International trade and policy experts have made strong arguments that the worldwide economic downturn a decade ago (2008-2009) was due to the inadequacies in the rules that we need to have globally for a stable and prosperous economy. The carryover effect to today, some 10 years later, is potentially worrisome in the long term, some economists suggest.
As a bright spot, right now, with a short-term focus, the world economic outlook is much more upbeat than most economists even predicted it would be at this time. Consequently, is this the time to leverage the current cyclical upswing for reforms such as globally shared priorities to boost potential output and making growth more inclusive and more sustainable in the long-term? There is definitely slack in the global system. For example, weak inflation can be argued to suggest that slack remains in many advanced economies and that monetary policy should continue to remain accommodative.
Global productivity grew by 3.7 percent in 2017, which was 0.5 percent higher than in 2016. This growth is also broad-based and largely worldwide, with a surprising and notable upside seen in markets in Europe and Asia. For 2019, the prediction is that we will see a 3.9 percent growth globally (2018 is expected to come in around that figure also), according to the International Monetary Fund. In large measure, the new U.S. tax policy has led to an upswing in growth estimates, with the globe expecting a 0.2 uptick in both 2018 and 2019 (from 3.7 to 3.9 percent) just due to the restructured U.S. tax benefits to companies and people.
Then, it is interesting to note that many economists believe that sustained economic growth remains very much at risk because of the polarized political climate we are living in today – with protectionism, terrorism, and even global warming being culprits that can make the global economy stagnate again. The U.S. tax cuts will carry the country’s growth for a while. By most accounts, the effect on U.S. growth is estimated to be positive through 2020. That sounds good! So, perhaps we can agree that in the short-term, the global economic outlook is good. Given that we, for the most part, live in a short-term oriented world, however, should we care about long-term global economic concerns?
Well, we do know that productivity growth, in particular, is a key to global success. Such growth is the best indicator of higher income and rising living standards over a longer term. Productivity growth can also help grow the pie larger, bring people up from poverty, and create a robust middle class across the globe. International competitiveness and sustained growth, then, are important all around the globe. Let me be more direct, to have a positive effect on the middle class’ purchasing power, we can’t have the uneven growth that is often seen in alpha-seeking stock portfolios, where short-term gains help to average out to robust-looking long-term performance.
In the United States, the International Trade Administration (ITA) is the Federal body that is focused heavily on international competitiveness: ITA “is committed to improving the competitiveness of U.S. companies in the international marketplace.” The U.S. Office of Trade Policy and Analysis supports ITA’s work “by examining the impacts that economic and regulatory factors will have on the competitiveness of U.S. businesses and business sectors.” And, the U.S. Department of Education facilitates the knowledge and skills needed to be internationally competitive in the Office of Postsecondary Education’s International and Foreign Language Education (IFLE) programming (Title VI).
For example, the IFLE program titled Centers for International Business Education (CIBE) is structured to (1) Be national resources for the teaching of improved business techniques, strategies, and methodologies that emphasize the international context in which business is transacted; (2) Provide instruction in critical foreign languages and international fields needed to provide an understanding of the cultures and customs of U.S. trading partners; (3) Provide research and training in the international aspects of trade, commerce, and other fields of study; (4) Provide training to students enrolled in the institution or institutions in which a center is located; (5) Serve as regional resources to local businesses by offering programs and providing research designed to meet the international training needs of such businesses; and (6) Serve other faculty, students, and institutions of higher education located within their respective regions.
For 2018/19, the CIBE program is a planned $4,571,400 expense to the U.S. Federal Government to support 16 “institutions of higher education in the United States on issues of importance to U.S. trade and competitiveness.” This is, on average, about $285,000 per university. However, each grantee of the CIBE funding has to match one-to-one to have a chance to successfully apply for the prestige and status of having a CIBE center on campus (in reality, most CIBE institutions match 3-1 or even 4-1 to showcase their commitment the program and to the reviewers in the application process).
What do the U.S. taxpayers get for this $4,571,400 expense? The idea was that CIBE institutions would help the U.S. become more competitive internationally, right? How can we measure this? Education, after all, is a service that is hard to measure in the short term, and remember we are a short-term focused society! The average CIBE engages in some 200 activities per year to drive the country’s international competitiveness in the long-term. But, there are some short-term performance measures that are indicative of the impact a CIBE can have. For example, the CIBE at Michigan State University and its “Michigan Export Growth Program” in 2017 helped companies generate an estimated $25 million in new export sales by achieving 350 new market entries to 23 countries, and this is viewed as pro bono deliverables for the companies who receive it and short-term deliverables! At a $285,000 investment, that’s an almost 87 times multiplier (or 8,700.00 percent in return), and now we are not counting the other some 199 activities that a CIBE has to do.
More long-term focused, as a sample also from 2017 and MSU’s CIBE activities. MSU's activities included, for example, the 33 business training programs involving 3,079 businesspeople to the 57 educational programs organized involving 3,013 faculty (four-year institutions and community colleges), ultimately impacting 176,880 students nationwide. That is, these educators that were taught to better teach international business, trade, and exporting topics by MSU’s CIBE to their students at their own institutions collectively teach 176,880 students in a year. That is (potential) impact in the long run, especially since data show that students are needed to fill the expected 500,000 new jobs in international business (IB) that will pop up in the country between now and 2022.
The U.S. tax cut has clearly engaged the marketplace and resulted in a robust positive growth in the economy. But, this may also be the time to leverage the current cyclical upswing for reforms to boost potential output and making growth more inclusive and more sustainable in the long-term. Some programs such as the U.S. Department of Education’s CIBE program can be nice, competitive vehicles to U.S. growth. Now, it takes (some) tax investments to do so, and the U.S. Federal Government needs to carefully and strategically identify where the CIBE multiplier effect can be gained also in the government’s numerous other programs (without a clear return-on-investment and lacking a strong multiplier, perhaps more tax cuts are warranted).
Dr. Tomas Hult is Professor and Byington Endowed Chair in International Business in the Broad College of Business at Michigan State University, where he also serves as the Director of the International Business Center (which is a CIBE-funded center by the U.S. Department of Education). Dr. Hult is Executive Director of the Academy of International Business, with members in some 90 countries. His International Business (12e) and Global Business Today (10e) books (McGraw-Hill Education), with Charles W. L. Hill, are the market leaders in IB textbooks worldwide. Professor Hult is one of the top cited international business scholars, and in 2016 he was selected as the Academy of Marketing Science Distinguished Marketing Educator as that year's top marketing professor globally for career scholarly career achievements.