Faculty
Professor Matthew J. Slaughter
Objectives
Course Setting: The Global Capital Markets Crisis and Great Recession
Today the world continues to struggle with the capital-markets crisis and the deepest recession since the Great Depression. Start with the United States. Since the onset of its recession (in December 2007) through August 2009, 6.9 million payroll jobs— 1 in 20—have been lost. The headline unemployment rate hit 9.7% in August. The broader rate of "underemployment," which counts workers who self-identify as discouraged or involuntarily working part-time rather than full-time, hit 16.8% that month. U.S. total output of goods and services (gross domestic product, or GDP) has fallen five of the past six quarters. The rate of contraction now appears to be moderating, fortunately, but the outlook for the balance of 2009 and years beyond remains quite unclear.
The picture around the world has been similarly grim. For 2009, the World Bank and International Monetary Fund are forecasting a contraction of total world GDP of somewhere between 1% and 2%. Deep recessions hit the majority of the world’s economies. In the last quarter of 2008 and the first quarter of 2009, the Japanese economy was contracting at an annualized rate above 12%. The 16 Eurozone economies also contracted at severe rates (15% in Germany in the first quarter); so, too, did the U.K. economy and many others. Unemployment in many countries continues to rise: over 12% in Ireland, and over 18% in Spain. In the second quarter positive GDP growth was realized in some major countries, but as in the United States the near- and medium-term outlook remains murky.
Only middle and low-income countries—in particular, China and India—have continued to enjoy economic growth. But in these economies growth rates have slowed dramatically and face much greater uncertainty about what "speed limit" rates of growth might be sustainable in the future.
Interwoven as cause and effect with this deep world recession is the ongoing capital-markets crisis. A key starting point for this crisis was the collapse of prices for U.S. residential real estate. But the crisis has spread to virtually all asset classes, with sharp declines in prices and transactions around the world. This spread has been a vivid example of globalization in action: poor lending decisions for American homes in places like California, Florida, and Michigan have triggered worldwide damage thanks to the span of mortgage-linked derivative products.
Governments have undertaken historic efforts to arrest this crisis. Central banks including the U.S. Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan have slashed target policy rates to near zero and have undertaken unprecedented expansions of their balance sheets. Fiscal authorities around the world have collectively borrowed trillions of dollars to spend in different ways, and have assumed trillions of dollars more in various financial liabilities. Despite all this government activity, on many measures the capital-markets crisis remains far from being fixed.
Venerable companies have gone bankrupt; leading CEOs have been fired; and there remains widespread fear and uncertainty amidst workers, investors, and voters. How did the world get to this point? Who or what is responsible? What government policies can and should be pursued to improve world markets? And what leadership challenges—and opportunities—will this ongoing crisis presented to you as your business career unfolds?
Course Goal: Your TPOV on Leading at the Intersection of Countries and Companies?
One of the most amazing developments of the capital-markets crisis—one whose causes and consequences will take years to fully understand—has been the sharp escalation of the government’s role in business. This expansion has often been very direct: e.g., nationalizing ownership of companies in many industries—and often of national icons, such as General Motors. It has also often been indirect as well: e.g., the extension of trillions of dollars in implicit support through credit guarantees and other channels.
For business leaders, government is now much more factor in strategic planning along all key dimensions: as a possible revenue source; as a competitor; and as a regulator of corporate choices regarding capital markets, labor contracts, energy costs, health costs; taxation; and international trade and investment. And many CEOs and boards of directors are finding that government leaders often look askance at them.
This dynamic, then, presents a central question for CACIE: how will you lead companies when countries have so many more connections to your business—connections that often spring from government wariness, not support, of the private sector?
In this course, each of you is going to work to develop your own answers to this question—that is, your own Teachable Point of View about how business leaders should lead companies amidst increasingly-present governments of many countries. The framework we will use to organize your Teachable Point of View is Congressional testimony.
What is a Teachable Point of View? Academic and consultant Noel Tichy has characterized the Teachable Point of View (TPOV) as follows.
• "A teachable point of view is a leader’s opinion on what it takes to win and what it takes to lead others … A teachable point of view becomes the basis for leaders to present a dynamic, compelling story to others. These stories create a case for change, a vision for where the organization is going, and an understanding of how to get there."
• "Acquiring a teachable point of view involved in-depth preparation by the leaders. Once they had a TPOV, they thought of creative ways to find teaching and learning opportunities. They tried to turn every interaction into a learning and teaching event."
Many leaders—both in business and outside—are successful precisely because they develop and articulate TPOVs in a way that others find compelling.
Course Structure: Congressional Hearings and Testimony
After the opening CACIE class, each of the next eight class meetings will be structured like a Congressional hearing at which you students will deliver testimony imagining that you are CEO of a globally engaged company.
In the U.S. Congress, two of the most powerful committees with jurisdiction over matters of global business are the Committee on Financial Services in the House of Representatives and the Committee on Banking, Housing, and Urban Development in the Senate. Our CACIE topics fall mainly under the purview of these two committees, and so your testimony each day should be directed either to Chairman and Representative Barney Frank (Democrat, Massachusetts) or to Chairman and Senator Christopher Dodd (Democrat, Connecticut).
When members of a Congressional committee are deliberating economic policy, they often convene hearings at which they invite witnesses to deliver a statement of testimony and then answer questions—sometimes under oath. Witnesses are often CEOs of companies with business of relevance to the matter(s) at hand. Each witness has the opportunity to deliver oral testimony, which almost always is strictly limited to no more than five minutes, and written testimony, which can be longer and which becomes part of the official Congressional record.
Please note that these U.S. practices for how the federal government engages the business community are qualitatively very similar to practices of many other countries throughout the world. Whatever countries you end up leading companies from and in, the ability to articulate TPOVs to government officials will be a critical skill. To allow you to tailor CACIE to the countries of your interest, on any given day you should feel free to prepare any aspect of the course—general conversation, daily oral testimony, or longer written testimony—from the perspective of any country you like. Thus, for example, on our second day you can evaluate government support for autos for any country you choose. Or, on our last day you can evaluate the need (or lack thereof) for a "New Deal for Globalization" from the perspective of any country you choose.
A typical class day will have three parts.
1. Opening Conversation. First, we will close out any loose ends that might remain from the previous class session. Next, we will typically have a short conversation about "In the News"—i.e., CACIE-relevant headlines of world current events. Then we will turn to the topic of the day, which I will typically take a few minutes to introduce.
2. Oral Statements of Testimony. I will invite several students to deliver their oral testimony on that day’s topic. Each selected student will stand before the room and speak. Consistent with the practices of nearly every Congressional committee, you will have no more than five minutes in which to make your statement. There will be no exceptions. After each statement, only brief questions of clarification will be permitted.
3. Question and Answer Period. The opening statements will then open a full-class conversation in which anyone can ask questions of the witnesses about their testimony, which witnesses will answer as they like. I will loosely serve the role of Committee Chairman as needed, to help maintain an engaging and lively conversation. Near the end of the class, I will typically draw together the conversation and offer some summary thoughts and perspectives.
For each CACIE session you can pick whatever company, industry, and home country you would like to imagine being CEO of—and you can change across days if you like! Whatever perspective you adopt for a given day, you should be prepared to deliver and deliberate testimony from that perspective. Here are some possibilities.
• The perspective of the company you have matched with for your initial post-Tuck placement.
• The perspective of a company you hope to match with for your initial post-Tuck placement.
• The perspective of a company you hope to match with at some point in the future.
• The perspective of a company currently involved in the topics we are covering in CACIE.
How Should You Prepare for and Participate in Class?
You are expected to prepare for, attend, and actively participate in every class.
Each day, there are two different ways you can participate in class conversation. One is offering to read and defend your testimony. The other is speaking in the general flow of the class—especially the post-testimony conversation. As described below, participation in class conversation is one-third of your course grade. I evaluate based on a combination of the quantity and quality of your interventions. To receive high marks on this part of the course, it is neither necessary nor sufficient to speak every day.
I encourage you to prepare each day with classmates, in whatever forum you find most constructive. However, your Congressional testimony (daily or longer—see grading description below) needs to be drafted by yourself alone you need practice developing your personal TPOVs.
For each day, the syllabus lists as set of readings I recommended readings to help your preparation. As appropriate, I will offer guidance for their relative importance. Beyond the syllabus readings, however, you should feel free to read any other information you think is relevant for your understanding of that day’s materials. In particular, you may wish to review information specific to your company from which you are providing your TPOV (e.g., recent coverage in the financial media, recent regulatory filings such as annual reports).
Requirements
Materials
The Honor Principle
I take the Academic Honor Principle very seriously and have very clear policies for this course. As a reminder to all of us, here is a statement of Tuck's Academic Honor Principle.
"Integrity and honesty in the performance of academic activities, both in the classroom and outside, are essential to the educational experience for which the Tuck School has always stood. Each member of the Tuck community accepts the personal responsibility to uphold and defend high ethical standards in all academic endeavors, and to promote an atmosphere in which honest and imaginative academic work may flourish."
Grading
Your final course grade will be determined equally by the following three parts.
Participation in Class Conversation
• This will be based on the quality and quantity of your in-class participation. Offering oral testimony counts towards this part of you grade. More generally, so does your engagement in overall class conversation.
Daily Oral Testimony Hand-Ins
• You will need to hand in between one and eight oral testimonies, due each class. Again, no oral statement should exceed five minutes. Given the pace at which most people speak, this means that the written version of an oral testimony should not exceed about two pages. The more oral testimonies you prepare and hand in, the higher marks you will receive for this part of your grade. To maintain a fair balance in class conversation, you likely will not get to present in class all of the oral statements you prepare.
Longer Written Testimony Hand-In
• Select one of the eight day's topics, and prepare and hand in a five-page testimony of your TPOV on this business policy issue. Due by the start of class on Thursday, 10/16.
Schedule
Day One: Thursday, September 17
Course Introduction and Global Economic Overview
Overview for Today: We will survey the current global economic environment, as a framework for many of the CACIE topics we will cover together. Is the recession ending in the United States and other countries? What is the prognosis for near-term growth and inflation in key parts of the world? What medium- and longer-term challenges await? Where and how are the new intersections between countries and companies most visible?
Testimony Topics for Today: None.
Readings for Today: There are four readings for class today.
1. "How Leaders Develop Leaders," by Eli Cohen and Noel M. Tichy, 1997.
This article explains the research on and practice of the Teachable Point of View.
2. "State Capitalism Comes of Age: The End of the Free Market?" by Ian Bremmer, Foreign Affairs, May/June 2009.
In this essay, Bremmer analyzes where and how around the world governments are encroaching on market forces, and he speculates on future trends. In particular, he argues that state intervention in many developing countries is likely to persist far beyond similar intervention in more-advanced countries. Do you agree?
3. "What's Behind the Recent Productivity Slowdown?" by Martin Neil Baily and Matt Slaughter, The Wall Street Journal, December 13, 2008.
In this op-ed, which draws on a recent report by Martin and me (available at www.privateequitycouncil.org), we argue that rising country-level productivity depends crucially on competitive product markets.
4. "In Washington, One Bank Chief Still Holds Sway," The New York Times, 7/19/09.
This article examines how JP Morgan Chase CEO Jamie Dimon integrates government policy into his leadership strategy.
Important Note on Broad Readings to Support CACIE: By design, CACIE aims to extend your use and understanding of many topics covered in Global Economics for Managers. So you’re the chapters of the GEM text (by Bernard, Knetter, and Slaughter) may be useful references at various points in CACIE. Also, to maximize your CACIE learning I recommend that you keep abreast of current global economic and financial matters by reading items such as The Financial Times, The New York Times, The Wall Street Journal, BusinessWeek, and The Economist.
Day Two: Friday, September 18
U.S. Automobile Bailout
Overview for Today: Automobiles has been one of the global industries most severely pressured by the world’s capital-markets crisis and recession. In response, over a dozen countries—Canada, China, Germany, France, and the United States, to name just a few—undertook extraordinary measures to support automobile companies operating in their borders. In the United States alone: tens of billions of dollars were granted to Chrysler and General Motors; the federal government oversaw in great detail their bankruptcy filings; and today the U.S. government retains substantial ownership in these two companies while having guided key strategic decisions including selecting new executives and boards of directors, R&D strategies, product mixes, dealer relationships, and cross-border production structures. Have these interventions in automobiles been sound public policy? An unwanted but necessary evil? Or a colossal mistake with costs to be incurred for many years?
Testimony Topics for Today: Please explain to the Committee your views on the U.S. government support over the past year for automobiles. Were government choices sound or unsound? Why? How would you recommend that the U.S. government proceed from here, both in terms of its ownership of Chrysler and General Motors and, more generally, in terms of how if at all it should shape automobile activity in the United States? Is there some sort of market failure where government intervention makes good sense? How did this intervention affect your company—were your helped, hurt, or unaffected?
Readings for Today: There are eight short readings for class today. All are based on the 11/19/08 hearing convened by the U.S. House Financial Services Committee, "Stabilizing the Financial Condition of the American Automobile Industry."
(the full hearing can be found at http://financialservices.house.gov/hearing110/hr111908.shtml)
1. Testimony by Rick Wagoner, CEO of General Motors.
2. Testimony by Robert Nardelli, CEO of Chrysler.
3. Testimony by Alan Mullaly, CEO of Ford.
4. Testimony by Ron Gettelfinger, President of the United Auto Workers union.
5. Testimony by Matt Slaughter.
6. Op-ed in The Washington Post, "A Bridge for the Carmakers," by Jeffrey Sachs, professor at Columbia University who spoke at this hearing but did not submit written testimony.
7. Op-ed in The Wall Street Journal by Matt Slaughter, "An Auto Bailout Would Be Terrible for Free Trade."
8. Op-ed in The Wall Street Journal by Matt Slaughter, "What Is an 'American' Car?"
Also, many of the broad topics of today relate to issues raised in The Choice, which we all read together last year for Day Three of Global Economics for Mangers. In preparing for today’s class, you might benefit from reviewing this particular part of GEM.
Day Three: Wednesday, September 23
The Global Financial Crisis: Are Pay Caps for Financial Executives the Solution?
Overview for Today: As the world struggles to rebuild normal functioning in global capital markets, regulators in many countries are looking to restructure regulation to minimize (or eliminate?) the probability of future such crises. Perhaps the most heavily scrutinized area for reform is in the structure and/or level of compensation in financial companies. Many argue that poor compensation structures contributed to the crisis, e.g., by allowing key executives to realize large payouts on profits even if such profits later disappeared. In the United States, the issue of finance compensation has drawn sharp attention, e.g., in spring 2009 amidst large bonus payouts to dozens of executives at American Insurance Group.
Testimony Topics for Today: Please explain to the Committee your views on the compensation practices in financial services. Are there features in the typical structure and/or level of compensation in this industry that contributed to the global capital-markets crisis? What changes to pay practices do you recommend? In particular, the Committee will be especially interested in your views on whether finance executives are paid too much and or paid in the wrong way. Is there a market failure where government intervention makes good sense? Or, are there other capital-market issues more important than executive compensation that deserve higher priority? If so, what are they and why? How are you addressing these issues inside your company?
Readings for Today: There are five short readings for class today.
1. An open letter to all G20 leaders by U.K. Prime Minister Gordon Brown, German Chancellor Angela Merkel, and French President Nicholas Sarkozy. Written in advance of the September 24-25 G20 summit (which is being hosted by President Obama in Pittsburgh), this letter argues the need for coordinated reform of financial compensation.
2. Testimony by Professor Lucian Bebchuck.
3. Testimony by Professor Kevin Murphy.
4. A recent short survey of executive compensation from The Economist, "Attacking the Corporate Gravy Train."
5. A recent article on finance compensation from The Wall Street Journal, "Banks Ramp Up Pay Packages to Top Talent."
If you are interested in the broader issue of reform of capital-markets regulation, then you might be interested in the work of the Squam Lake Working Group on Financial Regulation, of which Prof. Ken French and I are founding members. Our non-partisan, non-affiliated Group of 15 academics is writing short white papers aimed at offering guidance on regulatory reform. The six papers to date can be found here: www.squamlakeworkinggroup.org.
1. "A New Information Infrastructure for Financial Markets"
2. "A Systemic Regulator for Financial Markets"
3. "An Expedited Resolution Mechanism for Distressed Financial Firms"
4. "Reforming Capital Requirements for Financial Institutions"
5. "Credit Default Swaps, Clearinghouses, and Exchanges"
6. "Regulation of Retirement Saving"
Day Four: Wednesday, September 30
Are U.S. Capital Markets on the Wane?
Overview for Today: Today we will discuss one of America’s strongest industries, of direct interest to many of you as a past and future employer: financial services. In the years leading up to the financial crisis, much attention was paid by leaders of Wall Street and Washington to the rising worry that American capital markets—especially the nexus of capital-market activities in New York—may be weakening relative to financial centers abroad such as London, Hong Kong, and Dubai. For example, in 2007 U.S. Treasury Secretary (and former Goldman Sachs CEO) Henry M. Paulson convened a conference, "U.S. Capital Markets Competitiveness," at which speakers included Warren Buffett, James Dimon, Alan Greenspan, Jeffrey Immelt, and John Thain. (This is archived here: http://www.treasury.gov/press/releases/hp304.htm)
Today we will bring our CACIE tools to bear on this issue. How should the competitiveness of American capital markets be measured? Does it matter if American strength here is truly on the wane? And what policy measures, if any, could arrest this decline?
Testimony Topics for Today: Please explain to the Committee your views on the competitiveness of American capital markets. Do U.S. capital markets have sufficient strengths to draw on to preserve their global competitiveness in the coming years? Are there important risks to this competitiveness? If so, what, if anything, can the U.S. government do to address them? How do you envision your financial services company responding to these trends? Will your U.S. operations be shrinking, in real or relative terms? How are you managing the need to re-deploy key colleagues around the world?
Readings for Today: There are three short readings for class today.
1. A survey of global financial centers, from The Economist magazine. Entitled "Magnets for Money," it was published two years ago on the cusp of the financial crisis—but its many structural, long-term issues remain very relevant today.
2. An article on the growth of financial-services activity in India from The New York Times on August 12, 2008, "Cost Cutting in New York, But a Boom in India."
3. A companion same-day article from The New York Times, "Leaving Wall Street for a Job Overseas", which discusses the personal choices many bankers face when their company offers them postings in rising financial centers abroad.
Day Five: Thursday, October 1
BRICs and Others in the Global Economy
Overview for Today: One of the most remarkable features of globalization in the past generation has been the rapid economic growth realized by so many middle and low-income countries, such as the BRIC nations of Brazil, India, China, and Russia.
The single biggest goal of current economic policy in many BRIC countries is to foster continued productivity growth—growth in output per worker. Productivity growth is the only way for any country to enjoy sustained increases in living standards. In the past generation, China in particular has realized the world's greatest episode of productivity growth. Since the start of the "Open Door" policy economic reforms in 1978, average living standards have risen more than ten-fold. The poverty rate has fallen sharply: the percent of people living on less than $1 per day has fallen from 32% in 1990 to just 9% in 2005. India and many other countries have had similar, albeit less dramatic, growth runs.
These countries have raised productivity in both agriculture and manufacturing by introducing market forces—in particular, the market forces of international trade and investment. Services is the largest sector of many economies still in need of domestic and international competition. Financial services are especially important here, because a well-functioning financial sector improves risk management and capital decisions in firms throughout the entire economy. On many measures, then, BRIC integration into the world economy still has far to go.
But this economic integration has already generated massive changes in the global economic landscape on dimensions such as international trade and investment. And it has also generated important political pressures for both companies and countries as well.
In the United States, for example, many regard the ever-widening trade deficit with China—$266.3 billion in 2008—as a symbol for all that is unfair about globalization in general and China in particular. The 109th Congress introduced 27 pieces of anti-China trade legislation. In just its first three months, the 110th Congress introduced over a dozen such bills. The 2008 Congressional elections saw many open-markets supporters defeated by explicitly protectionist challengers, many of whom single out China as an especially large part of the problem.
Testimony Topics for Today: We in the U.S. Congress are trying to understand what unfair advantages, if any, China and other BRIC countries wield over the United States today and what our government should do about these advantages. As a global corporate leader, how do you explain the BRIC economic success? How is your company engaging these markets—as a source for new revenue, as a center for reducing costs, or as something else? How does your BRIC engagement affect your U.S. workers and other stakeholders, like local communities in which you operate? Do you support the U.S. Congress taking a tougher stand against China and other countries? Why or why not?
Readings for Today: There are four short readings for class today.
1. "The New Titans: A Survey of the World Economy." The Economist, September 16, 2006.
This collection of short readings examines the boost the China, India, and other developing economies are giving the world economy—and also what all this means for today's advanced countries.
2. "So Many Children Left Behind." The Wall Street Journal, April 12-13, 2008.
This story illustrates the wrenching decisions that greater economic mobility and opportunity present to Chinese families.
3. "As China Roars, Pollution Reaches Deadly Extremes." The New York Times, August 26, 2007.
This front-page story examines the environmental damage created by Chinese growth.
4. "Pursuit of Happiness: India's Surging Economy Lifts Hopes and Ambitions." The Wall Street Journal, November 28, 2007.
This front-page story offers personal and macro-level perspectives on the socio-economic impacts of India’s ongoing economic growth.
Day Six: Wednesday, October 8
Immigration Policy
Overview for Today: For many years, April 1 has been the day the U.S. Citizenship and Immigration Services begins accepting new H1-B visa petitions for the subsequent fiscal year, which started last week on October 1. Established by the Immigration Act of 1990, each H1-B visa allows a company to sponsor a highly educated foreigner—typical occupations include architects, doctors, engineers, and scientists—to work in the United States for at least three years. The H1-B program, which accounts for nearly all skilled immigrants admitted to work here each year, is currently capped annually at 65,000 with a bachelor’s degree or higher plus an additional 20,000 with a master’s degree or higher.
Is this enough supply to meet market demand? More generally, what criteria should guide U.S. immigration policy towards highly skilled workers? Should it be trying to balance market supply and demand? Should it be some broader economic or non-economic goal? Do all Americans benefit from immigrants, or do some Americans feel wage pressure due to greater labor-market competition? Should the answer to this question matter for U.S. immigration policy—or that of any other country in the world? The most-recent change to U.S. high-skilled immigration policy was the Employ American Workers Act of 2009, which made hiring skilled immigrants much harder for the hundreds of U.S. companies that had received financial assistance during the crisis. Was this Act a good or bad thing for American workers? Companies? The economy?
Testimony Topics for Today: Please share with the Committee the views of you and your company regarding the Employ American Workers Act and, more generally, overall U.S. high-skilled immigration policy. How do highly skilled immigrants contribute to your company? Are there any downside costs to this reliance—in particular, for your U.S.-born colleagues? Do these answers depend in any way on the state of the business cycle? What principles do you think should guide overall H1-B immigration policy? Given these principles, should the number of annual new H1-B visas be decreased, kept the same, or increased?
Readings for Today: There are four short readings for today.
1. "Silicon Valley’s Skilled Immigrants: Generating Jobs and Wealth for California," PPIC Research Report by Professor AnnaLee Saxenian.
2. Congressional Testimony by William H. Gates, Chairman of Microsoft, March 12, 2008, before the U.S. House Committee on Science and Technology.
3. Op-ed in The Wall Street Journal by Matt Slaughter, "The Immigrant Gap."
4. Op-ed in The Wall Street Journal by Paul Danos, Robert Hansen, and Matt Slaughter, "It's a Terrible Time to Reject Skilled Workers."
Day Seven: Thursday, October 9
International Tax Policy for Multinational Corporations
Overview for Today: Many of the concerns articulated about globalization often involve multinational corporations. These companies are commonly alleged to be "exporting jobs" out of their home countries into foreign affiliates located abroad; moreover, it is commonly alleged that a primary motive for exporting jobs is to evade home-country profits by locating employment and other activity abroad in lower-tax jurisdictions. Do multinational companies really export jobs, and really do so for tax reasons? If so, how should home-country governments tax the foreign operations of these companies?
Earlier this year President Obama proposed a major reform of U.S. international-tax laws, in a proposal entitled, “Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas.” A main piece of this reform would be to curtail deferral of taxation of foreign-source income.
The reason deferral exists in U.S. tax code is that nearly all foreign countries operate territorial tax systems, not worldwide tax systems like ours. Under worldwide taxation, U.S. multinational companies are taxed not just on their U.S. earnings but also on their foreign-source earnings as well—at a current national statutory rate of 35%, highest among the 30 OECD countries in contrast to the current OECD simple average corporate tax rate of about 23%.
Under current U.S. law, active business income earned by a foreign affiliate of a U.S. multinational is generally subject to U.S. tax only when those earnings are repatriated to the U.S. parent (e.g., via a dividend payment). This practice of "deferring" the U.S. tax liability on unrepatriated earnings accords with that of nearly all major countries: of the 29 other OECD nations, most exempt altogether foreign-source income while the remainder allow deferral.
Testimony Topics for Today: If you could start from scratch, what sort of corporate-tax policy would you recommend for the U.S. government? Please share with the Committee whether current U.S. tax law helps or hinders the global operations of your multinational company. How important are tax considerations to your firm’s strategic planning? If you do not think that U.S. deferral should be reduced, then can you please explain to the Committee why this is so? Does your company export jobs out of the United States?
Readings for Today: There are two short readings for today.
1. "Leveling the Playing Field: Curbing Tax Havens and Removing Tax Incentives for Shifting Jobs Overseas," The White House, Office of the Press Secretary, 5/4/09. This document lays out and explains President Obama’s proposed international-tax changes.
2. How U.S. Multinational Companies Strengthen the U.S. Economy, Business Roundtable and United States Council Foundation research report by Matt Slaughter, March 2009. This report I did earlier this year documents the contributions of U.S.-headquartered multinationals to the U.S. economy. Chapter 4 speaks most directly to the concern about these companies exporting jobs.
Day Eight: Wednesday, October 14
Fiscal Policy—Who Should Pay What In Taxes?
Overview for Today: For the United States and many other countries, the current and longer-term fiscal outlook is sobering. Very large deficits are currently being run—and are forecast to be continued for many years, if not decades, into the future. Recently the administration of President Obama announced that the U.S. federal deficit in the current fiscal year of 2009 will be about $1.6 trillion, or about 11.5% of GDP. Except for periods during the two World Wars, as a share of GDP this deficit will be the largest the United States has ever run in its history. The fiscal situation in many other countries is even more dire.
Many analysts—citizens, business leaders, elected and appointed government officials—say that these large fiscal deficits are not sustainable. Such arguments raise the important distributive-justice question of who should pay what taxes for what purposes?
Testimony Topics for Today: In your role as CEO of a global company, can you please tell the Committee how the current and looming fiscal deficits affect your business? Do you think that a sound way to start closing these fiscal gaps is for companies like yours to pay higher taxes? Why or why not? How about high-income executives like yourself? Why or why not? Overall, what do think should be done to close these fiscal gaps?
Readings for Today: There are four short readings required for today.
1. "Deficit Projected To Swell Beyond Earlier Estimates," Washington Post, 3/21/09. This short article describes this spring’s best-guess projections of the non-partisan Congressional Budget Office for the U.S. fiscal deficits 2010-2019.
2. Chapter 1 of A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook. Congressional Budget Office, March 2009. Chapter 1 of this report summarizes the CBO's best-guess for the ten-year U.S. budget outlook.
3. Historical Effective Federal Tax Rates. Congressional Budget Office, April 2009. This short document—especially Table 1—gives an overview of who pays what in taxes.
4. Senate Testimony by Federal Reserve Chairman Ben S. Bernanke, Long Term Fiscal Challenges Facing the United States, 1/18/07. In this testimony, Chairman Bernanke discusses the building fiscal pressures that face the United States because of entitlement programs and why today "seems likely to be the calm before the storm."
In addition, I have included four short optional readings: four op-ed essays of recent days, all of which discuss the current fiscal problems facing the United States. The four authors tend to come from different points of the political spectrum.
1. "Fiscal Suicide Ahead," David Brooks, The New York Times, 5/15/09
2. "America Requires a Dose of Health Care Reality," Clive Crook, The Financial Times, 5/17/09
3. "Obama’s Risky Debt," Robert Samuelson, The Washington Post, 5/18/09
4. "Soak the Rich, Lose the Rich," Arthur Laffer and Stephen Moore, The Wall Street Journal, 5/18/09
Day Nine: Thursday, October 15
A New Deal for Globalization?
Overview for Today: Political pressure for a more protectionist tilt to economic policy has risen significantly in recent years around the world. In many countries, this policy drift reflects a sharp drop in support for more open borders. The outcome is rising barriers to trade, investment, and immigration in many countries. At the November 2008 summit of the G20 nations, all 20 assembled leaders pledged to not implement any new protectionist policies. However, by March 2009 analysts at the World Bank reported that 17 of the G20 (including the United States) had broken this pledge.
The Scheve/Slaughter essay offers an explanation for this protectionist drift: policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes. The essay also offers a proposal for how to arrest the protectionist drift: a New Deal for globalization that would link trade and investment liberalization with building greater progressivity into the federal tax code.
Topics for Today: The Committee is interested to hear whether you care about recent earnings trends in the United States and many other countries, with poor real and relative earnings growth for most workers? Please feel free to answer from the perspectives of you as a citizen, as a taxpayer, and as a successful business leader. Do you agree with the idea that the protectionist drift is driven by these earnings trends? More generally, what responsibility, if any, do those stakeholders who benefit from economic forces like globalization—in particular, multinational firms and high-skill, high-income individuals—bear for helping share those gains more broadly?
Readings for Today: There are three short readings for today.
1. "A New Deal for Globalization," by Kenneth F. Scheve and Matt Slaughter, Foreign Affairs, July/August 2007. In this essay, Scheve and Slaughter argue that further trade and investment liberalization need to be linked to greater fiscal progressivity.
2. "Striking It Richer: The Evolution of Top Incomes in the United States," by Professor Emmanuel Saez, August 2009. Professor Saez provides data and analysis through the most recent year of available data, 2006.
3. Op-ed in The Wall Street Journal by Matt Slaughter, "Let’s Have a Real Debate on Globalization."
