When we are ignorant about global development, he says, it is not surprising that few think that the world is getting better.
“What is clear from the long-term perspective is that the last 200 years have brought us to a better position than ever before to solve these problems,” Roser summarizes. “Solving problems—big problems—is always a collaborative undertaking. And the group of people that is able to work together today is a much, much stronger group than there ever was on this planet. We have just seen the change over time; the world today is healthier, richer, and better educated.
“For our history to be a source of encouragement we have to know our history. The story that we tell ourselves about our history and our time matters. Because our hopes and efforts for building a better future are inextricably linked to our perception of the past it is important to understand and communicate the global development up to now. A positive lookout on the efforts of ourselves and our fellow humans is a vital condition to the fruitfulness of our endeavors.”
To read the entire Roser article: https://ourworldindata.org/a-history-of-global-living-conditions-in-5-charts.
Max Roser is an economist and media critic. He is known for his research on global trends of living conditions and his visualizations of these trends. He is currently a research fellow in economics at the University of Oxford.
EU Response to Brexit
Brexit and Populism: The Future of the “European Project” from a German Perspective
Dr. Celine-Agathe Caro, Senior Policy Analyst at the Konrad Adenauer Foundation, a German political foundation affiliated with the Christian Democratic Union (CDU), addressed a gathering in the fall of 2016 sponsored by the Eric M. Warburg Chapter of the American Council on Germany, to discuss the “European project” from a German perspective following the Brexit vote and the movement toward greater populism.
The European Union currently includes 28 member states with over 500 million people delivering almost 25 percent of the global domestic product. Dr. Caro’s remarks included the following, edited for brevity:
The outcome of the British referendum has created increasing pressure on the EU to reform itself to better respond to the expectations of its citizens. At the same time, the European member states will only be able to overcome common challenges like the refugee crisis, terrorist threats, or Russia’s aggressive foreign policy if they act together.
With its economic and political weight, Germany will play a key role in any further decisions regarding the EU’s future, but it needs partners to assume the leadership required to help navigate these crises.
I think it’s important to mention that from a European perspective, the European project is not only about crisis and about bad news, even if it’s what the media here in the U.S. and in Europe like to focus on. The European project is the project that since 1950 is giving Europe peace and stability and prosperity. That’s something we should keep in mind while talking about all these crises and these programs.
This prosperity, this freedom, this peace, that’s still something that is true today that we have from the European project. Think of the single market. Think of the common currency and of all these common laws and regulations and norms that make it possible to manage together 28 countries—28 countries that represent roughly 500 million citizens. It might be that’s only 7 percent of the world population, but that’s 25 percent of the world GDP and 50 percent of all social expenditures worldwide.
I will give you a quick overview of the different issues we are facing in the EU today. I would like to present five top challenges I think for the EU in the future, that influence also the quality of the trans-Atlantic partnership. These five top challenges are as follows: unity, solidarity, communication, leadership, and international responsibility.
I will start with the first challenge—unity—the idea that we should stay together. That’s closely related to Brexit and to our British friends over there. The British referendum is a big backlash for the European project from a historical perspective because for the first time in the history of the European Union a member state will leave the union. For the first time in the history of the EU, the whole project will move backwards. That’s one for history and symbolically that’s bad news.
Politically speaking, that’s not good news either because the EU will lose a major partner—a key member state, one of the biggest member states, and a key player for security and foreign issues. For the current German government, Berlin will also lose an economic partner since the British are traditionally an economically liberal partner compared to the South of Europe.
Officially the negotiations between the EU and the UK haven’t started yet because London needs to trigger Article 50 of the European treatise. Since the referendum, they haven’t done it; they are not rushing into it. That is the proof that the British government wasn’t prepared for this outcome on June 23rd, that they had nothing in their drawers to present to the British public and to the rest of the European Union.
At the beginning of the month, though, Theresa May, who is the current Prime Minister in the UK, said that she will trigger this Article 50 by the end of March 2017. From that time, the UK will have 2 years to negotiate its departure from the EU and the kind of relationship it wants to have in the future with the Union. That’s why if you listen to the media, you will hear that the UK will leave the EU in March 2019. That’s the agenda we have.
The British are facing a dilemma these days, because on the one side they want to control the European immigration. It was the major topic of the campaign before the referendum. They also want to stop contributing to the EU budget. They think they pay too much and they could use the money better on their island. But on the other side, they want to keep access to the single market. Economically speaking, it makes complete sense.
To give you a statistic, just keep in mind that 44 percent of British exports go to the European single market. These exports represent 12 percent of the British GDP. The other way around, in comparison, the EU exports to Britain make up 3 percent of EU’s GDP. 12 percent of the GDP on one side versus 3 percent of the GDP on the other side. Bottom line, if you summarize, immigration, EU budget, and single market. The British would like to keep the advantages of the system without burden sharing and financial obligations.
Chancellor Merkel, as you might have heard, just the day after the referendum in June, made it very clear that this kind of cherry-picking is completely out of the question. She said that very clearly at the European summit following the referendum. If you know Angela Merkel, if you follow what she says and what she does in the media, you will know that she’s a tough lady. She says what she does and she does what she says. It’s likely that she will keep this line and keep this position.
Of course, the UK has been an important partner, so there are people worrying in Europe that she might want to accommodate the British better or be particularly nice to their claims. I went to the headquarters of the CDU party in Berlin last week; our headquarters are just on the other side of the road so it’s easy and we know them very well. One of my main questions was: what do you think? Will she keep this position regarding Brexit and the fact that there is no cherry-picking? So, no access to the single market if the British wants to control the border regarding EU immigration. The answers I got were quite clear. She won’t change her mind. She will stay on this line and she will follow it. Think of the refugee crisis. She said at the beginning, in fall last year, we cannot avoid it. We can make it. Since then she didn’t change her mind. Even if it’s difficult. Even if it’s expensive—for now, she keeps her words.
Why is it her position that cherry-picking is not acceptable? First, it’s a question of principle. You can’t have the advantages of a system without burden sharing and financial contributions. Second, of course, Angela Merkel and other European leaders don’t want to open Pandora’s box. If we start accommodating the British too easily, it will trigger claims everywhere in the rest of the EU in different member states. Cherry-picking would be the priority everywhere. That’s why Angela Merkel and other European leaders will probably adopt a very firm position during the negotiations with the UK once it starts, once they trigger Article 50 to start officially talking about that.
In this context, what we call a “hard Brexit,” is likely when it comes to Brexit. Hard Brexit means no access to the single market because they want to control immigration, because Angela Merkel and other states won’t bend. The other option would be a “soft Brexit.” It means that the British would keep access to the single market, but have obligations coming with that. The British would have to respect what we call “the 4 European freedoms.” Freedom of movement, for goods, for services, for capital, and for workers. It means open borders for the Europeans. That would be one first requirement. The UK would also have to abide by most of EU regulations. Then they would have to keep contributing to the EU budget. It’s not for free to have access to the European market.
On top of that, they would have no say in European legislation. For those of you that know our system in detail, that’s what we call the Norwegian model. Norway, Lichtenstein, Iceland, they have these relationships. They are not part of the EU, but they have access to the single market and these are the conditions. Norway is paying to have access to the single market. That might be a solution for the UK, but since they want to control EU immigration, we say that a hard Brexit is more likely. No immigration, but also no access to the single market.
A hard Brexit means a complete exit then of the EU, but also comprehensive negotiation of all treaties the UK is part of as an EU member. Think about it. For example, the UK is member of the WTO as an EU member. That’s something that they will need to renegotiate once they leave the EU. They will need to have another trade agreement with the EU. Hard Brexit, no access to the single market, okay. But what comes next? Which kind of trade agreement will we have together? That will be a second thing the British will need to negotiate urgently.
Think of the 12 percent GDP with the EU. The British will also need to negotiate trade agreements with all the countries worldwide the EU has a trade agreement with—roughly 50 countries in the world. Trade agreement with the U.S., for example, they will need a mini-agreement for trade agreement with Canada. If they are not part of the EU, they will also need an extra global trade agreement. You see the list of the things they will need to do is very long. It’s not only about leaving the EU. It’s about renegotiating your trade partnership, your trade agreements with almost everybody on the planet.
If we take the example of a new trade agreement with the EU, for example, it means that all the member states including the European parliament and in some cases regional parliaments must agree to the new deal. Everybody has to sign that they agree to give these new trade agreements with the UK, otherwise standard international loads will apply again for trade relationships between the UK and the EU. It means standard pricing and tariffs.
If you’re cynical, you can say the financial future of this huge country, the UK, is in the hands of a country like Malta. They are 400 people. In the hands of a country like Luxembourg, also a small country with half a million people. Also, they will of course need the backing of the biggest of the big member states like Germany, France, Spain, Italy, countries that have no interest in giving hope to their own nationalistic movements, but something is a great idea to start.
I think it will be a very hard negotiation for the UK. It’s not about bashing the British for leaving us, punishing the Brits for Brexit. The British will of course in the negotiation for a new trade agreement be very tough and they will defend their national interests. That’s normal. But on the other side the other member states will defend their national and continental interests as vigorous as London will. That’s just how business works.
It will be a tough discussion, I guess, because you can see with what I just presented that the cards, I think, are better on the European side than on the British side. In my opinion, the UK is in a critical position currently and that might explain why their local currency, the pound, is plunging towards the Euro currently, why they have difficulties with investments currently coming from abroad, and why growth forecasts for next year have been reduced.
To give you a little bit of continental perspective on all of this—what is the current strategy of the EU? Currently, as I said, there are no negotiations with the British. We are waiting for them to trigger Article 50, so officially there are no talks about that with London, but the 27 members are already thinking about what it means for the future of the European Union. For that, they started in September what we called “the Bratislava process,” because the last European council in September took place in Bratislava in Slovakia. The goal of this process is to the organization—the future of the European Union without the UK. Most of all this demonstrates EU’s capacity to act and to come forward to show unity with the message that it’s not because the UK is leaving that the European Union is falling apart. That’s the message the heads of state and government would like to communicate.
It’s a big challenge, though. It’s easy to say, but it’s harder to implement, of course. The idea is not to say, “Everything is fine. We’ll just ignore the fact that the big member state is leaving.” No. It’s a way of acknowledging that we have a crisis and we need to come forward and of course it’s hard with all the nationalistic trends that we have in different member states. The goal concretely is to prove or to show to the citizens that the EU is still the European project—EU is still a good idea and something that brings the citizens advantages in their everyday life, economically speaking, or in terms of security or culturally.
For now, the strategy is to focus on very concrete issues like national security, international security, counter-terrorism to prove that the citizen understands that we have the whole narrative of the EU. Peace, prosperity, freedom, but we also have these very relevant narratives currently of security. So, if we work together, we can improve the security and that’s what Europeans want to show now, to improve currently.
They also want to do more to support economic victims in the EU, people that are suffering because of global trends. For example, in unemployment. So, they want to help also these people to feel better, to avoid having these guys go to the extremist, euro-sceptic parties.
All these must be done without any treaty change. As soon as we have a new crisis in the EU, one first reaction from one capital or from someone is to say, “We need to change the EU treaties. If we change the treaties, everything will be better.” That’s not currently the discussion that we are having at the European level because the people who are in favor of more EU integration think that it’s not the right time to do it. That if we start opening these other Pandora’s box, that won’t work and indeed, even the opposite might come that we will end up with less integration. So, nobody’s talking about treaty changes for the time being. As a matter of fact, the treaties are offering different mechanisms we are not using currently. We can do more than what we are doing now based on the current European treaty. The idea is to try to use what we have instead of saying we need to change everything again.
For the German government, this Bratislava process is going in the right direction to show unity, to try to work concretely on different very important issues the citizens are currently confronted with. Especially for Chancellor Merkel, it’s very important to maintain EU’s unity with 27 member states. Maybe you are aware of this discussion that comes back regularly also, but maybe it might be better to have a core Europe. a smaller group of member states that could come forward and maybe the rest will follow or not. Currently that’s not the strategy in Berlin, in the Chancellery. The idea is more that the other 27 should stay together in a global world, in a multi-polar world. Angela Merkel thinks that the Germans and the Europeans in general are better off if they try to speak with one voice and if they try to articulate their different interests together.
My second challenge in this context is solidarity. That’s a challenge that is currently connected to the ongoing crisis in the Euro-zone, but also to the refugee crisis. I will focus on this refugee crisis for this presentation, but I would be happy also to talk about the Euro-zone later if you would like. The word solidarity in the middle of these discussions regarding the refugee crisis, because as you might know, thousands of people came to Europe since the beginning of last year in the wake of the Syrian war, conflict over land and over sea. Thousands of Syrians, but not only Syrians. We also have a lot of people from Iraq, coming from Afghanistan, and from Africa, especially from the horn of Africa. That’s a mix of refugees, people fleeing their home because of war, and economic migrants like many Africans who think that they could have a better future in Europe.
To face this challenge, last year in May 2015, the European commission came with a new resettlement mechanism to make sure all member states will participate and help to find solutions for all these waves of migrants because the problem in the EU is that’s very imbalanced. Most of the migrants are in Greece and in Italy—these are the points of entry when you try to enter the EU, the main points of entry. Then they are in Germany and in Sweden, countries that are particularly generous with their welfare systems, so they hope that they can start a better life quickly. The German chancellor’s very generous attitude toward the refugees has also helped a lot of people to decide to go to Germany.
But because of lack of solidarity and load sharing, the member states didn’t implement the resettlement. It was a good idea on the paper, but concretely it doesn’t work because for some reason. Different member states for different reasons don’t want to take in refugees or migrants in general. We are still facing a lot of tensions and dramas, especially in Greece and in Italy where the are still way too many people waiting for resettlement. Also in Sweden or for Germany, it’s quite a challenge to find schools and to find homes and apartments for everybody.
Nevertheless, I think it’s important also to say that the situation has improved since last fall. Especially because if the Europeans couldn’t agree on a resettlement program, at least they could agree on the fact that we need to protect EU’s external borders a little bit better. We are doing that, for example with the Frontex agency, and as a matter of fact, now it’s harder for the migrants to enter the European Union. One major factor in this Frontex is also the fact that the so-called Balkans route is now closed. It was one of the main land routes to access the European Union.
Over the Balkans, over Turkey, Greece, and then Macedonia, Serbia and Hungary, or Slovenia, Bulgaria. Bulgaria’s another situation, but if you went to Hungary, for example, then you’re free to go everywhere because Hungary is a member of the Shengen coastline area, so once you’re there, there is no border controls anymore, so you are free to go to Germany, to Austria, and to the other countries. The Hungarian government was very committed to change this and they changed the border in cooperation with Austria, for example. Now it’s very difficult to enter the EU this way and it makes it in general more difficult to access the Shengen area.
The situation is better in general from the perspective of the member states. Less people are coming, but this lack of solidarity and burden sharing is for sure something that is still in the room during European meetings and that’s still a source of tensions between the member states. It also has political consequences.
That brings me to my third challenge I call communication. I think that communication between the political elites and the population in general is a huge challenge currently in the European Union. That’s not something the media are talking a lot about. Every day it’s more about Brexit and the refugee crisis and terrorist attacks. But as a matter of fact, with all these different challenges, these different crises, populist, Euro-sceptic and nationalistic movements, nationalist movements are growing bigger in many member states. You’re aware of UKIP in Great Britain, the independence party that played a key role in the campaign for Brexit before the referendum.
If you think of France, we have the Front National over there. That’s an old party that was created in the ’80s but they are very successful currently and we will have general elections next spring and experts or polling institutions agree on the fact that they might become between 20 and 23 percent of the vote for the first round of the presidential elections. They might end up being the first party of France. Even if it’s very likely that they lose, then the run off, the second, it’s a source of concern that’s almost one quarter of the population is willing to support the Euro-sceptic and nationalist party.
Talking about elections, in the Netherlands, we will have general elections there in March. This tall blonde guy, Geert Wilders, is a very popular nationalist candidate so the election might be tough there, too. We have nationalist and often xenophobic parties that are very successful also in Austria, in Denmark, in Finland. Since 2013, in Germany, we also have the AfD, the alternative to Deutschland. The alternative for Germany. That’s a new party that was created before the last parliamentary election in September 2013. They set up the party a couple of months before. Their major topic at the beginning related to the Euro-zone crisis. It was all about leaving the Euro-zone and coming back to the mark, leaving the common currency. That’s what they focused a lot on in 2013, so Euro-sceptic, if you want.
Now it’s all about the refugees, the migrants, so it’s an anti-immigration party and they were very successful. They have been very successful at the regional level. All experts agree on the fact that they will probably enter the German parliament next year in September when it comes to the general election. Their leader is a woman named Frauke Petry. There was a long article about her in the New Yorker two weeks ago, I think. In my opinion, it’s a quite positive article about her that was written. Once again, a strong lady in Germany. It might be worth reading if you want to know more about her.
These parties in France, in the Netherlands, in Finland, in Germany, everywhere, are exploiting fears in the population. They are offering simple solutions that probably won’t work. But the problem is that for now that they are appealing to a lot of people who feel overwhelmed with all these crises and international issues and insecure in the global context. There are some parallels between what is happening in the U.S. and in the EU, I think, in this regard.
That’s why I wanted to make this point. I think we need good communication about facts, about policy, to make sure that people understand what is going on. The European level is for sure difficult to understand. That’s one of the problems of this project. We have the European council, which is completely different in its work from the council of the EU. How do you make sure that the people understand the differences between these instances? Everything has the same name.
What does it mean for the normal citizens that are not dealing everyday with the European council? It’s a major problem that we have in the EU. It’s complicated. We have different mechanisms. It’s difficult to understand why it’s democratic, so it’s easier to say it’s not democratic and that’s something that we need to do better in the future, to communicate about these projects and how it works and why it’s worth continuing this path.
This giant is connected to my fourth challenge, leadership, as I said. You have a message, you need a strong leader to deliver the message and to communicate about that. That’s something that is also a huge challenge in the EU currently. We need people that are willing to stand up for the European project, to present why it’s in the interest of the Europeans to continue. As I said, peace, prosperity. That’s also projected a good new narrative because peace it sounds boring for young people. Yeah, of course peace, yeah. Everybody takes it for granted.
One of the new narratives, something we are promoting a lot in our foundation is to say, “You know, at least it gives us a little bit more leverage at the international level to try to speak with one voice.” Germany is a big country. But compared to China or to the U.S. or to India, well as the Chinese were in Germany. I’m not sure it will have the right understanding … I tried. They know where the Eiffel Tower is, but more than that they don’t know. They don’t make the difference. A lot of people don’t. That’s why it’s one of our narratives to say, “for international negotiations with big partners like China and the US, it’s better if we try to do it together. At least 28 countries, that’s something. A little bit more significant than just one country like Portugal and just France or just Germany.”
We need a strong leadership to do that because it makes sense for the European project in general. Just to give another current example—the refugee crisis—most of the experts agree on the fact that we can make it in the EU, that we can absorb these newcomers. In Germany, for example, we are talking about 1.2 million people that came since January 2015. These are the last official numbers that came out two weeks ago. It’s not about 1.5 million or 2 million like they mention are going up and up. We are talking about only 1.2 million people for 2015. 890,000 people and then it means much less for this year. Germany has a population of 82 million people. 82 million on one side. 1 million on the other side. That’s a little bit more than 1 percent on top. It should be doable.
Economically speaking in the country where the population is aging, it’s even smart to do it. Maybe now it’s difficult and it costs money, for sure. It’s a challenge regarding integration issues and German language and everything, but down the road, in 10 years, in 20 years, in 30 years, these people will contribute to German growth. Roughly one third of the refugees in Germany are kids. These young persons will learn German and integrate if they are part of the system. That is something that is doing, but of course, for now we have general election in Germany in September next year. It’s easier to say, “We can’t afford to have all these refugees. It’s too expensive. Let’s do something else.” They are quite successful with this message and that’s why we need strong leader that can explain why the picture is a little bit more complicated than that. And a little bit more positive.
The last challenge is international responsibility. I wanted to mention that to open the discussion to the trans-Atlantic partnership. Be sure that the Europeans are aware of discussions taking place here in the U.S. about the fact, for example, that there are free riders in the NATO alliance. That they don’t contribute enough financially for the security that the NATO alliance gives them. No matter who will win the election in November here in the U.S., it’s also quite clear that the Europeans will need to do more in the future for their own security in the EU and in the neighboring countries. That could be also interesting for the trans-Atlantic partnership.
As a matter of fact, all bloody attacks that have taken place in Europe in the last month, especially in Belgium, in France, but also in Germany, are wake-up calls that we need to do more in terms of national security, international security, counter-terrorism, international affairs, and development aid. It’s also clear that it should be or it would be in the interest of all member states to coordinate their different policies a little bit better, their different actions better.
For the external part of the security policy, the European Union has a mechanism. In 2001, the EU started to develop what’s called the common security and defense policy. The idea is to work better together on security issues worldwide. This Italian lady, Federica Mogherini, is our high representative of the European Union for foreign affairs and security policy. She’s the person in charge of coordinating the action of the different member states. As you can imagine, it’s very difficult for 28 member states to agree on a topic like this.
When it comes to security, of course all European capitals want to make sure that’s exactly as they want to have it. They are wary of giving sovereignty to a supra-national level. Also, for good reason. It’s serious. If we have states, if we have national governments, that’s first of all to make sure that people are safe in the country. Working together at the European level on these issues is not something simple for member states and governments. When you think we are doing nothing and we are way too slow, think about what it means to cooperate with 27 other member states. Progresses are there, but very slow.
To mention Germany briefly, I think it’s fair to say that Germany is a cautious partner in the efforts to establish more common security and defense policy for obvious historical reasons. It’s still difficult to imagine that soldiers, German soldiers, can be active abroad and in the country. They are very reluctant in Germany to play an important role in this area. Once again, if you think that nothing is happening and that’s annoying, keep in mind that things are changing, but only with small, small steps.
From a German perspective, for example, the fact that president Gauck, in January 2015, started the debate on this issue is a big deal. President Gauck said that Germany needs to take more responsibility at the international level and to engage more in zones of conflict. For Germans, it was a big deal. There were a lot of talks about that. There have been a lot of talks about that since then.
In July, this year, the current defense minister, another strong lady, Ursula Von der Leyen, published a new white paper about security policy in Germany and the future of the Bundeswehr, the German army. This paper also reflects that the mentality is changing a little bit in Germany currently regarding this question of taking more responsibility at the international stage in zones of conflict or to help fix conflicts. The road is still ahead. There is still a lot of progress to make, but things are changing. Traditionally, France and the UK are more active at this level, but Germany is also getting there step-by-step. It’s important to mention it.
Celine Agathe Caro
Dr. Céline-Agathe Caro is a Senior Policy Analyst at the Washington office of the Konrad-Adenauer-Foundation (KAS), a German political foundation affiliated with the Christian Democratic Union (CDU). Dr. Caro is in charge of monitoring U.S. think tanks and universities with a special emphasis on U.S. foreign and transatlantic policy, U.S. positions on key international issues, and the American perceptions of current developments in the EU. Between 2010 and 2015, Dr. Caro was the Coordinator for European Policy in the headquarters of the KAS in Berlin. In addition, in the spring and fall of 2013, she was a visiting lecturer at the Université Sorbonne Nouvelle in Paris and at the Ecole Normale Supérieure (ENS) in Lyon, a French grande école. Dr. Caro attended the Université Sorbonne Nouvelle, where she obtained a master’s degree in German Studies as well as a joint Ph.D. in German and French Studies in cooperation with the University of Dresden.
University of Dresden.