RECOMMENDATIONS FOR THE NEW POLICY BRIEFS ADMINISTRATION

These policy briefs outline a series of recommendations from the Baker Institute for the incoming president’s administration.

RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Five Major Challenges to the Beneficial Use of Non- Fresh Water, Including Oil- and Gas-Produced Water

Linda Capuano, Ph.D., Fellow in Energy Technology Anna Mikulska, Ph.D., Nonresident Scholar in Energy Studies

Unconventional shale oil and natural the nation’s total estimated water use of gas extraction are important elements 355 bgpd, produced water can represent of the U.S. energy revolution. Increased an important new water source, especially domestic production has improved energy for more arid states. State water plans are security while lower prices and more already beginning to include the use of affordable energy have supported industrial treated brackish and waste water. Treated expansion, created jobs, and fueled produced water would add to this supply and economic growth. Recent developments, further displace the use of fresh water, which however, have not been without would then be available for other purposes. challenges, two of which relate to water: The Center for Energy Studies (CES) has 1) the industry’s reliance on water as part actively engaged stakeholders, including of extraction by the method of hydraulic government, industry, and academia, in fracturing, and 2) the need to store, treat, this discussion. We have hosted workshops and/or dispose of the large amount of and conferences to clarify the challenges, “produced water” that is brought to the share successful practices, and overcome surface during production. At the same barriers in produced water treatment and time, many states are coming to realize use. As a result, CES has provided insights the potential for using produced water to to assist state and federal policymakers. There is the potential meet growing water demand rather than Most recently, we partnered with the for treated oil and injecting it into underground disposal wells. Ground Water Protection Council (GWPC), This brief describes five high priority Interstate Oil and Gas Compact Commission, natural gas produced challenges that must be overcome to and National Rural Water Association water and other non- accelerate the beneficial use of produced (NRWA) to organize a National Produced fresh water sources to and other non-fresh water sources. We also Water Forum hosted by Oklahoma governor augment water supplies believe there is an active role for federal Mary Fallin. CES has also facilitated and displace the use agencies, particularly the Department of discussions on produced water and state Energy and its laboratories, to assist local, water plans at the co-located September of fresh water, which state, regional, and other stakeholders as 2016 GWPC/NRWA Conference. would then be available they develop and adapt water policies and These discussions have convinced us for other purposes in practices to convert produced and other that broad collaborative action is necessary state water plans. non-fresh water supplies into a resource to overcome challenges and successfully that is included in state water plans. enable the beneficial use of non-fresh The volume of produced water in 2012 waters, especially produced water. CES also was approximately 2.4 billion gallons per believes that federal participation in the day (bgpd), of which 75% was produced in following five high-priority challenges is California, Kansas, Oklahoma, Texas, and essential in assisting local, state, regional, Wyoming. Although small compared with and other stakeholders as they develop and RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

adapt water policies and practices related National laboratories could also play to produced water and other non-fresh an important role in developing acceptable water supplies: water quality guidelines for different uses. • Standardize approaches to verify and These guidelines could help clarify the test new water analysis and treatment technical challenges of designing water technologies that are supported by treatments for specific applications, and impartial and objective guidelines. focus policy discussions on removing barriers and accelerating progress. This policy brief is • Develop comprehensive modeling methods to calculate and compare the In addition, by sharing its modeling part of a series of environmental impact, carbon intensity, expertise, DOE’s Energy Information recommendations risks, costs, and other characteristics of Administration and its national laboratories from the Baker using produced water when compared to could provide guidance in expanding other water sources, and collect the data GWPC, U.S. Geological Survey, DOE and Institute for the other databases to include water quality incoming president’s needed to support the models. • Clarify produced water ownership and quantity data, and intended use administration. and liability to encourage industry’s requirements. This would support advanced participation in treating and putting modeling to minimize environmental impact produced water to beneficial use. and the cost of storing, treating, transporting, • Communicate with and educate the public and using/disposing produced water. and other end-users about the potential DOE and its laboratories are also trusted benefits of using non-fresh water sources, educators who could assist in educating including produced water. potential end-users on the benefits of using • Create forums for centralized discussions non-fresh water sources; the importance to share successful regional practices of conservation and reuse; and the ability to treat non-fresh water so that it meets See more policy briefs at: in treating and using non-fresh water, www.bakerinstitute.org/policy-briefs including produced water. standards for oil and natural gas, agriculture, industrial and other sectors. This publication was written by a The Department of Energy has already taken Finally, current water policies and researcher (or researchers) who steps consistent with these measures. The regulations are often tailored to local participated in a Baker Institute project. Water-Energy Nexus crosscutting initiative conditions, which make them complex Wherever feasible, this research is and difficult to navigate. This presents an reviewed by outside experts before it is in the DOE’s FY2017 Budget Request released. However, the views expressed supports lower-carbon, lower-energy, and opportunity for the new administration to herein are those of the individual lower-cost water treatment technologies, leverage federal agencies as facilitating author(s), and do not necessarily such as advanced desalination techniques, leaders that engage local, state, and federal represent the views of Rice University’s to provide additional water supplies. We stakeholders in cross-region and interstate Baker Institute for Public Policy. believe, however, that the DOE should forums where policies and regulatory © 2016 Rice University’s Baker Institute increase emphasis on the five priority reforms are discussed and successful for Public Policy challenges above to help accelerate the practices shared, thereby accelerating beneficial use of non-fresh water, including and promoting the development of new This material may be quoted or produced water. water resources while ensuring appropriate reproduced without prior permission, For example, independent testing of environmental safeguards. provided appropriate credit is given to In summary, we encourage expansion the author and Rice University’s Baker water analysis and treatment methods by Institute for Public Policy. national laboratories could give industry and of the Water-Energy Nexus crosscutting municipalities confidence in the method’s initiative in the DOE’s FY2017 Budget Request Cite as: accuracy and reliability and thus accelerate to include more emphasis on the five high Capuano, Linda, and Anna Mikulska. adoption of uniform methods. Developing priority items above. We also encourage 2016. Five Major Challenges to the and adopting rapid test and analysis the DOE, EPA, USDA, the Bureau of Land Beneficial Use of Non-Fresh Water, Including Oil- and Gas-Produced techniques to quickly determine treatment Management, and other federal agencies to Water. Policy Brief: Recommendations requirements or intended uses of produced continue to cooperate and partner with local for the New Administration. Rice water will reduce the need for above- and state governments as well as industry, University’s Baker Institute for Public ground storage and the associated impact agriculture, academia, and water consumers Policy, Houston, Texas. on the environment. to enable the beneficial use of this new and much needed source of water. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Energy Policy: Guidance for the Next Administration

Kenneth B. Medlock, III, Ph.D., James A. Baker III and Susan G. Baker Fellow in Energy and Natural Resources, and Senior Director, Center for Energy Studies

The last decade has unveiled significant nations—the Organisation for Economic change in global energy markets, with Co-operation and Development (OECD)— crude oil, natural gas, coal, and electricity played in shaping global energy demand markets all in the midst of transition. growth in the 20th century. According to Developments in the U.S. have served the International Energy Agency (IEA), the as a principal antagonist, with the shale OECD accounted for almost 60% of global revolution at the epicenter. In fact, shale’s energy demand in 1990, a position that impact on the global energy landscape has had been relatively stable for decades prior. been so dramatic that the U.S. Department This becomes even more striking when of State formally established the Bureau of one considers that the OECD accounted Energy Resources in 2011 to manage three for only about 1.1 billion of the world’s 5.3 core objectives—energy diplomacy, energy billion people in 1990. However, the two transformation, and energy governance decades following 1990 brought significant and access—which have been increasingly change as the center of global economic woven into the fabric of U.S. foreign policy. activity shifted toward the developing non- This stems from global recognition that the OECD economies. Demographics are also U.S. is now generally viewed as an “energy shifting, as only 1.3 billion of the world’s superpower.” Maintaining this position 7.4 billion people currently live in the OECD. requires balancing energy development As a result, we are already witnessing a Continued economic with domestic and global environmental profound impact on patterns of energy development in objectives, foreign policy objectives, and demand growth. By 2010, the OECD’s share goals for long-term robust economic growth. of global energy use had fallen to 42% and non-OECD nations Indeed, sustainability requires such calculus has continued to decline to about 39% will bring new energy be performed and reexamined on an ongoing currently. Thus, we see an emerging trend demands from more basis, particularly as technology continues toward a future that is starkly different than 6.1 billion people, to alter the landscape. In fact, the role of than the 20th century. Continued economic over 1.1 billion of whom technology and the position of the U.S. as development in non-OECD nations will an innovator have been central to the shale bring new energy demands from more than live in such abject revolution and will remain vital to the U.S. 6.1 billion people, over 1.1 billion of whom poverty that they have maintaining its newly emerged status. live in such abject poverty that they have no access to modern no access to modern energy services—a energy services. condition referred to as “energy poverty.” ENERGY IS VITAL FOR ECONOMIC The prevalence of energy poverty is GROWTH, BUT THE SOURCES OF one of the least understood and perhaps GROWTH ARE CHANGING most important factors that will define the future of global energy use. As wealthier Energy is intimately linked with economic regions of the world strive to reduce activity, a fact borne out by the role the their environmental impact through new wealthiest and most economically diverse technologies and advanced digitalization, RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

such options may not always be readily infrastructure in the U.S. was in the late available at an acceptable cost in poorer 1970s/early 1980s. Thus, given their age, regions. Thus, both domestic and decisions to either retire or retrofit a international policies as well as continued large fraction of the U.S. coal-generation technological innovation will play critical fleet are looming. Given the abundance roles in establishing the energy pathways of low-cost U.S. natural gas available poorer nations pursue as they strive to to the electricity sector for use in highly While a sustainable unburden themselves from poverty. efficient natural gas generators, coal will energy future requires Looking ahead at the next two decades, find it increasingly difficult to maintain clear and transparent it is difficult to project a future in which market share. In sum, the transition away regulation that developing Asia is not a major driver of from coal in the U.S. is commercially global energy markets. India, the ASEAN motivated. The same does not hold true promotes adequate region, and China collectively account for in China and India, where a large fraction capital investment to 3 billion people, and the region promises of coal-consuming infrastructure is much keep pace with aging to continue to be economically vibrant. younger, and early retirement would force infrastructure and the Even at modest rates of economic growth an enormous stranded cost and economic across the region, over 400 million people burden. This paints a very different reality massive scale of the will likely move into the middle class by in the developed OECD economies from that energy complex, long- 2030, which translates into significant in the developing world, and it highlights term investments will energy demand growth, all while OECD the importance of technology in dealing be fueled by innovation. demand continues to slow. Thus, future with environmental issues in a very global energy markets will be driven by heterogeneous global energy market. This means research and demands in the developing world. Given To be sure, market forces will always development is vital, the unconventional energy resource act to promote the most efficient allocation and it carries significant potential in the Western Hemisphere— of resources possible, and understanding public benefit. Canada, the U.S., Mexico, Venezuela, this is vital to avoiding the “law of Brazil, and Argentina—the world is on unintended consequences.” In the end, the cusp of a shift in global energy trade whether or not a policy intervention or that will redefine markets and geopolitical regulatory measure is justified depends on relationships. Policy in the U.S. and other the balance between the cost and benefit. OECD nations must come to grips with The path that allows market mechanisms this impending paradigm shift relative to to determine the allocation of capital and the status quo of the last century. This penetration of new technologies with can present a challenge to achieving the fewest possible impediments will a sustainable future that balances generally be the most successful. The economic growth, energy demand, and energy challenge is one of significant scale environmental objectives. Importantly, and requires a long-term view if it is to U.S.-led innovation is central to achieving be successfully addressed. Long-term these objectives while seeing the U.S. goals can be sustainably achieved through maintain its global status. fundamental research and development. This can be funded by modest taxes on energy development and use, which COMMERCIAL MOTIVATION VERSUS would encourage different behaviors by POLICY INCENTIVE: FUEL CHOICE AND consumers and producers. So while a THE ENVIRONMENT sustainable energy future requires clear and transparent regulation that promotes Much of the recent environmental adequate capital investment to keep pace discourse has focused on transitioning with aging infrastructure and the massive to low-carbon energy. However, what’s scale of the energy complex, long-term “good for the goose may not be good for the investments will be fueled by innovation. gander.” For example, the last major build- This means research and development is out of coal-fired power-generation vital, and it carries significant public benefit.

2 U.S. ENERGY POLICY: GUIDANCE FOR THE NEXT ADMINISTRATION

environmental and energy security goals SUGGESTED POLICY PATHWAYS: and ensure a continued leadership role for STABLE REGULATION, DEEPER the U.S. INTEGRATION, AND TECHNOLOGY To this end, the new reality of U.S. energy must be woven into foreign policy Policies that more broadly address the and international trade negotiations while future of energy while recognizing the global recognizing that global energy markets interconnectedness of energy markets are becoming ever more integrated. This are vital, and maintaining the position requires an expanded and permanent of U.S. leadership will require long-term energy focus at the U.S. Department of This policy brief is thinking toward regulatory stability and State that is coordinated across Cabinets. part of a series of innovation. As such, it is important that U.S. This will include deepening relations with energy policy recognizes that oil, gas, and recommendations countries in the Middle East, where stability electricity markets are deeply integrated from the Baker remains very important, and countries in across Canada, the U.S., and Mexico. An Institute for the Latin America and Africa, where private integrated approach is important for capital investment is desperately needed. incoming president’s ensuring energy security, and expansion of Finally, the U.S. should take a leadership administration. cross-border infrastructure will enhance role in addressing energy poverty. trade and deepen the North American For success to be forthcoming, market. To ensure success, policy should environmental concerns related to energy create pathways for the market-oriented production and use must be confronted. For allocation of capital throughout the energy example, the federal government could work value chain so that market forces are the with states to establish baseline regulatory prime determinant of the future of the guidance for water use and disposal, with energy sector. Moreover, an emphasis on an emphasis on deploying new technologies. innovation will make new market outcomes Another example involves streamlining both possible and sustainable. See more policy briefs at: infrastructure permitting so that it is not www.bakerinstitute.org/policy-briefs Wide-scale reform of fiscal policy used as a de facto mechanism for addressing measures in the energy sector should environmental issues. Prolonged delays This publication was written by a also be considered. As one example, a researcher (or researchers) who in infrastructure investment can result in modest tax on transportation fuels at the participated in a Baker Institute project. price spikes and broad negative economic point of consumption would promote Wherever feasible, this research is and welfare consequences. With regard to greater efficiency in end-use. This reviewed by outside experts before it is methane emissions, policy could facilitate released. However, the views expressed carries environmental benefits, but it the use of currently available technologies, herein are those of the individual also carries the important benefit of such as drones, for real-time monitoring so author(s), and do not necessarily promoting greater resilience to future represent the views of Rice University’s that “super-emitters” can be more readily energy price movements. The associated Baker Institute for Public Policy. identified and remediated. In addressing tax revenues could be designated climate change, it is important to also © 2016 Rice University’s Baker Institute for infrastructure improvements and consider greenhouse gases (GHGs) other for Public Policy energy R&D. This, in turn, will create than CO2, particularly those with significantly employment opportunities and encourage This material may be quoted or greater impact such as methane (CH ) the expansion of human capital in the 4 reproduced without prior permission, and nitrous oxide (N O). Doing so could energy technology arena. More generally, 2 provided appropriate credit is given to yield benefits by inviting a greater array of both direct and indirect subsidization the author and Rice University’s Baker technologies targeting a broader array of Institute for Public Policy. of energy resource development and GHGs to provide real solutions. energy technology deployment should be To conclude, energy and environmental Cite as: reconsidered across the energy landscape. Medlock, Kenneth. 2016. U.S. policy should not be based on OECD-centric Policy should consider a redirection Energy Policy: Guidance for the objectives. Rather, a broader approach toward funding basic R&D in energy Next Administration. Policy Brief: is important to ensuring long-term Recommendations for the New technologies. Future breakthroughs can engagement from the developing world and, Administration. Rice University’s ultimately drive commercially successful ultimately, successful long-term outcomes in Baker Institute for Public Policy, technology deployment, which will have Houston, Texas. the energy and environmental policy arena. spillover effects that benefit long-term 3

RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Policy Toward the Hydrocarbon Industry in Latin America

Francisco J. Monaldi, Ph.D., Fellow in Latin American Energy Policy

Mexico, and Argentina experienced the worst OVERVIEW declines in production due to significant Latin America holds the largest policy obstacles to private investment, while concentration of hydrocarbon reserves Brazil and Colombia did take advantage of outside of the Middle East. The region’s the price boom, but even in these successful official proved oil reserve figure was 340 cases, some regulatory impediments billion barrels (20% of the world’s total) increased. The recent oil bust has hit the in 2015, second only to the Middle East Latin American oil industry very hard; both with 803 billion (47%), and more than investment and production have been falling the U.S. and Canada, with a combined rapidly. Production declines in 2016 could total of 227 billion barrels (13%).1 Latin reach as high as 400–500 thousand barrels America also has one of the world’s largest a day, a dramatic drop of 4-5% in just one estimated endowments of shale and other year, with Venezuela and Mexico again having unconventional resources. Its natural gas the steepest declines in output. endowment is not as relatively abundant, but still the region has proved reserves of 280 trillion cubic feet, compared to a LOOKING AHEAD combined 440 tcf in Canada and the U.S.2 This critical situation has strengthened This very favorable natural endowment a trend that was already in the making: contrasts with the poor performance of U.S. policy should the re-liberalization of the oil industry the sector in the region. While the U.S. and throughout the region. Countries are starting be geared toward Canada together increased oil production to compete to offer the best conditions to supporting investment by 73% in 2005-2015 from 9.9 million foreign investors. This new opening cycle barrels/day to 17.1 mb/d, Latin America in Latin America’s offers a significant opportunity for sector decreased production in the same period oil and gas sectors. development and for foreign capital to flow by 7%, from 11.1 mb/d to 10.3 mb/d. This into the region. If lessons from the past are Expanded production in underperformance is particularly striking learned, this could herald a new awakening the region contributes since it occurred during a decade of very high in Latin America, but it could also end in oil prices. Resource nationalism is largely to to U.S. energy security. failure if the institutional frameworks that blame for this wasted opportunity. The region support it are not strong enough. has experienced a wave of expropriations Energy trade with Latin America will and nationalizations, and some national continue to grow. Latin America, a major oil companies largely mismanaged the importer of oil products from the U.S., opportunity given by the windfall. represents close to one-half of U.S. product The general underperformance of exports (or about 2 mb/d). As product the sector hides the divergent production demand peaks in the U.S., Latin America will trajectories within the region. Venezuela, continue to demand refined products from RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

the U.S. Mexico’s imports of U.S. natural gas U.S. could, for instance, offer technical have tripled in the past decade, to above 1 assistance and facilitate the deployment tcf per year. Latin America has also become of investments to help achieve integration a major importer of LNG from around the through shared pipelines and appropriate world, and this will likely continue. After the transportation infrastructure for supply U.S. lifted its oil export ban, Latin America chain expansion. became a key destination for U.S. light • The incorporation of the energy sector in crude exports. Since in Colombia, Mexico, This policy brief is the investment arbitration mechanisms and Venezuela production is increasingly of trade and investment treaties could part of a series of of heavier crudes, it is likely that exports of help strengthen the property rights of U.S. recommendations light oil from the U.S. will be increasingly investors and bring stability to the sector.3 from the Baker used to blend with these types of crudes • The U.S. should support World Bank to make them marketable. In turn, some of and Inter-American Development Bank Institute for the these blends will be re-exported to the U.S., incoming president’s technical assistance programs to Latin where they can be processed domestically in American countries. These programs administration. its complex refining infrastructure. should be aimed at strengthening the region’s institutions and legal frameworks for energy investment, RECOMMENDATIONS promoting long-term policy stability. Colombia, and more recently Mexico, U.S. policy should be geared toward offer some interesting policy options for facilitating and supporting investment in the rest of the region. Latin America’s oil and gas sectors. From a national security perspective, the expansion • Cuba has significant oil and gas of production in the region contributes potential in the deep waters of the Gulf to energy security by providing a more of Mexico. It is in the U.S. interest that See more policy briefs at: these resources are developed in an www.bakerinstitute.org/policy-briefs diversified supply portfolio in a geographical area close to the U.S., thereby reducing the environmentally sustainable manner in This publication was written by a concentration of production from the Middle concert with the U.S. energy industry. researcher (or researchers) who East. It also serves as a tool of economic participated in a Baker Institute project. integration with Mexico and the rest of Latin Wherever feasible, this research is reviewed by outside experts before it is America. The growth of Latin America’s ENDNOTES released. However, the views expressed hydrocarbon industry would generate herein are those of the individual economic opportunities and promote 1. See the BP Statistical Review of World author(s), and do not necessarily regional stability, which in turn would help Energy 2016. If we use alternative measures represent the views of Rice University’s support efforts to combat drug trafficking of reserves from more conservative Baker Institute for Public Policy. and the spread of terrorism. unofficial sources, the region still has a resource potential exceeded only by the © 2016 Rice University’s Baker Institute • The end of the U.S. oil export ban was a Middle East and rivaling the U.S. and Canada. for Public Policy good step toward energy integration that 2. Latin America has been much less will promote efficiency and trade. This material may be quoted or explored than the northern part of the reproduced without prior permission, • LNG exports to Latin America should Hemisphere and there are strong reasons provided appropriate credit is given to be facilitated, given that it is one of the to believe that the potential resources yet the author and Rice University’s Baker most geographically attractive markets to be discovered are significant. The region Institute for Public Policy. for the U.S. has been underexplored largely due to Cite as: • Mexico’s energy reforms offer a institutional and political factors. Monaldi, Francisco. 2016. U.S. Policy tremendous opportunity to expand 3. The Center for Energy Studies, Toward the Hydrocarbon Industry energy trade with Mexico and develop the Mexico Center, and the Latin America in Latin America. Policy Brief: markets for the U.S. oil supply chain and Initiative at the Baker Institute have Recommendations for the New to integrate them with Mexico’s. U.S. published research on these topics. Administration. Rice University’s Baker Institute for Public Policy, foreign and commercial policy should aim See: www.bakerinstitute.org/center-for- Houston, Texas. to support the reforms and the integration energy-studies and www.bakerinstitute. of the two countries’ energy sectors. The org/energy. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Making Health Care Affordable Again

Vivian Ho, Ph.D., James A. Baker III Institute Chair in Health Economics and Director, Center for Health and Biosciences

The Affordable Care Act (ACA) is the they are healthy and use almost no health Democratic Party’s attempt to provide care services. Allowing these people to health insurance coverage for as many buy catastrophic coverage will be a more Americans as possible in the face of attractive option and will bring needed longstanding, unrelenting increases in health revenues to the market that will lower care costs. Some of the ACA provisions were overall premium levels. based on correct economic principles: • Coverage sold by private insurers. 2. Expand the current 3-to-1 age-rating limit to 4-to-1 for those aged 26 and • Purchasing pools to promote insurer above, or to younger adults without competition to lower prices and two living parents. raise quality. • Coverage for those with pre-existing The ACA specifies that insurers can charge conditions, with a mandate to buy their oldest customers premiums that are coverage to prevent adverse selection. no more than three times those of younger customers. Persons aged 45 to 54 are • Financing of coverage through taxes on overwhelmingly represented in insurance insurers, medical device makers, and drug Marketplaces, because the 3-to-1 age- companies; and reduced Medicare rates rating limit requires younger persons to pay for doctors and hospitals, who all stand to too high a premium to subsidize the care gain from greater insurance coverage. Repealing Obamacare of older, sicker patients. Enticing younger and replacing it persons to enroll will raise the average But the law simultaneously specified overly level of health of the insured pool, which with market-based generous coverage provisions, which raised potentially lowers everyone’s premiums. coverage that is both costs for both taxpayers and middle-income The lower premiums cannot be extended to compassionate and purchasers of ACA Marketplace coverage. individuals who can be covered under their prudent will make Because each ACA-constructed local parents’ insurance plan, because doing so insurance market has so few competitors, would shift substantial private costs to the health care affordable insurers have no incentive to control costs. public sector. again, which will I recommend that the next administration guarantee access to repeal the ACA, but maintain the concept of 3. Eliminate the requirement to cover state-based insurance Marketplaces with insurance coverage for preventive care in all health insurance all Americans. the following changes: policies.

1. Expand the pool of individuals allowed The public policy priority should to purchase catastrophic coverage beyond be protection against catastrophic age 30. circumstances. While providing financial assistance to cover preventive services Many healthy adults are choosing to pay yields some health benefit, the costs raise the penalty for not purchasing coverage health insurance premiums for everyone rather than buy a Marketplace plan, because and add to taxpayer costs. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

4. Reform the risk adjustment formula that rely disproportionately on low-wage currently used to reimburse insurers. workers should be allowed to gain coverage Marketplace insurers are compensated for from Medicaid, rather than face federal enrolling patients with more documented government penalties. illnesses, in order to discourage cherry- picking of customers. Full risk adjustment Health care costs continue to rise because encourages insurers to fully document the price of health care services continues to rise uncontrolled. The insurance provisions This policy brief is patient illnesses, but provides no incentive to control costs. Partial risk of the ACA do nothing to restrain this cost part of a series of adjustment, combined with more value- growth. Repealing Obamacare and replacing recommendations based purchasing, can control costs while it with market-based coverage that is both from the Baker avoiding the selective exclusion of the compassionate and prudent will make sickest patients. health care affordable again, which will Institute for the guarantee access to insurance coverage for incoming president’s 5. Foster accountable care organizations all Americans. administration. (ACO) within state Marketplaces that are analogous to those funded by Medicare. ACOs are groups of hospitals and/or physicians who voluntarily organize and receive shared financial compensation to manage the entire continuum of care for patients, from prevention to acute care. New legislation should incentivize these ACOs to lower medical spending through a shared savings program pegged to mean per capita spending in each local region. This approach See more policy briefs at: www.bakerinstitute.org/policy-briefs addresses the shortage of competition by encouraging large health care providers to This publication was written by a become direct competitors to insurers. researcher (or researchers) who participated in a Baker Institute project. 6. Reduce the generosity of the ACA’s Wherever feasible, this research is Medicaid expansion. reviewed by outside experts before it is released. However, the views expressed Obamacare expanded Medicaid with a herein are those of the individual blank check. Medicaid per capita spending author(s), and do not necessarily is much higher than predicted. Adults up represent the views of Rice University’s Baker Institute for Public Policy. to 150% of the federal poverty level should receive Medicaid, but it should be funded © 2016 Rice University’s Baker Institute at a per capita cost that is predetermined for Public Policy and adjusted annually to the overall (not medical) CPI. This material may be quoted or reproduced without prior permission, provided appropriate credit is given to 7. Lift the employer mandate for providing the author and Rice University’s Baker coverage to firms with 100+ workers instead Institute for Public Policy. of 50.

Cite as: Smaller firms lack the resources to Ho, Vivian. 2016. Making Health simultaneously build their businesses and Care Affordable Again. Policy Brief: navigate complicated insurance markets Recommendations for the New and federal regulations. The labor market Administration. Rice University’s will encourage many of these firms to Baker Institute for Public Policy, Houston, Texas. offer coverage to talented workers. Firms

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Blue Marble Health and Vaccine Science Diplomacy

Peter J. Hotez, M.D., Ph.D., Fellow in Disease and Poverty, Baker Institute, and U.S. Science Envoy

Since 2000, we have seen significant these countries account for almost 90% of improvements in global health, especially the global economy, they also host huge in regard to poverty-related infectious numbers of the world’s hidden poor who diseases (also known as neglected diseases) are afflicted with poverty-related neglected affecting low-income countries. Many diseases, including most of the worm of these improvements resulted from infections, protozoan NTDs such as Chagas initiatives launched by the George W. Bush disease, and leishmaniasis, dengue, leprosy, administration and expanded by President and TB, as well as major noncommunicable Barack Obama. They include the President’s diseases such as cancer, cardiovascular Emergency Plan for AIDS Relief, the disease, and diabetes. Thus, traditional President’s Malaria Initiative, and the USAID dichotomous notions of global health that Neglected Tropical Disease (NTD) Program. compare developing to developed countries In addition, the United States has been a have been replaced with a paradigmatic major contributor to The Global Fund to Fight change—one I’ve described in my research AIDS, Tuberculosis and Malaria and Gavi, The as “blue marble health.” Vaccine Alliance. Successes (as measured The major tenet of blue marble health— by the Gates Foundation-supported Global that the G20 now account for most of the Burden of Disease Study) include a 50%- world’s poverty-related diseases—has 90% reduction in child mortality from important considerations and ultimately, Today, a new and vaccine preventable diseases, and major policy consequences. For example, the reductions in mortality or disease prevalence epicenter of the 2015–16 Zika epidemic defining feature of the from neglected diseases—AIDS, TB, malaria, is in northeastern Brazil—an intense world’s poverty-related and the NTDs.1 concentration of poverty in Latin America’s neglected diseases is Countering these achievements are wealthiest economy. Argentina, Brazil, and that they are no longer some new and important global health Mexico—the three largest economies in trends that will need to be addressed by Latin America—host most of the region’s mostly the purview of the next administration. Chagas disease and leishmaniasis cases. the poorest and most Similarly, the U.S. Gulf Coast states— devastated African including Texas, Louisiana, and Florida— nations ... most of these BLUE MARBLE HEALTH where the largest numbers of impoverished Americans live, are at risk for Zika and diseases are now found Today, a new and defining feature of the Chagas disease. An estimated 12 million in the G20 nations, world’s poverty-related neglected diseases Americans now live with at least one NTD. together with Nigeria. is that they are no longer mostly the purview Southern Europe is also now a “hot zone” of the poorest and most devastated African of tropical infections, including malaria, nations. Analyses conducted since 2013 dengue, West Nile virus, and schistosomiasis, have instead determined that most of these due in part to economic downturns.2 diseases are now found in the G20 nations, Impoverished regions of China, India, and together with Nigeria (which has a larger Indonesia, all G20 countries, account for GDP than several G20 countries). While most of Asia’s neglected diseases. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

tropical disease signal the need to establish CONFLICT AND CLIMATE CHANGE a center of excellence for research and After poverty, the next most important factors development (R&D) on new ways to monitor now driving new neglected diseases may be and prevent these diseases. conflict and climate change. The collapse in 3. Strengthen the GHSA to incorporate health systems infrastructure in conflict- “vaccine science diplomacy” ridden Guinea, Liberia, and Sierra Leone The current version of the Global Health This policy brief is allowed Ebola virus infections to kill 11,000 Security Agenda (GHSA) is strong in the people in West Africa in 2014–15. But we have part of a series of areas of surveillance and disease outbreak seen far larger numbers of people perish due detection but not in areas linked to recommendations to kala-azar resulting from the Sudanese neglected disease product development. A 3 from the Baker wars. Now, several neglected diseases have new Coalition for Epidemic Preparedness Institute for the emerged in territories occupied by the Islamic Innovations has been proposed; however, State, including leishmaniasis, known by incoming president’s engaging the G20 could also promote an locals as the “Aleppo evil,” and there has been R&D agenda. Specifically, 20 national funds administration. 4 resurgence in measles and polio. Climate for neglected disease R&D, such as the one change, together with human migrations and recently established by the Japanese Global unchecked urbanization, may also be fueling Health Innovative Technology Fund, could new tropical diseases in southern Europe and capture the innovation potential of each the Western Hemisphere. of the G20 nations in order to produce an urgently needed new generation of drugs, diagnostics, and vaccines for global and RECOMMENDATIONS blue marble health. A key element here is to foster international scientific cooperation 1. Pivot the U.S. State Department Office between the G20 nations in programs of of Global Health Diplomacy toward blue vaccine science diplomacy. See more policy briefs at: marble health www.bakerinstitute.org/policy-briefs The blue marble health concept offers This publication was written by a a unique opportunity to effect disease ENDNOTES researcher (or researchers) who reduction by engaging the leaders of the participated in a Baker Institute project. G20 countries. Specifically, through future 1. GBD 2013 Collaborators, “Global, Wherever feasible, this research is summits, a renewed commitment to provide regional, and national incidence, prevalence, reviewed by outside experts before it is access to essential medicines for neglected and years lived with disability for 301 acute released. However, the views expressed herein are those of the individual diseases that target vulnerable populations and chronic diseases and injuries in 188 author(s), and do not necessarily in each of the G20 nations could result countries, 1990-2013: a systematic analysis represent the views of Rice University’s in a two-thirds or more reduction in the for the Global Burden of Disease Study 2013,” Baker Institute for Public Policy. global burden of poverty-related neglected Lancet 386(2015): 743-800. diseases. Focusing on the G20 could provide 2. P.J. Hotez, “Southern Europe’s Coming © 2016 Rice University’s Baker Institute an important new mission for the U.S. Plagues: Vector-Borne Neglected Tropical for Public Policy Department of State’s Office of Global Health Diseases,” PLoS Neglected Tropical Diseases This material may be quoted or Diplomacy. In addition, the recognition 10 (2016): e0004243, doi:10.1371/journal. reproduced without prior permission, that conflict is a new and important driver pntd.0004243 provided appropriate credit is given to of disease also suggests a need to develop 3. W. Al-Salem, J.R. Herricks, and P.J. the author and Rice University’s Baker command centers shared between the Hotez, “A review of visceral leishmaniasis Institute for Public Policy. U.S. Departments of State and Defense to during the conflict in South Sudan and the Cite as: recognize the outbreaks that will surely arise consequences for East African countries,” Hotez, Peter. 2016. Blue Marble Health in conflict areas in the Middle East, North Parasites & Vectors 9 (2016): 460. and Vaccine Science Diplomacy. Africa, and elsewhere. 4. P.J. Hotez, “Vaccine science Policy Brief: Recommendations for the diplomacy: expanding capacity to New Administration. Rice University’s 2. Create a center of excellence for neglected prevent emerging and neglected tropical Baker Institute for Public Policy, diseases in the United States Houston, Texas. diseases arising from the Islamic State- The findings of blue marble health and the fact held territories,” PLoS Neglected Tropical that 12 million Americans live with a neglected 2 Diseases 9 (2015): e0003852. RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION High Cancer Drug Prices: The Harm to Americans and Proposed Solutions

Hagop Kantarjian, M.D., Nonresident Fellow in Health Policy, Center for Health and Biosciences, and Chairman, Leukemia Department, The University of Texas MD Anderson Cancer Center Vivian Ho, Ph.D., James A. Baker III Institute Chair in Health Economics and Director, Center for Health and Biosciences

The pharmaceutical industry and THE PROBLEM its lobbying groups (for example, the High cancer drug prices are a significant Pharmaceutical Research and Manufacturers contributor to health care costs in the of America [PhRMA]), under criticism, United States. The average annual price of repeat the same mantra: the high cost new cancer drugs increased from less than of research and development; benefit $10,000 before 2000 to $145,000 in 2015. justifies price; market forces settle prices at Annual drug industry profits average reasonable levels; and price regulation stifles 20%, the second-highest of any industry. innovation and hinders important research The drug industry needs to make reasonable and discoveries. None of the arguments profits to survive, sustain investment, and is convincing. First, independent studies fulfill its fiduciary duty toward shareholders. calculate the cost of R&D is only 10% of But in its recent laser-focused desire the $1 billion-$2.6 billion figure claimed in to maximize profits, the drug industry industry-supported studies (all by the same has crossed the line into profiteering— source, the Tufts group). Eighty-five percent maximizing profits even when it harms of basic research is conducted in academic patients. centers, while the drug industry spends only Despite numerous discussions in the 1.3% of its budget on basic research, but media and elsewhere, cancer drug prices 20-40% on advertisements and promotion. Generic imatinib, Over 50% of important research discoveries are escalating at an alarming rate. The a chronic myeloid price per year of life gained from such emerge from independent research, largely therapies increased from $54,000 in 1995 funded by taxpayers. The drug industry leukemia drug, is priced to $207,000 in 2013 (adjusted for inflation). recently shifted its strategy from in-house at $5,000-$8,000/year In contrast, real (inflation adjusted) median R&D to buying most of their pipelines from in Canada, $400/year small biotechnology companies, further U.S. household income decreased by 4% in India, and $140,000/ between 1999 and 2015. In Europe and increasing prices. Second, studies show elsewhere, the prices of older drugs remain no relationship between a drug’s benefit year in the U.S. close to their launch prices, unless new and its price. Third, drug companies enjoy benefits are discovered after the drug is on monopoly-like conditions that discourage the market. Not so in the U.S., where prices price competition. Fourth, innovation is rise an average 8-12% annually. Newer driven by independent academic scientists drugs enter the market at higher prices every who continue their mission of research and year, partly justified by the high prices of discovery regardless of drug prices. older drugs. Multiple studies document the harm to Americans of high drug prices. Medical RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

costs and out-of-pocket expenses result The drug industry has expressed the in high rates of bankruptcies among cancer desire to be “part of the solution.” Some patients. About 20-35% of patients delay, industry CEOs favor lowering prices, arguing abandon, or compromise treatments that affordable drugs have deeper market because of difficulties in meeting costs. penetration, keep more patients alive who Survival rates also drop. The 8- to 10-year continue to use these medications, and survival rate for chronic myeloid leukemia thus generate more long-term revenues. (CML) is 80% in Europe, where treatment is However, the industry also launched a $100+ This policy brief is available and affordable to all patients. In the million public relations campaign in 2017 to part of a series of U.S., high drugs prices force many patients defend high-price policies. recommendations to omit or compromise treatment, so that from the Baker the five-year survival rate for CML is only 60%. The high cost of drugs is the most RECOMMENDATIONS Institute for the significant health care concern of Americans. incoming president’s How can we address high cancer drug administration. prices? Here are several solutions: GENERIC DRUGS 1. Allow Medicare to negotiate drug prices (estimated to save $400 billion–$800 Despite scrutiny of high cancer drug costs, billion over a decade). prices continue their relentless ascent. 2. Establish mechanisms to review the Two issues compound the problem. First benefits of drugs and define fair prices is the increasing shift of health care costs during or following FDA approval. See more policy briefs at: and drugs to patients, as insurers seek to 3. Encourage cancer organizations to www.bakerinstitute.org/policy-briefs reduce spending. But high out-of-pocket incorporate price into the assessment of expenses deter more than a third of patients “treatment value.” This publication was written by a from seeking timely care or buying needed researcher (or researchers) who 4. Prevent strategies that delay the drugs. The second is the spillover of high participated in a Baker Institute project. availability of generics (this saved the U.S. Wherever feasible, this research is drug prices to generics. Complex regulations health care system $227 billion in 2015 reviewed by outside experts before it is and bureaucracies, and drug shortages, and $1.46 trillion over a decade). released. However, the views expressed have created monopolistic opportunities 5. Improve the FDA generics approval herein are those of the individual for drug companies that can increase the process and reduce the cost of filing. author(s), and do not necessarily price of generics to exorbitant levels. The represent the views of Rice University’s 6. Request transparent reporting of drug Baker Institute for Public Policy. three latest publicized scandals by Turing, industry R&D costs to justify price. Valiant, and Mylan are the most excessive 7. Allow cross-border importation of cancer © 2016 Rice University’s Baker Institute form of a common pricing strategy by the drugs for personal use if the U.S. price is for Public Policy drug industry. Generic imatinib (a CML prohibitive. drug) is priced at $5,000-$8,000/year in This material may be quoted or 8. Disallow direct-to-consumer advertising Canada, $400/year in India, and $140,000/ reproduced without prior permission, of cancer drugs (the U.S. and New Zealand provided appropriate credit is given to year in the U.S. For a generic drug to be are the only nations that allow this). Such the author and Rice University’s Baker priced low, at least 3 to 5 generics must advertising creates false impressions and Institute for Public Policy. be available in the market. However, the false markets, which increase costs. average cost of $5 million to file for Food An abbreviated version of this paper and Drug Administration approval of a drug These measures have so far been appeared in U.S. News & World Report opposed in Congress because of the on Dec. 12, 2016. in 2016, and average time to approval of 4 years, discourage many companies from influence of the drug industry lobby. Our Cite as: filing for generic approvals. Currently, about legislators have been representing drug Kantarjian, Hagop, and Vivian Ho. 2016. 3,800 generic drug applications are under industry interests rather than the interests High Cancer Drug Prices: The Harm to FDA consideration. The FDA should review of the Americans who elected them. We Americans and Proposed Solutions. its procedures and timelines, reduce filing hope that future legislation will show that Policy Brief: Recommendations for the the U.S. remains a cherished democracy New Administration. Rice University’s costs to less than $1 million, reduce approval rather than a feared “pharmaceutocracy.” Baker Institute for Public Policy, times to less than 6-12 months, and ensure Houston, Texas. continuous availability of multiple generics in the U.S. market. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Invest in Global Child Nutrition

Farhan Majid, Ph.D., L.E. and Virginia Simmons Fellow in Health and Technology Policy

OVERVIEW

Fetal growth restriction, suboptimal breast-feeding, stunting, wasting, and micronutrient deficiencies in vitamin A and zinc were associated with more than three million deaths globally in children younger than five years of age in 2011, representing 45% of all child deaths that year. Well-nourished children are less likely to be infected by disease and more likely to grow up healthy, smart, and wealthier. Investing in child nutrition and alleviating child hunger in low-income settings are not only important from an ethics and equity perspective, but also make economic sense.

In the context of U.S. involvement in well-being. In general, rates of returns are global issues, surveys by the Kaiser Family understood to be highest in the first 1,000 Foundation have found that Americans days, and broadly fall with age, though they consider improving health in developing still remain positive. countries an important priority for the next U.S. president and Congress. Sixty- Recommendation 2: Do not underestimate one percent of Americans believe the small investments U.S. should play at least a major role in Economists have argued that small improving global health. Ninety-three investments in child nutrition may lead Investing in child percent of Americans say that investments to large changes over the course of life. in child health are a top or important priority. Better child nutrition improves nutrition nutrition and alleviating Global health spending is one of the few later in life (self-productivity), boosts non- child hunger in low- topics that enjoys bipartisan support. Three nutritional outcomes (cross-productivity) income settings are not key recommendations from research in and increases the rate of returns in later life only important from the economics and epidemiology of child investments (dynamic complementarity). nutrition are highlighted below. Evidence that low birth weight is highly an ethics and equity correlated with stunting between the ages perspective, but also Recommendation 1: Invest early, especially of 0 and 5, and that childhood heights are make economic sense. in the first 1000 days of life correlated with adult heights, is consistent The 1,000 days between conception and age with processes of self-productivity. two present a critical window of opportunity Majid (2015) shows that Muslim for investing in a child’s nutritional health. Indonesian children who were in utero Chronic adult health conditions, including during Ramadan score 7.4% to 8.4% lower heart disease, type 2 diabetes, and obesity, on cognitive and math tests. A randomized can be triggered by nutritional deficits trial involving nutritional supplements during this period. In fact, investments targeted at Guatemalan children in first before birth shape not only adult health, 1,000 days of life resulted in a 46% but also labor markets and socioeconomic increase in male wages, and significantly RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

BENEFIT-COST RATIOS OF A STUNTING REDUCTION PACKAGE

This policy brief is part of a series of recommendations from the Baker Institute for the incoming president’s administration.

SOURCE Behrman et. al 2015. NOTE DRC = Democratic Republic of Congo; MENA = Middle East and North Africa.

higher cognitive skills for males and cost-effective solution for malnutrition in females, after 35 years. Such findings children, followed by iron and salt iodization highlight the high economic returns to (no. 3), biofortification (no. 5), deworming small changes in child nutrition during and other nutrition programs at school See more policy briefs at: critical periods of development. (no. 6), and community-based nutrition www.bakerinstitute.org/policy-briefs promotion (no. 9).

This publication was written by a Recommendation 3. Investments in child researcher (or researchers) who nutrition provide one of the best “bang for participated in a Baker Institute project. the buck” for future generations REFERENCES Wherever feasible, this research is Behrman et. al (2015) highlight average reviewed by outside experts before it is Behrman, J., et al. 2015. “Human capital and benefit-cost ratios for a package of released. However, the views expressed productivity benefits of early childhood services to reduce stunting in 14 high-risk herein are those of the individual nutritional interventions.” In “Disease author(s), and do not necessarily developing countries in Asia and Africa. The Control Priorities,” edited by D. Jamison represent the views of Rice University’s median benefit-cost ratio is 18.7 (Kenya), et al. Seattle: University of Washington Baker Institute for Public Policy. with a range from 3.8 (Democratic Republic Department of Global Health. © 2016 Rice University’s Baker Institute of Congo) to 34.1 (India). Moreover, the for Public Policy benefit-cost ratios for most countries Black, Robert E., et al. 2013. “Maternal and appear to be significantly greater than one. child undernutrition and overweight This material may be quoted or Among the interventions considered are in low-income and middle-income reproduced without prior permission, universal salt iodization, iron fortification countries.” The Lancet 382, no. 9890: provided appropriate credit is given to of staples, and supplementation of iron- 427-451. the author and Rice University’s Baker Institute for Public Policy. folic acid, vitamin A, and therapeutic zinc, Currie, Janet, and Tom Vogl. 2013. “Early- as well as community-based nutrition Life Health and Adult Circumstance in Cite as: programs and deworming. Developing Countries.” Annual Review Majid, Farhan. 2016. Invest in In 2008, a distinguished panel of of Economics 5: 1-36. Global Child Nutrition. Policy Brief: economists ranked the most effective Recommendations for the New Majid, Muhammad Farhan. 2015. “The solutions to the world’s 10 biggest Administration. Rice University’s persistent effects of in utero nutrition challenges. Five of the top 10 challenges Baker Institute for Public Policy, shocks over the life cycle: evidence Houston, Texas. involved malnutrition. Investments in zinc from Ramadan fasting.” Journal of and vitamin A were voted the no. 1 most Development Economics 117: 48-57. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Improving the Future of America’s Children

Quianta Moore, M.D., J.D., Baker Institute Scholar in Health Policy

There are approximately 74 million children in the United States, and 21% of them live CAUSES OF POOR BRAIN DEVELOPMENT in families with incomes below the federal There is a critical window from birth to age poverty threshold. Poverty puts children 4 when the brain development of a child at risk for poorer health and reduced is most affected. During this period, new educational achievement. The vitality of neuronal connections are formed at the rate a nation depends, in part, on the well- of 700 new connections per second. Neurons being of future generations. Yet unlike that remain inactive or are rarely stimulated other developed countries, the U.S. has not are eliminated, and those that are stimulated prioritized the welfare of children; it ranks by experience are strengthened and near the bottom on standard measures maintained. The caregiver’s response to the of child health and well-being among child’s verbal or nonverbal communication, Organisation for Economic Co-operation and often called “serve and return,” shapes Development (OECD) nations. For instance, which neuronal connections remain and the overall health of American children ranks which are eliminated, making caregiver- second to last, and educational achievement child relationship the most significant in math, reading, and science is ranked 21st influence on brain development. Negative The vitality of a nation out of 25, with 25 being the worst. Poor caregiver-child interactions, such as insecure depends, in part, on health and educational outcomes could be parental attachments, can create irreversible the well-being of related to inadequate brain development changes in the brain that impede the child’s future generations. during childhood. intelligence, learning, behavior, and mental Advances in neuroscience and health. Many external factors influence the developmental biology demonstrate that caregiver-child relationship (Table 1), and a child’s health and ability to learn is families living in poverty are most at-risk for determined by how well the brain develops experiencing negative influences. during the first few years of life. The brain controls the biological effects of all other organ systems and influences intelligence, learning, health, and behavior. Because FACTORS THAT INFLUENCE EARLY CHILDHOOD BRAIN DEVELOPMENT the brain controls these different aspects of human life, impaired brain development Positive Influences Negative Influences as a child can lead to low educational Parent Child Parent Child outcomes and suboptimal physical, mental, and behavioral health, which together cause Supportive relationships Loving relationships Domestic violence Poor housing decreased functioning in society when Economic security Adequate prenatal Maternal stress/ Adverse childhood these children reach adulthood. Therefore, and child care depression experiences investments in early childhood to support Adequate health care Adequate nutrition Poverty Insecure parent healthy brain development can improve attachments children’s health and learning, thus reducing Adequate nutrition Safe and stimulating Lack of social Lack of stimulation environments support societal costs in remediation, health care, mental health services, and incarceration. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

Evidence-based parenting programs have POLICY RECOMMENDATIONS been consistently identified as one of the Current federal policies can have a greater most cost-effective evidence-based public positive impact on reducing deficits and policy solutions for child welfare. We strengthening the economy if there is recommend a requirement and additional a focus on supporting the optimal brain funding for states that receive federal funds development of the next generation. There for WIC and SNAP to provide free parenting This policy brief is is strong evidence that investments in classes to families receiving benefits. early childhood yield 7 to 10 percent per Raising healthy children results in part of a series of healthy adults. In order to increase the recommendations year return on investment, measured by increased school and career achievement capacity of American children to become from the Baker and reduced expenditures for remedial productive citizens and compete in a global Institute for the education, health, and the criminal justice economy, it is vital that future federal incoming president’s system. Therefore, we recommend revisions policies include a focus on improving children’s brain development. administration. to the following current policies: 1. Expansion of the Early Head Start Program (EHS) REFERENCES

Head Start (HS) programs have demonstrated Currie J., D. Thomas. June 1995. “Does Head greater parental involvement and higher Start make a difference?” American earnings for participating children when they Economic Review 85, no. 3: 341–364 reach their 20s. Several evaluations of the Eagleman, D. The Brain: The Story of You. Early Head Start program have demonstrated 2015. New York: Pantheon Books. improved parent-child relationships and Harvard University Center on the Developing higher cognitive, language, and social- Child. “The Science of Early Childhood emotional development in children who Development.” bit.ly/2nAPEYz. See more policy briefs at: participated in EHS compared to those who www.bakerinstitute.org/policy-briefs did not. However, there often are not enough High/Scope Educational Research Foundation. spots in HS and EHS to enroll all children from November 2004. The High/Scope Perry This publication was written by a Preschool Study Through Age 40. researcher (or researchers) who low-income working families that need child participated in a Baker Institute project. care. We recommend increasing funding Accessed March 17, 2017. bit.ly/2mc4zvb. Wherever feasible, this research is for HS and EHS to increase access to these Lee S. et al. April 2012. “Return on reviewed by outside experts before it is evidence-based programs for all children investment: evidence-based options released. However, the views expressed who need it. to improve statewide outcomes.” herein are those of the individual author(s), and do not necessarily Document No. 12-04-1201. Olympia: 2. Increase licensure requirements and represent the views of Rice University’s Washington State Institute for Public Baker Institute for Public Policy. wages for child care workers Policy. Licensing requirements for child care Rolnick, Art and Rob Grunewald. March 2003. © 2016 Rice University’s Baker Institute workers vary by state and often do not Early Childhood Development: Economic for Public Policy require more than a high school diploma. Development with a High Public Return. This material may be quoted or Additionally, wages are very low and, Accessed March 17, 2017. bit.ly/2mYkr3h. reproduced without prior permission, therefore, retaining skilled providers is Heckman, James J. and Dimitriy V. Masterov. provided appropriate credit is given to difficult. Because low-income children October 2004. The Productivity the author and Rice University’s Baker in working families spend a lot of time Institute for Public Policy. Argument for Investing in Young with child care providers, we recommend Children. Accessed March 17, 2017, Cite as: policies that support additional training and bit.ly/2mRTOvd. increased wages for child care workers. Moore, Quianta. 2016. Improving UNICEF Innocenti Research Centre. 2007. the Future of America’s Children. “Child poverty in perspective: An Policy Brief: Recommendations for the 3. Provide federal funding for mandatory New Administration. Rice University’s parenting classes for those enrolled overview of child well-being in rich Baker Institute for Public Policy, in Women, Infants, Children (WIC) and countries. Report Card 7.” uni.cf/2niEyKl. Houston, Texas. Supplemental Nutrition Assistance Program (SNAP) 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION What the Next U.S. Administration Should Know When Considering an Approach to Resolving the Israel-Palestine Conflict

Samih Al-Abid, Ph.D, Diana Tamari Sabbagh Fellow in Middle Eastern Studies Yair Hirschfeld, Ph.D., Isaac and Mildred Brochstein Fellow in Middle East Peace and Security in Honor of Yitzhak Rabin

Efforts to bring Israelis and Palestinians An Undefined U.S. Role together to reach a comprehensive Neither the president nor the secretary of agreement on the issues that divide them state was clear about the United States’ were not successful during the Obama role in the negotiations. Would it act as a administration, despite the commitment convener, a facilitator, or a mediator, or shown by the president and Secretary of would the U.S. special relationship with State John Kerry during talks launched Israel cause it to take up Israeli interests in July 2013. Some of the causes for the as its own? It is essential to provide a clear failure of negotiations can be attributed definition of the U.S. role. to the political realities in both Israel and It may be necessary for the U.S. Palestine. However, other contributing to present each side with a different factors ensured the negotiations would package of assurances in order to address not be successful. the interests of each party that reach beyond the Israel-Palestine relationship. Nevertheless, it is essential to adopt full WHAT WENT WRONG? transparency in regard to the assurances Four principal factors worked together given to each side because they reflect At this point, it will be upon the other party. to undermine the negotiations between half the battle to get Israelis and Palestinians during the last Underestimating the Distance Between round of U.S.-sponsored talks, in 2014. the parties to accept the Parties These included an undefined U.S. role; the risk of negotiations. an underestimation of the distance that The U.S. seemed to underestimate the The other half will be distance between the parties’ positions remained between the parties and what keeping them at the it would take to bridge that difference; and what remained to be decided between a failure by the U.S. to obtain a common them. For example, it was obvious early table for a set period of understanding and commitment to the on that Israel was not prepared to accept time until a resolution package of assurances it offered to launch the pre-June 1967 border as a starting is reached. talks; and the perception that the secretary point for talks on territory. Had the U.S. of state was without a clear mandate and better appreciated this fact, it could have that the president was not prepared to identified the levers necessary to not only put his weight behind the negotiations get the parties to the negotiating table but when one of the parties failed to meet also keep them there for a determinate its commitment. period until an agreement was reached. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

A Lack of Common Understanding About hardened constituencies to regain trust in the “the Package” to Launch Talks legitimacy of the negotiating process. The The U.S. assured the Palestinian side that other half will be keeping them at the table it had secured from Israel a commitment for a set period of time until a resolution of regarding the incentive package to launch the the conflict is reached. talks. This assurance turned out to be overly In this context, a U.S. public diplomacy optimistic. Achieving this incentive package strategy on the Israeli-Palestinian negotiations should identify U.S., Israeli, and Palestinian This policy brief is will be essential in preparing for negotiations. The U.S. will have to develop an incentive interests in resolving the conflict in an effort part of a series of package for both sides in order to launch the to obtain public support for negotiations. recommendations talks. Understandings should include: In addition to pursuing a multilateral from the Baker framework for relaunching negotiations, • Terms of reference for the territorial as has been proposed recently, five things Institute for the agreement will be based on the pre-June are necessary for a successful relaunching incoming president’s 1967 border with agreed land swaps. of talks: • An understanding on a settlement freeze. administration. 1. Achieve Palestinian and Israeli recognition • Detailed understandings on Palestinian of the territorial parameters for a state-building based on a quid pro quo resolution to the conflict, and define the approach in support of reaching territorial ongoing process and identification of the understandings. end game so there is no misunderstanding • Guidelines for achieving recognition of and no possibility that the parties can the state of Palestine and a Palestinian reverse course or merely benefit from commitment to refrain from accessing the package of incentives (see item #3) See more policy briefs at: international legal mechanisms during www.bakerinstitute.org/policy-briefs without paying into the process. the course of negotiations. 2. An initial agreement that negotiations will This publication was written by a continue for a predetermined time with researcher (or researchers) who No Political Weight Behind the U.S. Initiative specific milestones in mind until the end participated in a Baker Institute project. game is reached. Wherever feasible, this research is The White House was not prepared to put reviewed by outside experts before it is its full political weight behind the secretary 3. A package of phased economic and/ released. However, the views expressed of state for the talks. Secretary Kerry was or political incentives that make it very herein are those of the individual difficult for either side to not return to author(s), and do not necessarily left to navigate without a clear mandate and and stay at the table. represent the views of Rice University’s without either carrots (e.g., utilizing the size Baker Institute for Public Policy. of future foreign assistance to Israel or the 4. Pre-prepared “sticks” from third-party Palestinians as an inducement) or a possible states—most notably, the U.S.—to compel © 2016 Rice University’s Baker Institute backstop strategy to compel the parties to the parties to move forward and be true for Public Policy stay in compliance with commitments and to their commitments, e.g., temporary This material may be quoted or see the process through until the end. While suspension of aid. reproduced without prior permission, this shielded the president from direct blame 5. A dispute resolution mechanism that provided appropriate credit is given to for the failure of the talks, it also sent a signal does not give one side veto power the author and Rice University’s Baker to Israel that reaching an agreement with over the process so that it is stalled Institute for Public Policy. Palestine was not a top priority for the U.S. indefinitely.

Cite as: In sum, U.S. reengagement in the Israeli- Al-Abid, Samih and Hirschfeld, WHAT WILL IT TAKE FOR TALKS TO BE Palestinian conflict would need to be Yair. 2016. What the Next U.S. RELAUNCHED AND SUCCESSFUL? designed to positively reshape the conditions Administration Should Know When on the ground, implement and build on Considering an Approach to Resolving At this point in the history of negotiations the Israel-Palestine Conflict. Policy successes in the negotiations, and engage Brief: Recommendations for the New between the two sides, it will be half the a larger number of players invested in and Administration. Rice University’s battle to get the parties to accept the risk of committed to a lasting, comprehensive, and Baker Institute for Public Policy, negotiations and take mutually supportive durable Israeli-Palestinian peace based on Houston, Texas. action on a combined top-down and the two-state solution. bottom-up basis, enabling their respective 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Military Action in the Middle East: The Next President Should Seek Congressional Approval

Joe Barnes, Bonner Means Baker Fellow

The United States has been at war likewise obtained an AUMF authorizing against ISIS for two years without specific action against Al-Qaeda in 2001.2 A year congressional approval. President-Elect later, he also secured an AUMF for the Donald J. Trump’s future policies in Iraq and invasion of Iraq.3 President Barack Obama particularly Syria remain unclear. Still, his did not request an AUMF for the intervention comments during the campaign, though far in Libya (and was widely criticized for his from definitive, offer some clues. Unlike his failure to do so). He submitted a draft AUMF opponent, Hillary Clinton, he appears willing at the time of the 2013 crisis over the Syrian to cooperate more closely with Russia on regime’s use of chemical weapons, though Syria. All signs indicate that he places a the draft was overtaken by events when a much lower priority on removing the Assad U.S. attack in Syria was averted by a Russian regime than he does on defeating ISIS. initiative to broker a deal.4 In 2015, Obama Indeed, he has promised to increase military submitted a draft AUMF to authorize military action against the organization. In other action against ISIS.5 words, our war against ISIS will continue and The 2015 draft AUMF is still languishing perhaps intensify. on Capitol Hill. No one appears particularly Given this likelihood, the Trump exercised about the situation. Congress can administration should push for formal quibble about the scope and duration of the congressional authorization of ongoing draft authorization. The president can appear operations against ISIS and any significant to meet legal niceties while still proceeding Whoever is elected increase in U.S. military action in Syria or Iraq. with military action; the administration in November should The War Powers Resolution of 19731 claims it has sufficient authority to act push for formal was passed to limit the president’s ability against ISIS under the 2001 AUMF. Meanwhile, congressional to initiate a war without congressional the war goes on. President Trump should approval. It includes a provision mandating either push for passage of Obama’s 2015 authorization of both that Congress pass—either before or after AUMF or submit his own. the ongoing operations the fact—an authorization for use of military There are real advantages to seeking against ISIS and any force (or AUMF). an AUMF. significant increase Previous administrations have asserted By seeking—and aggressively pushing that the resolution places unwarranted for—an AUMF that would include an in U.S. military constraints on the president’s constitutional escalation of U.S. military action in Iraq and action in Syria. prerogatives as commander in chief. Its especially Syria, the president can secure constitutionality has never been definitively congressional “buy in” for the effort. There determined by the U.S. Supreme Court. will, of course, always be carping on Capitol Nonetheless, President George H.W. Bush Hill. But a vote on an AUMF—by compelling sought and received an AUMF for the Gulf members of Congress to make formal War in 1991. President George W. Bush their positions—would force senators and RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

representatives to accept at least partial ownership of the policy. ENDNOTES President Trump can also bring 1. For text of the War Powers Resolution an AUMF to the table in international of 1973, see: https://www.law.cornell.edu/ negotiations. It will strengthen the uscode/text/50/chapter-33. president’s hand by showing substantial 2. For text of the 2001 AUMF, see: domestic support for his policy. This will https://www.gpo.gov/fdsys/pkg/PLAW- send a clear signal of resolve to U.S. clients This policy brief is 107publ40/html/PLAW-107publ40.htm. and competitors alike. 3. For text of the 2002 AUMF, see: part of a series of Not least, getting an AUMF is simply the https://www.gpo.gov/fdsys/pkg/PLAW- recommendations right thing to do. 107publ243/content-detail.html. from the Baker As a nation, we need a more open 4. For text of the proposed 2013 AUMF, and extended discussion of U.S. policy in see: http://www.cnn.com/2013/08/31/us/ Institute for the the Middle East. This is a region, after all, incoming president’s obama-authorization-request-text/. where 20 years of intervention, large or 5. For text of the proposed 2015 AUMF, administration. small, has cost more than 4,000 U.S. lives, see: https://www.washingtonpost.com/ trillions of dollars, and vast expenditures of news/post-politics/wp/2015/02/11/ diplomatic effort. The result: the strategic obamas-request-for-congressional- position of the U.S. is arguably worse than authorization-to-fight-the-islamic-state- on the eve of the September 11 attacks. full-text/. Perhaps the U.S. should stick with Obama’s 6. On the potential risks of a no-fly zone risk-averse “light touch” approach in the in Syria, see: http://www.cfr.org/conflict- region. Perhaps the U.S. should deploy assessment/no-fly-zone-doesnt-mean- more “robust” (i.e. deadly) military options. no-war-zone/p38257. Perhaps the U.S. should even cut its losses 7. For Obama’s views on safe zones in See more policy briefs at: and reduce its current involvement. But Syria, see: http://www.bloomberg.com/ www.bakerinstitute.org/policy-briefs one thing is certain: the next administration politics/articles/2016-04-24/obama-says- needs to make a clear and compelling case syria-safe-zones-won-t-work-as-merkel- This publication was written by a for its Middle East policy. Otherwise, it researcher (or researchers) who backs-the-idea. risks drifting into conflicts or commitments participated in a Baker Institute project. Wherever feasible, this research is without domestic political support. reviewed by outside experts before it is President Trump will no doubt be released. However, the views expressed able to find lawyers at the Justice or State herein are those of the individual Departments willing to provide some author(s), and do not necessarily legal justification for whatever he wants represent the views of Rice University’s Baker Institute for Public Policy. to do in the Middle East. That, after all, is what such lawyers do. Presidential © 2016 Rice University’s Baker Institute advisors will grouse at the onerous task for Public Policy of gaining congressional passage of an AUMF. Members of Congress will squirm at This material may be quoted or actually making a decision. reproduced without prior permission, provided appropriate credit is given to But any significant escalation of U.S. the author and Rice University’s Baker military action in Iraq and Syria demands Institute for Public Policy. more than legal casuistry or a cynical game of pass the blame. These issues demand Cite as: debate. The American public deserves it. And Barnes, Joe. 2016. U.S. Military Action in the Middle East: The Next President an AUMF— however clumsy and frustrating Should Seek Congressional Approval. it may be— is the best way to get it. Policy Brief: Recommendations for the New Administration. Rice University’s Baker Institute for Public Policy, Houston, Texas.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Relations with the Gulf Cooperation Council

Kristian Coates Ulrichsen, Ph.D., Fellow for the Middle East

President Barack Obama leaves his Agreements (FTAs) with the United States in successor a mixed legacy when it comes to 2004 and 2006, respectively, as the George political and strategic relations with the six W. Bush presidency showed a preference to states of the Gulf Cooperation Council (GCC).1 deal bilaterally with its partners in the GCC. Institutional links between the United States The Obama administration has instead and the GCC deepened considerably during made concerted efforts to engage (and Obama’s two terms in office. However, coordinate policy) with the GCC as a bloc, President Trump will have to rebuild ties of particularly on defense and security policy: trust with ruling elites in the Persian Gulf • A GCC-U.S. Strategic Cooperation Forum states shaken by U.S. policy toward the was created on March 31, 2012, and Arab uprisings in 2011, the civil war in Syria, ministerial meetings have since been and, not least, by the nuclear negotiations held annually. with Iran. From a U.S. perspective, the • The September 2013 meeting of the administration that enters office in January Strategic Cooperation Forum saw the 2017 also will need to manage carefully a formation of a joint US-GCC Security set of partnerships with key states intent Committee to address issues related to on pursuing regionally assertive policies in counter-terrorism and border security. Yemen, Egypt, and Libya. • In December 2013, Obama issued a presidential determination making it possible for the first time to sell arms to GREATER INSTITUTIONALIZATION … the GCC as a bloc. The next president will • Two heads of state summits were held at have to rebuild ties of The GCC lacks an integrative decision- Camp David in May 2015 and in Riyadh in making structure for the pooling of trust with ruling elites April 2016, although policymakers from sovereignty, and difficulty in reaching in the Persian Gulf both the U.S. and the GCC have expressed consensus has undermined attempts to frustration at the lack of tangible follow- states shaken by U.S. align policies on internal and external issues. up from each of the meetings. policy toward the Arab Robust bilateralism hindered GCC-wide coordination on issues ranging from trade uprisings in 2011, the and investment to defense cooperation, civil war in Syria, and, and interoperability as member-states … BUT MULTIPLE FLASHPOINTS not least, by the nuclear (and their international partners) was often Many in GCC states will not be sorry to see negotiations with Iran. negotiated bilaterally rather than through Obama leave office. US-Gulf relations have the GCC as a bloc. Saudi officials expressed come under significant strain since 2011 by strong displeasure when Bahrain and Oman the general incomprehension of ruling elites “broke ranks” to sign individual Free Trade in the Gulf at the administration’s approach to regional affairs. GCC officials interpreted 1 The GCC was founded in 1981 and its six member states the so-called “pivot to Asia” to imply tacit are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the U.S. abandonment of their interests just United Arab Emirates. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

as U.S. outreach to Iran reinforced such Gulf-led military operations in Yemen perceptions. For the first time since the U.S. may also elicit rising U.S. unease should became directly involved in regional security the campaign there continue indefinitely structures in the Persian Gulf in the 1980s, and without clear political resolution. The policymakers in GCC states no longer felt conflict in Yemen highlighted the new assured of U.S. backing: assertiveness in GCC policies as the Gulf • U.S. policy responses to the Arab Spring states acted collectively in a bid to secure their interests: This policy brief is caused anger among many officials in the Gulf at the withdrawal of support from • It constituted an important evolution in part of a series of a longstanding political ally in Egypt and regional security structures as the locus of recommendations initial calls on the Bahraini ruling family decision-making lay in Gulf capitals rather from the Baker to reform. than external partners in Washington, DC, Institute for the • Subsequent inaction in Syria, readiness or elsewhere. incoming president’s to work with Muslim Brotherhood-led • The Yemen operation also marked the first governments in Tunisia and Egypt in use of the joint military command that administration. 2012, and diplomatic outreach to Iran was launched by the GCC in December contributed further to Gulf unease toward 2014, alongside joint naval and police U.S. responses to the Arab Spring. forces created at the same time. • An in-depth March 2016 profile of the “Obama Doctrine” in The Atlantic elicited While the U.S. has provided intelligence a furious response in the Gulf at the and targeting support to coalition forces, president’s reference to “free-riders,” American political and military officials which many felt was aimed primarily have expressed concern that the Yemen at them. operations have diverted Gulf attention away from the coalition against the Islamic State in Iraq and Syria, and deepened the See more policy briefs at: LOOKING TO THE FUTURE vacuum of authority that has opened up www.bakerinstitute.org/policy-briefs spaces for Al Qaeda in the Arabian Peninsula Two major points of friction in the US-GCC to exploit in eastern Yemen. This publication was written by a relationship appear set to outlast the Obama The challenge for the Trump researcher (or researchers) who administration’s remaining time in office. participated in a Baker Institute project. administration is to ensure that longstanding The most visceral is the U.S. outreach to Iran Wherever feasible, this research is political and security relationships with that has taken place since 2013: reviewed by outside experts before it is the Gulf states survive temporary recent released. However, the views expressed • Saudi officials expressed anger at the setbacks in an environment in which GCC herein are those of the individual author(s), and do not necessarily fact that initial U.S. negotiations with officials pursue hawkish regional agendas represent the views of Rice University’s Iran were kept secret from them for that prioritize their own security and Baker Institute for Public Policy. nearly two years and that they were not strategic interests that may not always align subsequently involved in the international with those of the US. Gulf policymakers do © 2016 Rice University’s Baker Institute negotiating process in Geneva. not, however, possess a viable alternative for Public Policy • The Joint Comprehensive Plan of Action to the US-led security guarantee that This material may be quoted or reached in July 2015 exposed very underpins the regional security architecture, reproduced without prior permission, different views of the Iranian “threat,” and are unlikely to develop one during provided appropriate credit is given to which, for Gulf policymakers, lay not in the next presidential cycle. The new the author and Rice University’s Baker Tehran’s nuclear program but in Iran’s administration therefore should continue to Institute for Public Policy. support for militant non-state actors such coordinate with the GCC in security policy Cite as: as Hezbollah and, recently, Houthi rebels but expect to come under pressure from Coates Ulrichsen, Kristian. 2016. in Yemen. Gulf officials for accelerated arms sales and U.S. Relations with the Gulf Cooperation expedited approval in Congress. Council. Policy Brief: Recommendations for the New Administration. Rice University’s Baker Institute for Public Policy, Houston, Texas.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION A Strategy Toward Defeating ISIS

Ambassador Edward P. Djerejian, Director, Baker Institute for Public Policy

The Islamic State is a threat to every We must understand that this is a country in the Middle East and to the struggle between the forces of moderation international community at large. With and extremism primarily within the this common enemy, a coherent strategy Muslim world of some 1.6 billion people. and international coalition must contain It is a struggle of ideas on what and destroy ISIS’ command structure as constitutes the true face of Islam and a terrorist organization that occupies Muslim society. ISIS and other radical territory in Syria and Iraq, and that has groups seek to establish themselves as proven its capacity for terrorist attacks credible participants in this debate. internationally. However, a successful The United States and international campaign against ISIS is far from community cannot determine the guaranteed and will require a better outcome of this struggle, but can try to understanding of radical jihadist groups support whatever forces of moderation and a balanced strategy that applies exist in these countries and societies to post-9/11 lessons to counter them. This help further marginalize the extremists. international coalition must be one in We should learn from history that which every member is committed to Western involvement and intervention contribute effectively to the goal with in the Middle East has had some long- The key elements of a political, economic, intelligence, and term negative consequences. Therefore, coherent strategy for military support. It cannot be in name only we must address the current challenge defeating ISIS would and for the half-hearted. intelligently. The deficits in the region are well known: the lack of real political involve both a nearer- participation, faulty educational systems, term coordinated DEFINING A STRATEGY deficient economies, systemic corruption, counterterrorism high rates of youth unemployment, and policy with a military The key elements of a coherent strategy human rights abuses. It is the primary for defeating ISIS would involve both a responsibility of the region’s countries component and a nearer-term coordinated counterterrorism and societies to address such issues longer-term geopolitical policy with a military component and by ending civil and sectarian conflicts approach to address the a longer-term geopolitical approach to and establishing credible and efficient underlying causes of address the underlying causes of radical governance. Accordingly, our approach jihadism in the broader Middle East. In should be based on a true understanding radical jihadism in the this latter respect, U.S. strategy should of the forces at play in the region and a broader Middle East. consider the geopolitical effects of the clear definition of what we support and struggle against ISIS, including the role of oppose. The United States should take the Iran and Russia and the situation of failing lead in this international effort. states in the region. A basic statement that would frame a strategic approach to the challenge of extremism could be as follows: RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

We differ with those who—whatever their religion—practice terrorism, resort BUILDING PARTNERSHIPS, TAKING to violence, reject the peaceful resolution ACTION of conflicts, oppress minorities, preach To reach a political settlement in Syria is a intolerance, disdain political pluralism, or daunting challenge given the specific and violate internationally accepted standards differing political interests of the players regarding human rights. Simply stated, inside and outside of Syria. What is needed religion does not determine, positively is a deeper understanding of the domestic or negatively, the nature of our relations and international parties involved in Syria— This policy brief is with other countries. Our quarrel is with part of a series of their interests, motivations, strengths, and extremism per se, and the violence, limitations—and an evaluation of where recommendations denial, intolerance, intimidation, coercion, they align with our own. The U.S. must from the Baker and terror that accompany it. be pragmatic in pursuing partnerships Institute for the Within the framework of these that help accomplish its key interests: considerations, we seek to help incoming president’s counterterrorism, regional and international resolve regional conflicts and promote stability, and humanitarian relief for the administration. sustainable regional stability. Equally Syrian people. Looking at the longer-term, important, we seek to promote political a tenet of U.S. policy toward Syria must and economic reforms in the broader be good governance. Political, economic, Middle East, with a keen appreciation and social exclusion by a regime toward its of the culture and traditions of the people is ultimately destabilizing. In seeking region’s societies and countries. This is solutions for Syria, policymakers should a long-term goal that could help bolster pursue a system of sustainable inclusion of the political economies of the region Syria’s multi-ethnic and multi-confessional and stem the appeal of extremists who society within the country’s territorial exploit popular frustrations. borders. Along with the defeat of ISIS, See more policy briefs at: this goal should be promoted by the U.S. www.bakerinstitute.org/policy-briefs Within this strategic concept, specific with the regional and international actors policies could be articulated that coordinate This publication was written by a involved in Syria. nearer-term counterterrorism programs and researcher (or researchers) who To obtain a consensus on a strategy participated in a Baker Institute project. longer-term strategic goals of marginalizing with a broad-based coalition will require Wherever feasible, this research is extremists. But it is important that both strong leadership, especially on the part reviewed by outside experts before it is approaches move forward concomitantly, of the United States. As recent terrorist released. However, the views expressed lest we face further policy failures. That is incidents demonstrate, the brutal turmoil herein are those of the individual why it is critical that the United States and author(s), and do not necessarily in Syria, Iraq, and the region as a whole has its partners in and outside of the region represent the views of Rice University’s consequences far beyond the borders of the Baker Institute for Public Policy. come to common understandings on the Middle East. But this is an opportunity for strategy and the specific requirements for bold and strategic diplomacy. Russia faces a © 2016 Rice University’s Baker Institute translating words into deeds. Containing real threat of Islamic extremism within the for Public Policy and trying to destroy radical groups such Russian Federation. Western countries and as Al-Qaeda and ISIS through military and This material may be quoted or Israel are targeted as major enemies. Arab reproduced without prior permission, counterterrorism operations are essential regimes and Iran are targeted by Al-Qaeda provided appropriate credit is given to and must be pursued aggressively, but they and ISIS as “impious.” Regional leaders in the author and Rice University’s Baker are not sufficient to reach the overall goal the Middle East, therefore, have a major Institute for Public Policy. of marginalizing the region’s extremists. responsibility to counter radical jihadist Islamist radicals effectively use religion Cite as: ideology and their militant agenda. as a tool to attain their political ends: the Djerejian, Edward P. 2016. A Strategy The challenge is great. The time has Toward Defeating ISIS. Policy Brief: destabilization and destruction of both the come for a coherent strategy to guide Recommendations for the New “near enemy” (the regimes in the Middle operational policies, lest we be reduced Administration. Rice University’s East) and the “far enemy” (the secular to merely responding to one lethal Baker Institute for Public Policy, international community). Their goal is to Houston, Texas. event after another in merely a crisis establish regimes or a “caliphate” in their management mode. image of Islam. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION The North American Nexus

Ambassador Edward P. Djerejian, Director, Baker Institute for Public Policy

One of the greatest responsibilities President Trump and his administration THE OPPORTUNITY will have is to define a coherent foreign The Trump administration should consider policy strategy that enables the United adopting a renewed North American States to effectively pursue American strategy. With due diligence to border interests abroad and successfully security, especially with Mexico, we manage the daunting challenges of the must depart from focusing largely on 21st century. The policy issues are many, our territorial borders as the limits of including bolstering our global alliances; our political and economic potential and structuring effective relations with embrace our position as an integral part the growing economies of Asia; of North America along with Canada strategizing key relationships with and Mexico. Our three countries, acting countries such as Russia and China; in concert, can emerge as the global moving from conflict management to superpower of the 21st century, in sharp conflict resolution in the Middle East; contrast to an emerging China, Russian and addressing transnational challenges ambitions, and a Europe challenged The Trump such as terrorism and radical jihadism, from within. This is not a formula for climate change, and global health. administration should an economic union, but for strategic consider adopting The United States will not succeed coordination that goes beyond presidential unless it is operating from a very strong summits to achieve, jointly, economic and a renewed North national base. There is much to do on this social prosperity and enhanced mutual American strategy. score. Globalization and technological security of all our borders and people. Acting in concert, change have produced winners and Together, the United States, Mexico, the U.S., Mexico and losers. The United States must address and Canada comprise an enormous the inequalities in our society that market of nearly 500 million people and Canada can emerge as may be the product of both. Doing so a $20 trillion dollar economy. Canada the global superpower requires strong economic growth, and and Mexico are America’s number one of the 21st century. creating jobs and raising wages for many and number three trading partners, Together, they comprise deprived Americans. It is a given that a respectively, with Mexico poised to take strong economy and a solid sociopolitical the number two spot from China in the an enormous market position will enhance the ability of next few years. Jointly, the three states of nearly 500 million our country to successfully address present a formidable manufacturing people and a $20 trillion our foreign policy interests. But too platform, comparable and even superior dollar economy. often, our leadership loses focus on the to any other in the world, including opportunities in our own neighborhood. China. As a result of NAFTA, labor markets, companies, supply chains, laws and standards have become increasingly RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

integrated across North America’s be asked and answered by these three borders. President Trump has been critical partner nations together, as all three of NAFTA, and there may be areas for have much to gain from a deeper, more renegotiation in the agreement, such as comprehensive North American strategy. labor, intellectual property, work visas, Integration engenders long-term success, and rules of origin. Still, a modernized and whereas isolation leads to just that, fair agreement can serve as a valuable isolation, and worst of all, failure. catalyst for increased prosperity and the After a campaign that so clearly This policy brief is achievement of foreign and domestic signaled the need for economic renewal part of a series of policy priorities on this continent. and political leadership, the next recommendations Energy is clearly a major opportunity. administration is in a unique position The abundance of unconventional energy to take bold steps to accomplish this from the Baker resources has already transformed mandate. Increased coordination between Institute for the North America’s position in global energy the United States, Mexico, and Canada incoming president’s markets, even without an integrated will be critical for achieving American administration. approach across Canada, the United foreign policy priorities in the years States, and Mexico. Collectively, North ahead and should be a tenet of the Trump America stands on the precipice of forever administration’s foreign policy. changing the global energy landscape and, closer to home, transforming energy access across the continent, especially when considering the geographic diversity for siting natural gas and renewable electricity options. The flow of energy across borders must be a tenet of North

See more policy briefs at: American energy policy, as a more www.bakerinstitute.org/policy-briefs united strategy toward North America’s economic and energy landscapes This publication was written by a would position these three countries to researcher (or researchers) who consolidate socioeconomic power on this participated in a Baker Institute project. continent, and enable them to encourage, Wherever feasible, this research is reviewed by outside experts before it is by their example, democracy, the rule released. However, the views expressed of law, and peace and security beyond herein are those of the individual North America. author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy. OVERCOMING OBSTACLES © 2016 Rice University’s Baker Institute for Public Policy This is not to say that a coherent North American strategy will be an easy task. This material may be quoted or Political obstacles remain, as well as reproduced without prior permission, questions about the scope of a North provided appropriate credit is given to American strategy, particularly Mexico’s the author and Rice University’s Baker Institute for Public Policy. role in security issues inside and outside of the Western hemisphere, and the Cite as: opportunities for an increased role for Djerejian, Edward P. 2016. The Canada within NATO. Economically, we North American Nexus. Policy Brief: must continue to be vigilant to ensure Recommendations for the New that competition remains strong and Administration. Rice University’s Baker Institute for Public Policy, monopolies are kept in check. These Houston, Texas. are important questions. They should

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION The U.S.-Saudi Relationship: Ripe for Improvement

Jim Krane, Ph.D., Wallace S. Wilson Fellow for Energy Studies

The U.S. Saudi relationship has faltered under Some of the kingdom’s fiercest the Obama administration, accelerating a critics are in the U.S. Congress. Congress’ long-running deterioration since the end recent law allowing 9/11 families to sue of the Cold War when the partnership lost the kingdom—overriding Obama’s veto— much of its strategic rationale. exacerbated the estrangement. Some observers argue that America should now step further away, given the newfound bounty of U.S. shale oil. But Saudi SAUDI RETORTS Arabia is an increasingly important player in From the Saudi perspective, the grievances a complexifying Middle East. The kingdom is are more manifold, but the options fewer. also the largest supplier in an oil market that Riyadh views the Obama administration as is being altered by climate change. compounding the errors of the George W. Given America’s keen interest in these Bush years, when America invaded Iraq and areas, the incoming president should work allowed an Iran-dominated government to to rebuild ties with Riyadh. An increase in steer the country into Tehran’s orbit. American support would incentivize the Since then, Obama has pulled U.S. kingdom to place more importance on troops out of Iraq and Afghanistan, reduced U.S. goals, and might reverse the emerging the U.S. Navy presence in the Persian trend—since King Salman’s accession in Gulf, reneged on a threat to strike Syria, 2015—for Saudi actions that run contrary to encouraged revolutionaries in Tunisia and U.S. interests. Even modest American efforts Egypt, and, most worryingly, concluded a can be effective. Saudi Arabia is more eager deal with Iran, the Saudi arch-nemesis. to cooperate with the United States than the For the kingdom, the Iran nuclear deal A Saudi Arabia outside reverse. Barring an unforeseen event, the portends a broader U.S.-Iran reconciliation, kingdom does not have to be on the list of which comes amid Iranian ascendance in Iraq, the U.S. orbit has knotty issues facing President Trump. Yemen, Syria, and Lebanon. Still, the kingdom demonstrated the has few options for external protection for ability to become a itself and its oil shipments, which mainly disruptive force. CRITICAL VOICES flow to Asia. Even if America wanted to give President Trump will hear that the kingdom up the role, China isn’t ready to accept it. An operates at cross-purposes to American alliance with Russia would be unwise. For values on women, religious tolerance, now, Washington is the sole option. democracy, and terrorism. Critics argue that increased U.S. oil production frees America from dependence on Saudi crude and the REASONS FOR A RAPPROCHEMENT need to paper over our differences. Why Despite the differences, the U.S.-Saudi spend upwards of what O’Hanlon estimates friendship retains value. at $50 billion per year to protect Saudi Saudi spare oil production capacity has Arabia (and the Gulf monarchies) when the been a strategic asset for the importing kingdom shares few of our values? world. The kingdom’s ability to offset RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

outages has calmed markets and prevented al-Qaida. The kingdom’s 2016 execution of price spikes. But Saudi spare capacity has Shia cleric Nimr al-Nimr may well have gone shrunk. The incoming president should ahead in the face of Washington’s protests reiterate America’s interest in the kingdom’s because of the deteriorating relationship. ability to cover supply shocks. Stronger ties allow America to push back Further, American firms are consistent against maltreatment of Saudi Shia. winners in the kingdom’s capital projects The kingdom’s treatment of women market. Saudi students have flocked to remains a hurdle. Grandstanding by U.S. This policy brief is U.S. universities, which increases American politicians on the issue of women driving has part of a series of “soft power” inside the kingdom. American made the Saudi ban harder to overturn. Would- recommendations friendship even comes with a small level of be reformers face accusations of caving in to from the Baker influence within OPEC. American pressure. These concerns are more On security, cooperation remains effectively voiced in private. Institute for the strong. Although the Saudis have lost incoming president’s interest in U.S. goals in Syria and have administration. instead confronted what they see as Iranian CLIMATE meddling in Yemen, Saudi leaders appear Climate change poses an urgent area for willing to make concessions. U.S.-Saudi cooperation. Saudi Arabia remains Saudi cooperation on ISIS, Syria, and economically dependent on oil exports and Yemen could probably be improved by U.S. politically dependent on energy subsidies. reassurance on its “security umbrella” and Both undermine the kingdom’s stability and perhaps an increase in intelligence and that of the global climate. military ties. An economically diversified Saudi kingdom would present a stronger ally, and would have less reason to oppose climate action. IRAN Reforming fossil fuel subsidies would reduce See more policy briefs at: America and Saudi Arabia will continue to the kingdom’s unsustainable energy demand www.bakerinstitute.org/policy-briefs disagree over Iran, although the Saudis and carbon footprint, while preserving oil for at least went through the motions of more valuable use. This publication was written by a researcher (or researchers) who supporting the 2015 Iranian nuclear deal. The kingdom is making progress on both participated in a Baker Institute project. Ultimately, Riyadh will accept that fronts. It raised energy prices in January 2016 Wherever feasible, this research is the U.S. and Iran share common goals in and promises to continue price increases for reviewed by outside experts before it is Afghanistan and Iraq, where ISIS threatens five years. Its diversification into petrochemicals released. However, the views expressed Iranian interests even more than ours. At presents a “future proofed” way to monetize oil herein are those of the individual the same time, we should reinforce support without burning it. A Saudi Aramco IPO would author(s), and do not necessarily represent the views of Rice University’s for a united Iraqi military under centralized further the diversification agenda. Baker Institute for Public Policy. control and disbanding of sectarian militias. Climate cooperation also matters because As long as Iran cooperates on the Saudi Arabia is on the climate front line. © 2016 Rice University’s Baker Institute nuclear front, the incoming U.S. president Summer temperatures exacerbated by the for Public Policy should make clear to Riyadh— and greenhouse effect are breaking records and

This material may be quoted or Congress—that Washington will not block reaching the limits of human tolerance. reproduced without prior permission, Iran’s return to the international fold. provided appropriate credit is given to the author and Rice University’s Baker CONCLUSION Institute for Public Policy. HUMAN RIGHTS In short, despite many differences, the United Cite as: A Saudi Arabia outside the U.S. orbit has States and Saudi Arabia maintain important Krane, Jim. 2016. The U.S.-Saudi demonstrated the ability to become a mutual interests. The chaos enveloping parts Relationship: Ripe for Improvement. disruptive force. Had America maintained of the Middle East underlines the kingdom’s Policy Brief: Recommendations for the stronger ties, it might have been able to need to retain American hard security. With New Administration. Rice University’s coax the kingdom back from the brutal modest effort, the incoming president can Baker Institute for Public Policy, Houston, Texas. bombing of Yemen, which—besides killing improve U.S. influence with this important civilians—has created operating space for regional powerhouse.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Taking Political Parties Seriously in the Arab World

Marwa Shalaby, Ph.D., Fellow for the Middle East and Director, Women's Rights in the Middle East Program

Almost all Arab states currently hold regular operated under close state supervision elections at the national or local level, or and even repression. For instance, political both. Political elites and voters alike take parties were allowed to form in some elections very seriously, and they are capacity in a number of Arab states increasingly significant battlegrounds for (Lebanon, Jordan, Morocco, Tunisia, and issues and policy debates. In the absence Algeria), but were restricted in others— of other forms of democratic governance operating under different labels (i.e., in most parts of the MENA, political parties “political societies” in Bahrain and “blocs” can play a more decisive role as the in Kuwait)—or were completely outlawed bridge between the ruling elites and the (Qatar, the UAE, and Saudi Arabia). general public, as the parties channel the By the start of the 21st century, most of public’s demands and grievances. Despite the secular and Islamist opposition parties, the central role of parties in the political as well as the pro-regime parties, had process—especially in the aftermath of mastered the rules of the game and were the Arab Spring—political scientists1 and largely co-opted by the power-holding policymakers have greatly downplayed elites. These parties actively participate their capacity to promote stability and in elections with well-defined support consensus-building in the turbulent, bases and electoral strongholds, albeit polarized MENA region. There is, however, with internal fragmentation, ideological The new administration ample evidence that political inclusion and polarization, and vague electoral platforms. should pay special pluralism can further political stability, curb Remarkably, despite their visible presence attention to advancing 2 violence and radicalization, and minimize in the political arena for almost two decades more accountable the likelihood of a military coup.3 Hence, before the Arab Spring, evidence shows that the new administration should pay special opposition parties were not the catalysts and inclusive political attention to advancing more accountable for mass uprisings and never demanded systems in the Arab and inclusive political systems in the Arab the demise of the long-standing regimes in world. This goal can 4 world. This goal can only be achieved Morocco, Egypt, Jordan, and Tunisia. only be achieved by by strengthening the role of emerging In the aftermath of the Arab uprisings, and established political parties, and by newly formed political parties mushroomed strengthening the providing the support and resources they in transitioning Tunisia, Egypt, and Libya.5 role of emerging and need to be stabilizing agents in the region. However, most of these emerging parties established political In response to a global wave of encountered numerous organizational parties in the region. democratization following the end of the and financial challenges, especially when Cold War and the accompanying rise of faced with the electoral savvy of well- Islamism throughout the Middle East, funded, highly organized Islamist forces. many Arab countries ushered in a period Elsewhere in the region, regimes have of political liberalization during the 1990s. undertaken major political and electoral Electoral competition became the norm, reforms to mitigate the possible effects although most political organizations of the uprisings. These include quota RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

reforms (Jordan and Algeria); granting opposition voices—as well as those of other women the right to vote and run for office marginalized groups, including women and (Saudi Arabia) as independents; reforming ethnic minorities—are integral parts of the electoral laws (Kuwait); and introducing decision-making process. The continual constitutional amendments (Bahrain). marginalization of these voices will lead Morocco, in particular, introduced significant to heightened levels of popular discontent, constitutional reforms in 2011 to appease instability, and even violence. the opposition and meet the demands of the This policy brief is revolutionary “February 20th Movement.” part of a series of In a move toward strengthening the role ENDNOTES recommendations of political parties, the new constitution 1. Previous work on political parties in from the Baker stipulates that the party acquiring the plurality of seats in the parliament is the MENA region has focused on their role as Institute for the responsible for appointing the prime legitimizing tools for the incumbent regimes incoming president’s minister. The new reforms have also granted (Sater 2009), their importance to political administration. extended political and cultural rights to events (i.e., for distributing rents and access to clientelistic politics) (Lust 2006), and their Morocco’s ethnic minorities and women. importance for determining, and rewarding, A recent study analyzing the policy the regime's loyal followers and to punish congruency between political parties opponents (Blaydes 2011). and the public in the current Moroccan 2. Studies have shown that political parliament found strong evidence that inclusion of marginalized groups and political elites are indeed responsive to opposition, mainly Islamist forces, may lead 6 public opinion. Interestingly, the authors to lower levels of radicalization and conflict found that the two largest parties in the (see Schwedler 2006, 2011). parliament (Istiqlal and PJD) are responsive 3. Joseph Sassoon, Anatomy of not only to their support bases, but also Authoritarianism in the Arab Republics, See more policy briefs at: to general public opinion. These findings Cambridge University Press, 2016. www.bakerinstitute.org/policy-briefs demonstrate that parties have the capacity 4. In Egypt, the Muslim Brotherhood was to play an important role in the political not the catalyst of the uprisings of January This publication was written by a arena and to be truly representative 2011. However, they joined forces later with researcher (or researchers) who participated in a Baker Institute project. of the public, even in more autocratic the revolutionary youth in Tahrir Square Wherever feasible, this research is settings. Most importantly, these results calling for the ousting of the regime. reviewed by outside experts before it is also emphasize that gradual, incremental 5. See http://carnegieendowment. released. However, the views expressed reforms may be the way out of the current org/2013/11/13/path-to-sustainable- herein are those of the individual governance crisis throughout the region. political-parties-in-arab-world-pub-53575. author(s), and do not necessarily 6. Marwa Shalaby and Abdullah represent the views of Rice University’s Promoting strong, inclusive political Baker Institute for Public Policy. party systems in the Arab world should be Aydogan, “Parliamentary Agenda Priorities a top priority for the new administration. and Responsiveness under Authoritarianism” © 2016 Rice University’s Baker Institute The U.S. should exert more pressure on (paper presented at the 2016 Meeting of the for Public Policy the region's transitioning and autocratic American Political Science Association). regimes to reform their electoral systems This material may be quoted or reproduced without prior permission, and allow legitimate channels of opposition. provided appropriate credit is given to Their efforts should primarily focus on the the author and Rice University’s Baker extended freedom to associate and form, Institute for Public Policy. less restrictive fundraising and campaigning laws, and the assurance of transparency Cite as: Shalaby, Marwa. 2016. Taking Political and integrity in the electoral process. Parties Seriously in the Arab World. Rigged elections or the facade of legitimate Policy Brief: Recommendations for the elections will lead to further disenchantment New Administration. Rice University’s by the public and greater mistrust in the Baker Institute for Public Policy, political process. One key to resolving the Houston, Texas. crisis of legitimacy in the region today is to build pluralistic political systems in which 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Engagement with Islamists

A.Kadir Yildirim, Ph.D., Research Scholar, Center for the Middle East

The nexus between religion and politics for Justice and Development in Morocco, and in the Middle East is one of the most vital Islamic Action Front in Jordan are candidates issues U.S. policymakers must understand. for such engagement. A multi-pronged Islamists in the region, in particular, are policy that can engage both secular and major political actors. Yet U.S. foreign policy nonviolent Islamist parties may produce a engagement with nonviolent Islamists has more successful foreign policy agenda that been quite limited, barring circumstances furthers short- and long-term U.S. objectives that necessitated such interactions. This is in the Middle East, including ending violence, despite the Obama administration’s efforts establishing political stability, and promoting to integrate the role of religion into American democratic governance. foreign policy formulation.1 A policy of non- engagement with nonviolent Islamists may harm U.S. interests in the region. WHY ENGAGE ISLAMISTS? Engagement with Islamists parties and There are three reasons why engagement groups would recognize them as legitimate with nonviolent Islamists should be political actors in their own political systems. a priority. First, Islamists are the best This requires that no distinction be made organized political groups throughout the A multi-pronged between secular and Islamist parties. Lack Middle East and are collectively the most policy that can engage of communication likely may lead to policy popular political blocs. Ignoring these groups choices that might undercut U.S. interests both secular and and their extensive support bases may in the region. Hence, Islamists should be nonviolent Islamist undermine public perceptions of the U.S. included in policy discussions when they and, by extension, weaken the legitimacy parties may produce assume governmental roles. When they of U.S. regional policies. Indeed, survey data a more successful are in opposition, the U.S. must establish show that U.S. policies are largely viewed communication in order to gain greater foreign policy agenda unfavorably throughout the region.2 Second, insight into the perspectives of these Islamist that furthers short- Islamists wield extensive religious authority. groups and their large constituencies, While their discourse on socioeconomic and long-term U.S. allowing for opportunities to determine areas matters and mass marginalization resonates objectives in the Middle of disagreement and potential collaboration. with many, Islamists are also popular due Such engagement, however, should only East, including ending to their successes in overlaying political apply to Islamists who reject violence and violence, establishing rhetoric with religious parlance, regardless respect the electoral process. political stability, and of their authenticity, or lack thereof, to The limitations of exclusively partnering Islamic tradition. promoting democratic with secular actors have become increasingly Third, Islamists historically have been governance. evident in recent years in the form of growing the most vocal incubators of anti-American violence, democratic lapses, and deteriorating and anti-Western sentiment.3 This poses human development. The U.S. should a distinctly new and potent threat to U.S. therefore cautiously engage with Islamist security. Recent evidence suggests that parties while working on other channels. In negative perceptions of U.S. foreign policy particular, Ennahda Party in Tunisia, Party in the Middle East can become the single RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

most important cause of anti-American economic reforms. In countries where sentiment and acts of violence.4 In this economic liberalization reforms are inclusive regard, minimizing anti-American sentiment and benefit the previously marginalized Islamic is paramount. support base, both the Islamic constituency and Islamist parties become more open to pluralism and democratic governance.6 The SHORT-TERM BENEFITS implications of this process of engagement go beyond Islamists themselves. The support In the short-term, engagement with This policy brief is base of Islamist groups is composed of nonviolent Islamists can curb anti-American part of a series of undereducated masses with significant levels sentiment and legitimize counter violent of religious sensitivity and a deep perception recommendations extremism efforts. Typically, anti-American of political and economic marginalization. from the Baker sentiment infused with religious discourse Providing this constituency with a stake in boosts opposition to U.S. policies and spurs Institute for the the future of their countries via economic detractors to engage in violent reprisal. incoming president’s transformation will create a robust incentive Islamists have always faced pressure from mechanism for enduring social transformation administration. secular opposition groups and governments. and also prevent a possible slide to jihadism. They are in search of new roles in the post- When nonviolent Islamists and radical jihadists Arab Spring era in Egypt, Tunisia, Morocco, share ideological similarities as it relates to Jordan, and Libya. Yet since the Arab anti-Westernism, instrumental use of religion, Spring, Islamists feel intense competition and political exclusion, anchoring nonviolent from extremist militant groups, or radical Islamists in the democratic process will jihadists, for conservative constituencies. help create a permanent wedge between While secular pressures have led to the two and further legitimize the electoral Islamists’ exclusion from power, mostly process over its alternatives. Thus, the next in tandem with U.S. policy priorities in the administration should prioritize supporting region,5 radical jihadists are an entirely new See more policy briefs at: economic change in regional economies to source of political competition. www.bakerinstitute.org/policy-briefs pave the way for long-lasting socioeconomic It is crucial to note that engagement transformation, which will usher in greater with Islamists is not a one-sided deal. Just This publication was written by a democratization and make Islamists and their researcher (or researchers) who as it would benefit the U.S., it would also social support bases part of this process. participated in a Baker Institute project. provide Islamists the political legitimacy Wherever feasible, this research is they fervently seek. Islamists are generally reviewed by outside experts before it is pragmatic political actors who have a knack released. However, the views expressed ENDNOTES herein are those of the individual for compromise. As the cases of Tunisian author(s), and do not necessarily Ennahda and the Moroccan Party for Justice 1. Office of Religion and Global Affairs, U.S. represent the views of Rice University’s and Development Party clearly demonstrate, Department of State: http://bit.ly/2gHsjVu. Baker Institute for Public Policy. Islamists will value political opportunities. 2. Pew Research Center’s Global Attitudes Nonviolent Islamists have a vested interest © 2016 Rice University’s Baker Institute Project (2012): http://pewrsr.ch/2ghr1gH. for Public Policy in separating themselves from radical 3. “It’s the Policy Stupid: Political Islam jihadists in order to gain external recognition and US Foreign Policy” by John L. Esposito: This material may be quoted or and legitimacy. http://bit.ly/2foo8v1. reproduced without prior permission, 4. Sam Mullins, “The Road to Orlando: provided appropriate credit is given to Jihadist-Inspired Violence in the West, 2012- the author and Rice University’s Baker LONG-TERM BENEFITS Institute for Public Policy. 2016,” Combatting Terrorism Center at West Point, June 16, 2016: http://bit.ly/2f3HaZm. A long-term solution to the region’s deep- Cite as: 5. Amaney Jamal, Of Empires and seated problems requires addressing Yildirim, A.Kadir. 2016. U.S. Citizens: Pro-American Democracy or No Engagement with Islamists. Policy root causes. Lack of education, political Democracy at All? (Princeton: Princeton Brief: Recommendations for the repression, underdevelopment, and high University Press, 2012). New Administration. Rice University’s levels of inequality contribute to political 6. A.Kadir Yildirim, Muslim Democratic Baker Institute for Public Policy, extremism and violence. One of the most Houston, Texas. Parties in the Middle East: Economy and effective means of incentivizing Islamists Politics of Islamist Moderation. (Bloomington, toward the democratic process is through 2 IN: Indiana University Press, 2016). RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION The Next Engine of U.S. GDP Growth: The Market for Ideas

Edward J. Egan, Ph.D., Baker Institute Fellow, and Director, McNair Center for Entrepreneurship and Innovation

The U.S. economy has undergone a around 3.5 years before the introduction of fundamental shift in structure in the the America Invents Act (AIA) in 2011 and last three decades toward becoming an now stands at just over 2 years.3 innovation economy. This shift has created The USPTO spends an average of just enormous untapped potential, which can only 18 hours per patent application. Lemley be realized by learning to trade in ideas. But argues that there should be a balance rather than advancing and adopting policies between expending resources in reviewing to promote this new driver of economic applications and allowing the courts to growth, U.S. policymakers have continued to address problematic patents.4 But given live in a pre-innovation economy paradigm pervasive claims of excessive patent and are considering legislation that would litigation, reports that between one- hamper the market for ideas. third and one-half of all litigated patents Innovation, loosely defined, is invention are found invalid, the backlog of patent followed by commercialization. Trade in applications, and the low level of review This one market could inventions leads to more efficient and wider- by patent examiners, it is likely that patent single-handedly restore ranging commercialization, and is made quality is inefficiently low. vastly easier when inventions are associated The USPTO’s budget request for 2017 is GDP growth to levels with property rights, particularly patents. around $3.3 billion. But, unlike other federal last seen in the 1980s. agencies, the USPTO is not supported by

RENEWING THE FOUNDATION FOR GROWTH PATENT GRANTS, APPLICATIONS AND LITIGATION (1963–2015)

U.S. GDP is currently $18.4 trillion, with a real 800,000 8,000 growth rate of 1.1%.1 Using estimates from Applications the economic literature, a mature market for Grants Litigation patents could generate 5% additional annual 600,000 6,000 growth for the U.S.—that is, this one market could single-handedly restore GDP growth back to levels last seen in the 1980s.2 400,000 4,000 Unfortunately, the first crucial foundation for the market for ideas—the

patent office—is drastically underfunded. 200,000 2,000 Patent Litigation (Cases)

There are currently around 2.5 million Patent Applications and Grants active patents available to be traded, with likely around 1 million patents caught 0 0

in the U.S. Patent and Trademark Office 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 (USPTO) backlog. The average time needed to process a patent application peaked at SOURCE Baker Institute, 2016. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

appropriations. The USPTO collects its budget patent owners. Pushing crippling regulation in fees and then must ask Congress if it can onto this nascent free market will sacrifice keep them.5 Each year, the U.S. spends half a one of America’s best hopes for growth in trillion dollars on research and development, the new economic era. but the government does not spend a cent to provide inventors with high-quality, tradable property rights.6 ENDNOTES 1. See U.S. Bureau of Economic Analysis. This policy brief is 2. See Jay Walker, “The Real Patent Crisis CURRENT LEGISLATION HINDERS Is Stifling Innovation,” Forbes, June 18, 2014. part of a series of GROWTH recommendations The article quotes a Forester Research report The majority of large high-technology firms that states: “U.S. firms annually waste $1 from the Baker are publicly traded, have a short-term trillion [about 5.5% of GDP] in underused Institute for the focus, and view patents as more of a costly intellectual property assets by failing to incoming president’s nuisance than the long-term foundation extract the full value of that property through administration. of their business. Perhaps in response to partnerships.” Also see “How do you find a lobbying from this group, bills like H.R. 9 “The manufacturer to license your product?” U.S. Innovation Act,” S. 1137 “PATENT Act,” H.R. News & World Report, June 10, 2002, which 2045 “Targeting Rogue and Opaque Letters states that $120 billion of licensing activity Act of 2015,” and H.R. 1832 “Innovation took place in 2002. If this value has increased Protection Act” have been introduced with inflation, and any increase has surely before the 114th Congress. Each of these been much more dramatic, this would be bills intentionally weakens the enforcement 0.85% of today’s GDP. of patents, making it easier to ignore and 3. See https://www.uspto.gov/aia_ infringe them. Only S. 632 “STRONG Patents implementation/bills-112hr1249enr.pdf. Act of 2015”7 is more balanced. 4. Mark Lemley, “Rational Ignorance at the Patent Office,” Northwestern University See more policy briefs at: These bills often use patent trolls— www.bakerinstitute.org/policy-briefs those exerting patents in bad faith—as an Law Review 95, no. 4 (2000). excuse to make litigation harder and so 5. Section 22 of the AIA allowed the This publication was written by a infringement easier.8 Meanwhile, patent patent office to deposit excess fees into a researcher (or researchers) who owners legitimately exerting their patents reserve fund, which would be available for participated in a Baker Institute project. are having their rights curtailed, and patent use in the event of a government shutdown. Wherever feasible, this research is reviewed by outside experts before it is intermediaries, who act as market makers Prior to the introduction of the AIA, the released. However, the views expressed for the market for ideas, are discouraged Congressional Research Service estimated herein are those of the individual from entry. The second crucial foundation of that Congress had diverted more than $1 author(s), and do not necessarily the market for ideas—the ability to trade in billion of the patent office’s fees between represent the views of Rice University’s patents—is being undermined. 1990 and 2011. See Glenn J. McLoughlin, Baker Institute for Public Policy. “U.S. Patent and Trademark Office © 2016 Rice University’s Baker Institute Appropriations Process: A Brief Explanation,” for Public Policy CONCLUSION Congressional Research Service (7-5700, A market for ideas encourages specialization RS20906), 2014. This material may be quoted or in invention, matches inventions to their 6. “Research and development (R&D)— reproduced without prior permission, Gross domestic spending on R&D—OECD provided appropriate credit is given to most efficient forms of commercialization, the author and Rice University’s Baker and broadens the range of products available Data” at data.oecd.org. Institute for Public Policy. to consumers. It is also an economic force in 7. See https://www.govtrack.us/ and of itself that may be capable of single- congress/bills/114/s632/summary. Cite as: handedly restoring U.S. prosperity. 8. There is scant evidence that patent Egan, Edward J. 2016. The Next Engine trolls are a systematic problem. The courts, of U.S. GDP Growth: The Market for To harness the power of the market for the Federal Trade Commission, and the Ideas. Policy Brief: Recommendations ideas, the U.S. must do two things: it must for the New Administration. Rice fund the patent office to 21st century levels, Department of Justice have been aggressively University’s Baker Institute for Public and it must bring the market for ideas out pursuing instances of patent trolling. See, for Policy, Houston, Texas. from behind closed doors in a way that example, Joe Mullin, “In a first, East Texas enhances, rather than curtails, the rights of judge hits patent troll with attorneys’ fees,” 2 ARS Technica, Dec. 20, 2015. RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Prosperity Through Growth: Unleashing the Power of U.S. Small Business

Edward J. Egan, Ph.D., Baker Institute Fellow, and Director, McNair Center for Entrepreneurship and Innovation

In 1999, small business was growing at SMALL BUSINESS IN DECLINE around 5% per year in real terms.1,2 The small business sector accounted for about Before the turn of the millennium, small 40% of the overall U.S. economy and was business produced a greater contribution contributing 2% to U.S. gross domestic to U.S. GDP than large business. In the product (GDP) growth.3 This growth is seven years leading to the 2008 financial achievable again today. crisis, small business GDP contribution fell Small business owners have repeatedly to around 46% of non-farm private sector said that the lack of debt financing is economic output. In real terms, small preventing their growth.4 At the same business GDP went from just under $5.2 time, community banks—which have the trillion in 2000 to just over $5.4 trillion in closest relationships with small business 2007.7 Annual average real growth was and are best able to assess their risks and around 1% during these 7 years. returns—have suffered disadvantages The 2008 financial crisis made matters The U.S. could see under regulation for decades and were considerably worse. The average real growth 2% GDP growth from disproportionately hit by the 2008 financial rate of small business from 2008 to 2010 its small business was -1.5%. Data is not available for the past crisis. Changing community banking entrepreneurs again. regulation could unleash the power of free five years.8 enterprise and put America back on the path to prosperity. SMALL BUSINESS AND ITS LENDING AS A PERCENTAGE OF U.S. GDP

WHAT IS A SMALL BUSINESS? 50% 2.5% A small business is a firm with fewer than 500 employees.5 In 2011, the United States 40% 2.0% had almost 5.7 million small businesses, representing 99.7% of all U.S. employer 30% 1.5% firms.6 These firms employed 48% of the nation’s labor force. Most small businesses are truly small: Over 60% have zero to four 20% 1.0% employees, and more than 90% have fewer All Small Business Lending than 20 employees. Small business has a 10% Small Business Activity 0.5% Small Business Activity as % of GDP Small Business Activity meaningful representation in every sector Community Bank SB Lending Small Business Lending as % of GDP

of the U.S. economy except for mining and 0% 0.0% utilities. Any American can become a small business entrepreneur. 1998 2002 2006 2010 2014

SOURCE Baker Institute, 2016. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

4. 100% of a loan is often used to capitalize UNCOMPETITIVE BANKS a firm for growth. A reduction in corporate The loan market share of the top 10 banks taxes may lead to increased dividends, increased from 30% in 1980 to 50% in one-off consumption, etc. 9 2010. It may now exceed 60%. In 2002, 5. Competitive loans provided by 9,466 banking institutions were lending to knowledgeable local professionals will 10 small business. This year there are just flow to small businesses that offer the 6,058, and the vast majority—more than best risk-return trade-off first; loans 92%—are community banks. Only 456 other select for growth. This policy brief is banks are active in small business lending in part of a series of the U.S. today. The federal government will need a recommendations Community banks do not have the nuanced approach to properly stimulate economies of scale or the diversity of scope small business growth. However, a core from the Baker of large banks. They have been in decline focus should be on creating a level playing Institute for the for decades.11 As a consequence, the small field for community banks to compete to incoming president’s business loan market has dramatically provide small business loans. With growth- administration. decreased in real terms. This year’s $286 oriented investment coming from local, billion of loan activity is 30% below the knowledgeable professionals, the U.S. could value of the market a decade ago adjusting see 2% GDP growth from its small business for inflation. entrepreneurs again.

THE SMALL BUSINESS ADMINISTRATION ENDNOTES The Small Business Administration (SBA) was 1. Research assistance provided by founded in 1953. Enabling access to capital Dylan Dickens. for small business is a crucial part of its core 2. Small business economic data from See more policy briefs at: mandate. The SBA requested a total budget SBA. Urban, unchained CPI data from the www.bakerinstitute.org/policy-briefs of $860 million in 2016. Of this amount, Bureau of Labor Statistics. This publication was written by a just $3.3 million was set aside to subsidize 3. U.S. GDP data from the World Bank. researcher (or researchers) who small business loans provided through 4. See, for example, Bank of America participated in a Baker Institute project. private banks under the 7a loan guarantee (2015), “Small Business Owner Report”; Wherever feasible, this research is program.12 SBA reform should be a priority Wells Fargo (2016), “Small Business Survey”; reviewed by outside experts before it is released. However, the views expressed for the new administration. and Federal Reserve Banks of New York, herein are those of the individual et al. (2014), “Joint Small Business Credit author(s), and do not necessarily Survey Report.” represent the views of Rice University’s LESS TAXES VS. MORE LENDING 5. U.S. Department of Commerce Baker Institute for Public Policy. Lowering corporate tax rates would likely 6. Small business size, sector data from the Small Business Administration. © 2016 Rice University’s Baker Institute stimulate small business growth. However, for Public Policy increasing access to loans is a more 7. Real amounts in 2010 U.S. dollars. effective solution: 8. There is no up-to-date data on small This material may be quoted or business GDP contributions. The Bureau of 1. A tax reduction is more of today’s money reproduced without prior permission, Economic Analysis has requested funds from tomorrow, whereas a loan is tomorrow’s provided appropriate credit is given to Congress to address this. the author and Rice University’s Baker money today. Debt capital allows 9. D. Corbae, P. D’Erasmo, “A Quantitative Institute for Public Policy. immediate investment in growth. Model of Banking Industry Dynamics,” 2013. Cite as: 2. Professionally assessed loans pay for 10. Small business lending data from FDIC. Egan, Edward J. 2016. Prosperity themselves. The government does not 11. Since 1994, changes to banking Through Growth: Unleashing the need to forgo spending, or increase the regulation have almost all favored Power of U.S. Small Business. deficit, to finance them. large banks. Policy Brief: Recommendations for the 3. Universal corporate tax reductions New Administration. Rice University’s 12. FY2016 Congressional Budget Baker Institute for Public Policy, do not target growth from small Justification, SBA. Note that $153 million will Houston, Texas. business. Constraints on tax reductions be used in the 7a program’s administration. may create perverse incentives that 2 undermine growth. RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION The Key Driver of Economic Growth in the 21st Century: High-growth, High-tech Entrepreneurship

Edward J. Egan, Ph.D., Baker Institute Fellow, and Director, McNair Center for Entrepreneurship and Innovation

The U.S. has entered a new economic public data on this crucial sector. Estimates era based on technological innovation, suggest that it now makes up between entrepreneurship, and free market 10% and 30% of the economy, and is capitalism: High-growth, high-technology expanding rapidly. firms accounted for more than two-thirds of all U.S. GDP growth over the last decade.1,2 A 2011 report estimated that high- EXPLOSIVE GROWTH growth, high-tech firms make up around In the last 10 years, high-growth, high- 21% of the economy.3 From 2005 to 2014, tech firms have dominated U.S. markets the mature subset of these firms grew at an for initial public offerings (IPOs) and for average real annual rate of between 5% and acquisitions of private companies; they 7%.4 These figures imply that this sector has now account for an average of more than been contributing more than 1% of U.S. GDP 90% of each market’s value each year.6 growth, which has averaged just 1.5% over This incredible flow of new firms changed The U.S. could see the last decade. the composition of big business. In 2014, 5% GDP growth from The high-growth, high-tech sector 15% of all public market capitalization this new vanguard of appears about to increase dramatically. came from high-growth, high-tech firms; free enterprise. With potential double-digit growth from in 2015, it was over 28%. In October 2016, this sector, combined with its ever-greater role in the economy, the U.S. could see 5% GDP growth from this new vanguard of free VC INVESTMENT, SALES, AND MARKET VALUE enterprise. Policy to support this sector could enhance and hasten its rise, or could 30% 1.0% destroy this new American dream. Market Value 25% Sales 0.8% VC Investment THE UNMEASURED POWERHOUSE 20% 0.6% The U.S. has the largest and most sophisticated venture capital (VC) industry 15% in the world. In real terms, VC investment 0.4% doubled from under $30 billion across 3,237 10%

companies in 2002 to over $60 billion 0.2% as % of GDP Investment VC 5% across 4,561 companies in 2015.5 It now as % of all public firms VC-backed accounts for around one-third of a percent 0% 0.0% of U.S. GDP. But most of the GDP contribution of 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 high-growth, high-tech firms comes after VC investment has ended. There is little SOURCE Baker Institute, 2016. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

the five largest U. S. firms were Apple, Alphabet (Google), Microsoft, Amazon.com, SUPPORTING EXPANSION and Facebook. Every one of these firms was Supporting later-stage expansion may be VC backed.7 even more important than enhancing early- stage growth. Mature high-growth, high- tech firms could flourish if they had more ENHANCING COMPETITION open access to domestic and global markets for capital, talent, and their products. This policy brief is Large firms are less competitive than they used to be. On average across 13 Acquisitions and initial public offerings part of a series of recorded sectors of the U.S. economy, provide crucial access to capital for the recommendations more than 26% of revenue came from the commercialization of high-growth, high- from the Baker 50 largest firms in 2012.8 This worrying tech ideas. Exceptions to regulations for high-growth, high-tech firms should be Institute for the 4% increase from 1997 prompted calls for anti-trust intervention. But high-growth, considered as a part of broader regulatory incoming president’s high-tech firms are intensely competitive. reform in domestic capital markets. administration. They disrupt conventional markets, Likewise, high-skill immigration create new products and services, or add reform, trade policy with strong intellectual new dimensions of competition through property provisions, sector-specific platforms. In recent years, platforms have regulation reform, and promotion of STEM enabled competitive new markets for education would all help America’s high- everything from accommodation to labor, growth, high-tech firms achieve and and transport to retail. sustain double-digit growth.

See more policy briefs at: EMPOWERING START-UPS ENDNOTES www.bakerinstitute.org/policy-briefs High-growth, high-tech firms rely on 1. Research assistance provided by Ben different markets for capital, training, Baldazo, Carlin Cherry, and Avesh Krishna. This publication was written by a researcher (or researchers) who partners, labor, and services to serve 2. U.S. GDP and GDP growth from the participated in a Baker Institute project. different parts of their life cycle. Policy to World Bank. Wherever feasible, this research is enhance these markets must be tailored 3. IHS Global Insight, “Venture Impact: reviewed by outside experts before it is appropriately. The Economic Importance of Venture released. However, the views expressed At an early stage, start-ups participate Capital-Backed Companies to the U.S. herein are those of the individual in urban entrepreneurship ecosystems. Economy,” NVCA, 2011. author(s), and do not necessarily represent the views of Rice University’s These ecosystems include angel investors, 4. Data from COMPUSTAT, VentureXpert, Baker Institute for Public Policy. VCs, accelerators, incubators, co-working and Bureau of Labor Statistics. Sales growth spaces, and hubs. Firm equity is their was 5% and market capitalization growth © 2016 Rice University’s Baker Institute currency. One U.S. policy goal should be to was 7% for publicly traded VC-backed firms. for Public Policy increase early-stage capital that competes 5. PWC Moneytree.

This material may be quoted or on the basis of returns to investment. 6. Data from Global New Issues, SDC reproduced without prior permission, Changes to the tax code to lower the Mergers & Acquisitions, and VentureXpert. provided appropriate credit is given to cost of start-up equity should target only The acquisition market shift came first in the author and Rice University’s Baker market-based investment; nonmarket 2006; the IPO market followed four years Institute for Public Policy. investment can do an extraordinary later in 2010. amount of harm. The carried interest 7. Microsoft received less VC investment Cite as: Egan, Edward J. 2016. The Key revenue procedure applies to partnership than the others. David Marquardt and Driver of Economic Growth in the agreements used in alternative Technology Venture Investors held just 6.2% 21st Century: High-growth, High- investments, including VC.9 Removing or of Microsoft’s stock in 1985. tech Entrepreneurship. Policy Brief: ameliorating the carried interest revenue 8. Economic Census (1997 and 2012), Recommendations for the New procedure from VC would reduce market- Census Bureau. Administration. Rice University’s Baker Institute for Public Policy, based investment in start-up firms. 9. Revenue Procedure 93-27, 1993 C.B. Houston, Texas. 343, clarified by Rev. Proc. 2001-43, 2001-2 C.B. 191, Internal Revenue Service. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Whither NAFTA?

The North American Free Trade Agreement been much higher than Mexico’s investment (NAFTA) has become progressively more in the U.S. ($16.6 billion).4 Nonetheless, controversial in the United States. President- Mexican FDI in the U.S. may be responsible elect Trump has, accordingly, called for for over 100,000 U.S. jobs.5 Since NAFTA a critical evaluation of multilateral trade was signed, exports of American goods agreements, including NAFTA. Still, the United and services to Mexico grew from $41.5 States economy has benefited from its free billion in 1993 to $211.8 billion today—more trade relationship with Canada and Mexico. than twice current U.S. exports to China.6 Over the course of 23 years, NAFTA states Exports to Canada grew from $100 billion have created one of the world’s largest and in 1993 to $250 billion. Mexico’s exports most dynamic economic blocs, with nearly to the U.S. are composed of 40% U.S. 500 million people and a GDP of $22 trillion. components, surpassing both Canada (25%) The Trump administration’s reevaluation and China (4%), indicating that American of NAFTA, aimed at expanding American job supply chains are well positioned within the creation, should focus on modernizing the North American manufacturing platform. In agreement to add new chapters that level the addition, U.S. agricultural exports to Mexico playing field—ensuring equitable conditions have grown substantially. Mexico is today among member nations in order to benefit the third largest agricultural export market American workers, while at the same time for the U.S., topping $20 billion in 2016.7 advancing our country’s and the continent’s NAFTA’s impact on jobs and wages has economic potential. also been mixed. An estimated six million jobs U.S. firms and workers in the U.S. are currently affected by trade are best served by an with Mexico.8 Some U.S. sectors have lost NAFTA AND THE UNITED STATES jobs to Mexico, while others have gained jobs examination of the dependent on exports to Mexico. According to agreement to improve Since 1994, trade between NAFTA states has one study, an estimated 200,000 American expanded substantially. In 2016, Canada was and modernize the job losses per year can be linked to NAFTA, but relationship and make America’s foremost trading partner with a the agreement also annually creates about 16.4% share of all U.S. trade. Mexico was 160,000 jobs dependent on NAFTA exports, it more equitable to all third, with a share of 14.5%. In the same leaving an annual total of 40,000 job losses partners. A reworked year, the NAFTA region had combined trade of directly attributable to the agreement.9 It agreement can benefit more than $1.2 trillion—nearly equivalent to is, however, important to recognize that 1 the American economy, Asia’s entire intraregional trade. At the same automation is increasingly responsible for time, Canada and Mexico’s trade surpluses many of the manufacturing jobs lost in the as well as that of vis-à-vis the U.S. are less than those of China, U.S,10 a trend that is likely to continue. On Canada and Mexico. Japan, and Germany. America’s trade deficit wages, it has been publicly noted that NAFTA with Mexico was responsible for only 8.9% of has hurt some workers and jobs, as in the the total U.S. trade deficit in 2014, as opposed case of auto manufacturing.11 However, there to 56% with China, 17% with Europe, and is also evidence that companies in the U.S. 2 10.6% with Japan. and Mexico that are globally engaged pay Overall, NAFTA’s effects on the U.S. have better wages than those focused exclusively 3 been mixed and the subject of debate. U.S. on the domestic market.12 investment in Mexico ($92.8 billion) has RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

3. Peterson Institute for International MODERNIZING & ENHANCING NAFTA Economics, https://piie.com/sites/default/ A strong case can be made to modernize files/publications/pb/pb14-13.pdf. and enhance NAFTA. These efforts should be 4. Congressional Research Service, guided by the fact that Canada, the United https://fas.org/sgp/crs/row/RL32934.pdf. States, and Mexico are complementary 5. Secretariat of the Economy, Bilateral economically. A complete renegotiation of FDI Statistics 2014, UNCTAD. NAFTA would present serious difficulties 6. U.S. Census Bureau, https://www. census.gov/foreign-trade/statistics/ This policy brief is because every industry sector would come to the table with demands that would be highlights/toppartners.html. part of a series of extraordinarily difficult to meet. Dissolution 7. U.S. Department of Agriculture, recommendations of the bloc in favor of higher trade barriers https://www.fas.usda.gov/regions/mexico. from the Baker between the three states would jeopardize 8. Trade Partnership Worldwide LLC and U.S. Chamber of Commerce, https:// Institute for the the economic growth that has resulted from the agreement. U.S. firms and workers www.uschamber.com/sites/default/files/ incoming president’s are best served by an examination of the legacy/reports/1204EnhancingtheUS- administration. agreement to improve and modernize the MexicoEconomicPartnership.pdf. relationship and make it more equitable 7. Peterson Institute for International to all partners. A reworked agreement can Economics, https://piie.com/sites/default/ benefit the American economy, as well as files/publications/pb/pb14-13.pdf. There is, that of Canada and Mexico. Side agreements however, some disagreement on the number and new chapters to NAFTA—addressing of jobs created, with the Public Citizen’s labor, environmental, energy, intellectual Global Trade Watch arguing that NAFTA has property, currency, financial, and anti- failed to create jobs in the United States. See corruption issues, among others—can “NAFTA’s Broken Promises: Failure to Create accomplish this goal. U.S. Jobs,” Public Citizen’s Global Trade In this process, Mexico’s economic Watch, January 1997, http://www.citizen.org/ publications/publicationredirect.cfm?ID=7106. See more policy briefs at: practices should be examined so American www.bakerinstitute.org/policy-briefs workers do not have to compete against At the same time, workers employed by firms locations made unfairly cheap by inadequate that are globally engaged, such as those This publication was written by a labor conditions and regulatory standards. that participate in NAFTA, are paid between researcher (or researchers) who Efforts to modernize and enhance NAFTA 7% and 12% more than those employed by participated in a Baker Institute project. should aim for a convergence of standards firms that are not. See David J. Richardson, Wherever feasible, this research is “Uneven Gains and Unbalanced Burdens? reviewed by outside experts before it is to benefit companies and workers in the U.S., released. However, the views expressed Mexico, and Canada. Three Decades of American Globalization,” in herein are those of the individual In the long run, it will be most beneficial The United States and the World Economy: author(s), and do not necessarily to the U.S. to reaffirm America’s partnership Foreign Policy for the Next Decade, ed. C. represent the views of Rice University’s with its neighbors and leverage its strength Fred Bergsten (Washington: Institute for Baker Institute for Public Policy. to consolidate a North American platform International Economics, 2005). 8. David H. Autor, David Dorn, and © 2016 Rice University’s Baker Institute that enables it to compete far more Gordon H. Hanson, “China Syndrome: Local for Public Policy effectively with other regions. Withdrawing from NAFTA altogether will hurt the Labor Market Effects of Import Competition This material may be quoted or American economy, American leadership, in the United States,” American Economic reproduced without prior permission, and American competitiveness. Review 103, no. 6 (2013): 2121. provided appropriate credit is given to 9. Peterson Institute for International the author and Rice University’s Baker Economics, https://piie.com/sites/default/ Institute for Public Policy. ENDNOTES files/publications/pb/pb14-13.pdf. Cite as: 10. Richardson, “Uneven Gains,” 2005. 2016. Whither NAFTA?. Policy Brief: 1. WTO International Trade Statistics Recommendations for the New 2015, https://www.wto.org/english/res_e/ Administration. Rice University’s Baker statis_e/its2015_e/its2015_e.pdf. Institute for Public Policy, Houston, 2. Goldman Sachs Economic Research, Texas. 2014.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Immigration and the United States: A Path to Resolution

Tony Payan, Ph.D., Françoise and Edward Djerejian Fellow for Mexico Studies, and Director, Mexico Center

Americans have made it clear that U.S. would have to consider the potential immigration policy cannot stand as is. Many economic contribution of a new migrant. see the increased diversity that comes with In addition, there must be a vetting immigration as a threat to national identity. process that eliminates migrants who Others see unauthorized migration as a represent a security risk at any level. Family government failure to effectively control reunification should be a contributing factor, immigration flows. Given these perceptions, but should no longer be the primary reason the nation’s immigration problems will be for approved migration to the United States. difficult—but not impossible—to resolve. No policy should a priori exclude an This brief outlines overarching principles individual because of his or her status as a and specific policy proposals that, with the minority in the larger American landscape. necessary political will, can productively Discrimination has no place in a new address this complex issue. immigration system. Diversity adds value Before going further, the benefits of an to the American experience. For all of the orderly flow of migrants to the U.S. should debates about immigration, U.S. Latino be noted. Immigrants inject vitality into population growth has slowed considerably the American economy; they bring their in the last five to ten years, due largely to intellectual and scientific talents to U.S. a dramatic slowdown of Mexican migration. research and development efforts, and help The migration of Mexicans is now at net boost U.S. labor force productivity. There zero or negative, meaning they are leaving It is important to is little evidence that diversity in migration the U.S. and returning to Mexico. Today, the signal early in the has been a zero-sum equation for America. largest number of migrants is from Central A century of Latino migration, for example, America; this is an issue that will require administration that has resulted in millions of law-abiding Mexico’s cooperation through a well- immigration issues will citizens who contribute to the U.S. economy structured, region-wide plan. Antagonizing be resolved in a way and are as patriotic as any other American. Mexico is not likely to help stem the flow that allays Americans’ In light of this, there are two primary from Central America. questions to consider: What is the long- fears, increases border term role of immigrants in the United States? security, and restores And how do we deal with the 11 million OUTLINING STRATEGIES IN BROAD sanity to the U.S. unauthorized migrants already here? Each STROKES immigration system. issue deserves its own policy track. It is impractical to attempt the mass deportation of millions of individuals. The THE CORE PRINCIPLES OF A NEW activities necessary to find and apprehend IMMIGRATION SYSTEM unauthorized migrants will create a panic, a bureaucratic nightmare, and The U.S. economy and national security a humanitarian crisis that will tarnish should be the core concerns of a new America’s reputation for moral leadership, immigration system. Any new visa system increase social and racial tensions within RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

the country, and cause bedlam at the the U.S., but many will leave and likely apply border. A radical deportation approach is for re-entry. Those in the latter group should likely to have long-lasting consequences be considered on a case-by-case basis as that are neither necessary nor desirable. they wait in a real line to re-enter the U.S. Instead, unauthorized migrants should be legally. This group could apply for permanent categorized by their particular circumstances residency but be barred from citizenship. (mixed status family, migrants brought to the U.S. under the age of five, etc.); a viable and politically acceptable strategy should then BORDER SECURITY This policy brief is be devised to resolve the immigration status part of a series of of each group. This will not be a quick fix, Americans largely support a policy that recommendations but it avoids a policy that treats all migrants allows most unauthorized migrants to stay from the Baker the same across the board. It is a strategy in the U.S. if, in return, border security is increased. But border security must be Institute for the already favored by many Americans, who say it would be acceptable for many migrants to balanced against other important issues. incoming president’s stay in the United States if, in return, border One is the environmental impact that the administration. security is tightened.1 A Donald Trump border wall is beginning to have on the presidency has the political capital to carry borderlands. A wall does not have to be out this plan. a physical structure, however. Additional resources and boots on the ground can ensure the effectiveness of a virtual wall CATEGORIES OF UNAUTHORIZED that allows for the detection and detention of nearly 100% of unauthorized border MIGRANTS crossers. Technology is an important Criminal aliens should be targeted for component of these measures. deportation. President Obama’s deportation See more policy briefs at: policies have already targeted this group www.bakerinstitute.org/policy-briefs and have a record of success. A continuation CONCLUSION of this policy suffices for now. It is important to signal early in the This publication was written by a The 2012 Deferred Action for Childhood researcher (or researchers) who administration that immigration issues will Arrivals initiative, which makes certain participated in a Baker Institute project. be resolved humanely, and in a way that undocumented migrants who came to the Wherever feasible, this research is allays Americans’ fears, mitigates the harsher reviewed by outside experts before it is U.S. as children exempt from deportation, consequences of anti-immigration sentiment, released. However, the views expressed should be ratified. Most of the 750,000 increases border security, and restores sanity herein are those of the individual beneficiaries of DACA are fully integrated author(s), and do not necessarily to the U.S. immigration system. into mainstream America. At this point, represent the views of Rice University’s Baker Institute for Public Policy. there is hardly any reason to target them. The four to five million unauthorized migrants ENDNOTE © 2016 Rice University’s Baker Institute who belong to mixed-status families should for Public Policy be a priority for reprieve. If they have been 1. Sarah Kahaulani Goo, “What here more than five years, are working, have Americans Want to Do about Illegal This material may be quoted or reproduced without prior permission, paid their taxes, and have at least one relative Immigration,” Pew Hispanic Center, August provided appropriate credit is given to who is a legal resident or citizen, they should 21, 2015, http://www.pewresearch.org/fact- the author and Rice University’s Baker be placed in a virtual line inside the United tank/2015/08/24/what-americans-want- Institute for Public Policy. States to obtain a green card. Penalties to-do-about-illegal-immigration/. See also should include a fine for having entered the Jeffrey M. Jones, “In U.S., 65% Favor Path to Cite as: U.S. without authorization and permanent Citizenship for Illegal Immigrants,” Gallup Poll, Payan, Tony. 2016. Immigration and the United States: A Path to Resolution. exclusion from U.S. citizenship. August 12, 2015, http://www.gallup.com/ Policy Brief: Recommendations for the All other unauthorized individuals should poll/184577/favor-path-citizenship-illegal- New Administration. Rice University’s be given the chance to depart voluntarily immigrants.aspx. Baker Institute for Public Policy, and—from their home country—apply Houston, Texas. for readmission, with no penalty for their previous status in the U.S. Some will stay in 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Preparing for Future Chinese Leadership Changes: A Diplomatic Full-Court Press

Steven W. Lewis, Ph.D., C.V. Starr Transnational China Fellow

Unbeknownst to Americans voting in Should we be patient with a retiring Xi and November, the future direction of U.S.- court his hand-picked successors in the China relations may very likely have been Politburo, or should we turn a cold shoulder set at the annual plenary session of the to a Xi “turning Putin” and break out the Communist Party Central Committee in Cold War playbook, preparing for increased Beijing just weeks before. Party chief Xi conflict between the U.S. and China? No Jinping may decide to dial back his anti- matter Xi’s plans, the next administration corruption campaign that has expelled must strengthen and restructure hundreds of thousands of cadres, step up interactions between senior American political reforms designed to solidify rule officials and identified future successors of law and strengthen a more independent to Xi Jinping and his senior leaders in order judiciary, and shift his attention to to prepare for uncertainty and potential restructuring China’s export economy in the instability in relations. face of growing competition from overseas. Accordingly, we make the following Or, he may decide to continue the costly proposals for a diplomatic full-court purges, centralize more leadership organs, press that will increase and strengthen and whip up nationalistic support for his the number of “contact points” between government by picking territorial fights. the Trump administration and the future The new U.S. president Only those in Xi’s inner circle know leadership of China: must strengthen and which direction he will take China, but either way he must start to choose a new Proposal 1 restructure interactions between senior U.S. leadership team at the October plenary Continue the biannual U.S.-China Strategic session. Five of the seven Politburo Standing and Economic Dialogues (S&ED), but try officials and identified Committee members will be too old to serve to strengthen them, yet increase the future successors to beyond the new 19th Party Congress in number of direct meetings between the U.S. China’s President Xi fall 2017. Under current party constitution president and the CCP general secretary. The Jinping and his senior rules, Xi himself must retire by the 20th U.S. must make sure that China continues to Party Congress in 2022, and so in October in bring to its side of the table senior leaders leaders in order to Beijing he must gradually begin to show his responsible for strategic/foreign policy and prepare for uncertainty hand: will he reveal the next generation of economic/financial policy. State Councillor and potential instability leaders who will replace him in six years or Yang Jiechi, former foreign minister and in relations. will he change the party constitution to stay former ambassador to the U.S., and longtime in power beyond 2022? steward of U.S.-China relations within their President Trump’s administration will bureaucracy, is required to retire in 2018. have to carefully watch the October party The new U.S. president should press Xi meetings to know the correct strategy for Jinping to make sure the future head of the dealing with China in the first few years. strategic track of negotiations is as familiar RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

with U.S. officials at many levels as Yang. international NGOs to work with Chinese Given the uncertainty in Chinese future NGOs, even though they fear American leadership, the goal of the U.S. president intelligence officials are using them to should be to bring in to the S&ED as many subvert Communist Party rule. members of the CCP Politburo as possible, China’s recent adoption of parts of as often as possible. China has a history of Russia’s draconian foreign NGO registration trying to fob off lower-ranking ministers law threatens the stable interaction of who are not Politburo members as hosts for American and Chinese civil societies, This policy brief is visiting American senior Cabinet secretaries. and thus the role of corporations, part of a series of U.S. presidents have rarely done so, but universities, research institutions, and recommendations they should consider upgrading the S&ED by nonprofits in solving shared problems from the Baker sending the vice president to the meetings in global health, global warming, and in order to induce more Chinese Politburo even space exploration. The new U.S. Institute for the members to participate. On a related note, president should consider charging retired incoming president’s if Xi Jinping begins to identify a successor statesmen—people who have a reputation administration. at the Party Congress in 2017, the American for excellence and leadership—with president should press Xi to include the the hosting of mutually respectful and successor in future S&EDs, and encourage beneficial people-to-people exchanges. both to visit the United States as often as Perhaps Presidents Bush and Obama could possible. The U.S. president may consider be invited to take up this critical task, since inviting the American vice president, or even both created valuable exchanges with a bipartisan team of former U.S. presidents— China in energy, science, and education George W. Bush and Barack Obama have 16 that they should wish to preserve. years experience negotiating with Chinese President Trump could use the credibility officials—to serve as “strategic hosts” to such senior statesmen could impart.

See more policy briefs at: any possible successor to Xi, affording a Former U.S. presidents, with their ability to www.bakerinstitute.org/policy-briefs future Chinese leader a unique symbolic attract comprehensive media coverage and honor as they escort him/her around the their access to Nobel laureates, Olympic This publication was written by a U.S. and introduce him/her to U.S. leaders and professional athletes, movie stars, researcher (or researchers) who and policymakers. public intellectuals, and corporate and NGO participated in a Baker Institute project. leaders alike, are a tool uniquely available Wherever feasible, this research is reviewed by outside experts before it is Proposal 2 to current American presidents. Xi Jinping released. However, the views expressed President Trump should consider cannot call on his former rivals in the CCP herein are those of the individual enhancing and “deformalizing” the to help him in this way. author(s), and do not necessarily represent the views of Rice University’s U.S.-China Consultation on People-to- Baker Institute for Public Policy. People Exchanges by proposing to Xi Jinping that it be hosted by distinguished © 2016 Rice University’s Baker Institute former American statesmen instead of for Public Policy only the U.S. secretary of state and the

This material may be quoted or Politburo member responsible for cultural reproduced without prior permission, affairs. The consultation seemingly provided appropriate credit is given to addresses nonstrategic and noneconomic the author and Rice University’s Baker interactions—culture, education, science Institute for Public Policy. and technology, women’s issues, health, and sports—but actually it sets the freedom Cite as: Lewis, Steven W. Preparing for of interaction of a powerful American civil Future Chinese Leadership Changes: society and the potentially powerful and A Diplomatic Full-Court Press. yet nascent Chinese civil society. Chinese Policy Brief: Recommendations for the officials at all levels admire and respect New Administration. Rice University’s the way American civil society works with Baker Institute for Public Policy, Houston, Texas. the U.S. government on critical public issues, and thus they welcome U.S. and 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Drug Policy Is Evolving. Prohibition Inhibits Progress.

William Martin, Ph.D., Director, Drug Policy Program Katharine A. Neill, Ph.D., Alfred C. Glassell, III, Postdoctoral Fellow in Drug Policy

U.S. drug policy is at a critical juncture. drug policy—prohibition—is seriously flawed, Growing numbers of policymakers, local and can never succeed, and produces more state officials, medical professionals, and harm than the drugs it seeks to control. It law enforcement personnel recognize that has stimulated the growth and prosperity dreams of a “drug-free America” will never of organized crime in Latin America and be fulfilled. Just 10% of American adults elsewhere. By incarcerating and labeling believe the war on drugs is a success, an all- millions of individuals as criminals because time low.1 Twenty-eight states allow some of their drug use, it has created a burden use of marijuana for medical purposes, eight society can no longer afford to bear. And permit its recreational use, and the numbers despite periodic reports of record drug in both categories seem sure to grow. Rising seizures, it has scarcely affected the supply concern about opioid abuse and overdose of illicit drugs. When prohibition makes one deaths has spurred calls for an increased drug harder to obtain, producers and dealers focus on drug treatment and prevention will supply another, often more dangerous as an alternative to harsh punishment. substitute. Rates of illegal drug use remain Given this climate, the next administration about the same as they have for more has an opportunity to move away from than 40 years.3 failed measures, establish a more sensible We do not have a romantic or naive understanding of drug use, and influence view of the quite real, damaging, and drug policy at all levels of government. sometimes irreversible consequences of This process is already underway, as harmful drug-related behavior that affects The very foundation reflected in the 2015 National Drug Control millions of Americans each year. But there of U.S. drug policy— Strategy prepared by the White House is broad consensus in the medical and prohibition—is seriously Office of National Drug Control Policy.2 That scientific community that substance abuse document speaks of increased emphasis should be treated as a medical and public flawed, can never on prevention over incarceration, early health problem, not a crime. We already do succeed, and produces intervention with both youth and adults, that with the two-thirds of substance use more harm than expanded access to treatment, support of disorders involving alcohol. It is time we the drugs it seeks proven harm-reduction measures, efforts widened that scope to include drugs that to reduce the stigma of problematic drug cause far less personal and social harm. to control. use and assist people in recovery from Given this understanding, we offer the substance use disorders, and a “smart on following recommendations, all of which crime” approach to drug enforcement and can be expanded at length.4 sentencing reforms. We applaud these developments. Recommendation 1: Reschedule cannabis We regard it as a fundamental fault, Cannabis (marijuana) should be removed however, that the Strategy does not from Schedule I of the Controlled Substances examine or even appear to acknowledge the Act, which deems it to have “a high possibility that the very foundation of U.S. RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

potential for abuse” and “no currently grow the strains needed for proper research, accepted medical use in treatment in the but this remains a slow process. The White United States.” Heavy use of cannabis can House should exert pressure to establish a have significant negative effects, but fewer clear pathway for this research to proceed. than 10% of users get into trouble with Research should also include careful it. The assertion that it has no currently examination of the costs and benefits accepted medical use is patently false, as a of harm-reduction and health-oriented rapidly growing body of scientific research approaches other nations are using to deal This policy brief is and extensive practical experience by people with drug use and abuse. Notable and largely part of a series of with myriad afflictions make clear. successful examples are the Netherlands’ recommendations Whatever scheduling of drugs is needed “coffee shops” that sell cannabis to adults; from the Baker should be done by properly credentialed Uruguay’s legalization of sales through and impartial scientists, not by the Drug government-run dispensaries; Switzerland's Institute for the Enforcement Administration, a law heroin maintenance programs; and incoming president’s enforcement agency that has benefited Portugal's decriminalization of all drugs, administration. handsomely from cannabis prohibition. balanced by substantial investments in prevention, treatment, and resources to help Recommendation 2: Advocate for expanded marginalized users reintegrate into society. funding for treating and managing opioid use disorders The Comprehensive Addiction and Recovery CONCLUSION Act (CARA), signed into law in 2016, was an If followed, these recommendations would important step toward establishing a federal be a significant but sensible pivot away from commitment to addressing opioid use. the failed policies of prohibition toward a It shifts focus from punishing drug users realistic approach to drug use. By taking the See more policy briefs at: to expanding their access to treatment, lead on research and communication with www.bakerinstitute.org/policy-briefs but it remains seriously underfunded. The the public about policy alternatives, the $181 million that was authorized falls short This publication was written by a White House could provide political cover of the estimated $1 billion needed.5 The researcher (or researchers) who to legislators and encourage bipartisan administration should push for increased participated in a Baker Institute project. solutions at all levels of government. Wherever feasible, this research is funding to strengthen CARA and boost reviewed by outside experts before it is support for opioid-management tools not released. However, the views expressed included in CARA. herein are those of the individual ENDNOTES author(s), and do not necessarily represent the views of Rice University’s Recommendation 3: Encourage research 1. Rasmussen Reports, “Americans Still Baker Institute for Public Policy. All aspects of drug policy should have a Think War on Drugs is Failing,” November 10, strong research component, an essential 2015, http://bit.ly/2d81dFw. © 2016 Rice University’s Baker Institute 2. Office of National Drug Control Policy, for Public Policy element of progress toward sensible policy. Cannabis is an obvious candidate “2015 National Drug Control Strategy,” This material may be quoted or for research, not only to establish with http://bit.ly/2cVt60b. reproduced without prior permission, reasonable confidence whether and which 3. See “Drugs by the Numbers,” Baker provided appropriate credit is given to of the claims by proponents, opponents, Institute for Public Policy, http://bit. the author and Rice University’s Baker and impartial researchers regarding the ly/2d0M8QP. Institute for Public Policy. therapeutic potential of marijuana rest on 4. See, for example, “Rx for U.S. Drug Cite as: solid ground, but also to provide empirical Policy,” Baker Institute for Public Policy, Martin, William and Neill, Katharine information about real and alleged risks of http://bit.ly/2ddrmyD. A. 2016. Drug Policy Is Evolving. legalizing cannabis for “recreational” use. 5. Cybil G. Roehrenbeck and Rachel Prohibition Inhibits Progress. Policy After decades of blocking research on the Stevenson, “Comprehensive Addiction and Brief: Recommendations for the New Recovery Act: Addressing the Opioid Crisis,” Administration. Rice University’s potential benefits of cannabis, the National Baker Institute for Public Policy, Institute on Drug Abuse has acknowledged The National Law Review, July 18, 2016, Houston, Texas. that such research is needed and the DEA http://bit.ly/2cGOrJi. has agreed to increase the number of sites to 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Bargaining with China: Exchange Rate Policy

Russell A. Green, Ph.D., Will Clayton Fellow in International Economics

China follows many practices that tilt the includes China. This should be a smaller playing field in its favor, which the U.S. high-table grouping of finance ministers and should rightly seek to change. Exchange rate central banks focused on the international policy no longer belongs on the list. Rather, financial system. By including China, this it is the U.S. approach to China’s exchange arrangement would more effectively rate policy that lags reality. Offering to promote good global governance and also recognize China’s shifts in policy presents a help institutionalize the shift in China’s valuable bargaining chip in negotiations with exchange rate policy. China’s rising China on more pressing matters and can economic power necessitates its inclusion, institutionalize China’s role as a custodian of and the G-7 structure has grown outdated in global stability, a win-win arrangement. ways that extend beyond China’s absence. China has actively prevented yuan This policy would represent a significant depreciation for over two years, which gesture by the U.S. to China, and therefore promotes rebalancing globally and with the provide leverage on other issues. At the United States. China’s government aims to beginning of a new administration, this improve financial stability, for instance, in could usefully set a tone of cooperation. better communication strategies that calm Where to apply that leverage may depend markets. Chinese officials now regularly on evolving priorities. repeat that they have no intention of using Despite the perception that this exchange rate depreciation as a policy tool. proposal may represent a gift to China, in China could hardly change their reality it gives very little. The rise of China The rise of China as exchange rate policy in a more favorable as an economic power will eventually an economic power direction, so punishing China for currency require from the U.S. all of the measures will eventually require manipulation could not possibly induce a described in this brief. The question is only better outcome. Countries that truly deserve one of timing. The U.S. should accelerate from the U.S. all of the scrutiny like Taiwan and sometimes Korea the timing so that our policy shift looks measures described in would see that adopting good behavior does magnanimous rather than grudging. By this brief... By shifting not beget U.S. appreciation. shifting now the U.S. does so on its own now, the U.S. does so The shift in China’s exchange rate terms and gains more in return. policy ties in with Chinese President Xi on its own terms and Jinping’s goal to achieve China’s potential gains more in return. as a global power and, more specifically, for BACKGROUND the yuan to serve as a reserve currency. If the U.S. offers to support these goals, it can China has made strong efforts to prevent change the dynamic of cooperation in the a weaker yuan. China’s foreign exchange area of global economic governance, which reserves have fallen by almost US$1 trillion is a top priority for restoring a balanced since July 2014.1 Despite this, the yuan has trade relationship. depreciated almost 8% against the dollar An even stronger offer would be to over that period, 3% of which came across create a new G-7-style grouping that two days in August 2015. Depreciation RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

despite massive intervention indicates The G-7 is an artifact of an earlier a risk that this effort from China cannot age before the advent of the euro and last forever. before China’s rise. The G-20 has rightly The value of this proposal depends on taken the G-7’s place as the preeminent China continuing to strengthen. As Barry grouping for coordinating international Eichengreen and Ben Bernanke have pointed policies at the leaders level. But for matters out, by resisting exchange rate depreciation of international financial policy—to calm China faces some thorny policy choices.2 markets in times of crisis or to maintain This policy brief is It has already put in place measures to discipline on the “rules of the game”—it is part of a series of limit capital outflows, but these may prove far too large and unwieldy. recommendations insufficient to stem reserve losses if U.S. A grouping with the U.S., Eurozone, from the Baker monetary policy tightens further. Additional Japan, China, and the UK would suffice to capital controls work against China’s larger cover the essential markets and currencies. Institute for the goal of establishing the yuan as a global China is moving in the direction of a like- incoming president’s reserve currency, as well as hinder capital minded shepherd of the international administration. market development and damage its financial system, and its inclusion would reputation for policy stability. provide further momentum. The G-7 was For now the yuan’s role in the global essential to corralling Japan into a policy economy is growing rapidly. The currency’s against depreciation of the yen after the share of global foreign exchange trading has election of Prime Minister Shinzo Abe in grown to 4% from almost zero 10 years ago. 2014, and its stance against competitive It has gained enough usefulness as a reserve depreciation provided a platform that China currency that the International Monetary adopted in the G-20. A new grouping could Fund (IMF) now reports sovereign holdings continue this helpful role more effectively of yuan assets among the six other major and efficiently in the future. currency holdings. The global role of the See more policy briefs at: currency should continue to trend upward in www.bakerinstitute.org/policy-briefs the absence of a major disruption. ENDNOTES China appears motivated to raise This publication was written by a its stature in the international financial 1. A portion of the decline may derive researcher (or researchers) who architecture. Establishing the yuan as a from valuation changes as non-dollar participated in a Baker Institute project. Wherever feasible, this research is global reserve currency has helped motivate reserves fell in dollar terms. reviewed by outside experts before it is China’s recent efforts to resist depreciation. 2. Eichengreen: http://bit.ly/2dlxxUf. released. However, the views expressed The process of obtaining IMF approval for Bernanke: http://brook.gs/2dmes0n. herein are those of the individual the yuan to join other major currencies in 3. See http://bit.ly/2db4y3h. author(s), and do not necessarily the Special Drawing Rights basket appears 4. See, for instance, the analysis in represent the views of Rice University’s Baker Institute for Public Policy. to have facilitated several reforms. China Bergsten, C. Fred and Russell A. Green, Ed. loosened capital controls, reformed domestic International Monetary Cooperation: Lessons © 2016 Rice University’s Baker Institute capital markets, and made steps toward from the Plaza Accord After Thirty Years. for Public Policy greater market determination of the yuan.3 Washington: The Peterson Institute for The current set of groupings for high- International Economics. 2016. This material may be quoted or level stewardship of the international reproduced without prior permission, provided appropriate credit is given to financial system are inadequate for effective the author and Rice University’s Baker global governance. International financial Institute for Public Policy. stability requires a grouping of finance ministers and central banks that is small Cite as: enough to be confidential and efficient Green, Russell A. 2016. Bargaining with China: Exchange Rate Policy. enough that it may act quickly in a crisis. Policy Brief: Recommendations for the It must also include the leaders of all key New Administration. Rice University’s global economies and financial centers.4 Baker Institute for Public Policy, Houston, Texas.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION The Vital Role of the White House Office of Science and Technology Policy in the New Administration

Kirstin R.W. Matthews, Ph.D., Fellow in Science and Technology Policy Kenneth M. Evans, Ph.D., Postdoctoral Fellow in Science and Technology Policy Neal F. Lane, Ph.D., Senior Fellow in Science and Technology Policy

Innovation is a 21st century imperative has the support of, and access to, other White for private industry in the U.S. and around House offices and councils as required; to the world. It relies on a skilled and diverse establish S&T policy priorities; and to navigate workforce as well as continuing advances the ongoing budget process for federal R&D in science and technology (S&T)—the type investment. of advances made possible by strong public The Baker Institute Science and and private investments in research and Technology Policy Program recently produced development (R&D). The influence and end- a full report on the operations and policy products of S&T research are present in almost work of the White House Office of Science every aspect of daily life. To ensure the future and Technology Policy. Recommendations prosperity of all Americans—particularly those for the next president and science advisor who have been left behind in recent decades— were developed for the report with input from the next administration will be challenged to experts across the country. The summary create new policies and initiatives that improve below lists five of these recommendations science, technology, engineering and math for consideration by the president early in the (STEM) education and training at all levels; to administration. support pathbreaking science and engineering research; and to unleash the power of private The new president sector innovation through partnerships with RECOMMENDATIONS TO THE states, universities, national laboratories, and PRESIDENT OF THE UNITED STATES should quickly appoint private industry. a science advisor; put The president’s S&T-related decisions Recommendation 1 together an OSTP team; rely, in large part, on information—data and Early in the post-election transition period, select a nationally respected scientist or ensure OSTP has the analysis—from the White House Office of support of, and access Science and Technology Policy (OSTP) and, engineer to serve as science advisor and specifically, on advice from the president’s assistant to the president for science and to, other White House science advisor. The presidential transition is technology. Once in office, the president offices and councils as a critical period for ensuring that science and should nominate this candidate for the position of OSTP director. Qualifications required; and establish technology are responsibly and effectively S&T policy priorities. represented during the policymaking to consider for the role of science advisor process in the White House. Since the new include: national recognition and respect as a administration will immediately be faced leader in science and engineering; extensive with a host of challenges requiring timely knowledge of the federal government as S&T advice, it is important for the president well as global science and technology policy to quickly appoint a science advisor; to put experience; strong connections to the S&T together an OSTP team; to ensure that OSTP community; and established leadership, RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

communication, diplomatic, political, and b. Nominate four OSTP associate directors and management skills. determine the focus and structure of OSTP. Recommendation 2 c. Clarify the role and responsibilities of the Direct the Office of Presidential Personnel chief technology officer. to seek the advice of the science advisor d. Ensure the science advisor is included in before filling the many sub-Cabinet and other all Cabinet meetings attended by other senior agency positions related to S&T and assistants to the president, particularly when issues related to science and This policy brief is before nominating presidential appointees for government positions with major S&T-related technology are likely to be discussed. part of a series of responsibilities. e. Direct all White House budget and recommendations policymaking entities to collaborate closely Recommendation 3 from the Baker with OSTP on a broad range of policies that Consult with the science advisor to quickly have a science and technology component. Institute for the appoint a diverse membership for the f. In the annual budget request to Congress, incoming president’s President’s Council of Advisors for Science include adequate funding for OSTP to retain administration. and Technology (PCAST). Early in the the number of knowledgeable and well- administration, the president should establish trained full-time staff members necessary a practice of regularly meeting with PCAST to handle an increased workload and and charging it to carry out studies and issue ensure continuity between administrations. reports on topics that the president considers particularly important to the nation. Recommendation 4 CONCLUSION Renew the existing executive order for the Science, technology, and innovation are vital National Science and Technology Council See more policy briefs at: to America’s economy and workforce, and (NSTC) or develop a presidential directive www.bakerinstitute.org/policy-briefs the competitiveness of U.S. industry. They detailing its operations. Charge OSTP, in assure our nation’s security, the quality of This publication was written by a consultation with the Office of Management our environment, and the safety, health, and researcher (or researchers) who and Budget (OMB), PCAST, and the NSTC overall well-being of the American people. participated in a Baker Institute project. Cabinet secretaries and agency heads, to: Wherever feasible, this research is Considering the many policy challenges that reviewed by outside experts before it is a. Draft a strategy paper outlining the relate to science and technology, and the released. However, the views expressed administration’s innovation goals, and accelerating pace of scientific discovery and herein are those of the individual release it in the first 100 days. technological innovation around the globe, author(s), and do not necessarily b. Organize and oversee a multi-year represent the views of Rice University’s it is critically important for the president planning process to monitor progress. Baker Institute for Public Policy. to quickly to appoint a science advisor and c. Prepare action agendas for biannual organize a capable OSTP. Both can then begin © 2016 Rice University’s Baker Institute meetings of the NSTC principals, chaired by to engage the many executive departments for Public Policy the president, to review progress. and agencies that support R&D and rely on d. Develop policy options for the president’s science and technology advances to carry This material may be quoted or consideration; convene meetings of reproduced without prior permission, out their missions. It is in this spirit that the provided appropriate credit is given to agencies and nongovernment experts; recommendations above are offered. We aim the author and Rice University’s Baker and draft executive orders and presidential to underscore sound practices, help identify Institute for Public Policy. directives to move the president’s opportunities for the new administration, and innovation agenda forward. ensure appropriate attention is given to fast- Cite as: Matthews, Kirstin R.W., Kenneth M. Recommendation 5 changing science, technology and innovation Evans and Neal F. Lane. 2016. The Ensure that OSTP has the leadership, access, knowledge to ensure its utilization in the Vital Role of the White House Office structure, and resources to enhance the development of federal policy. of Science and Technology Policy integration of science and technology in in the New Administration. Policy policymaking within the executive office of This policy brief is based on a study funded by Brief: Recommendations for the New a grant from the Richard Lounsbery Foundation. Administration. Rice University’s the president and across federal agencies. For the full report and recommendations, Baker Institute for Public Policy, a. Continue to house the OSTP director and please see www.bakerinstitute.org/OSTP2016. Houston, Texas. staff in the Dwight D. Eisenhower Executive Office Building. 2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION Why NASA Should Change Its Present Course

George W.S. Abbey, Senior Fellow in Space Policy

Looking ahead, the space station will INTRODUCTION play a critical role in helping to provide the Human spaceflight and the U.S. civil space answers that will enable long-duration program are both well past their half- human spaceflight. Every effort should be century anniversary. Yet for over five years made to maximize research that will support and counting, the nation has not had the this long-term goal on board the station. capability to launch humans into space. The space shuttle, the most advanced and capable spacecraft ever built, was arbitrarily CURRENT NASA PROJECTS retired in July 2011. Rather than continue NASA is developing two major projects, the to fly in space, U.S. shuttles now adorn Space Launch System (SLS) and the Orion museums across the country. The only U.S. Multi-Purpose Crew Vehicle. The initial human presence in space today is onboard version of the SLS is designed to lift a 70 the international space station (ISS). metric ton payload to low Earth orbit (LEO); The ISS has proven to be an another SLS version is planned to have an outstanding research facility and a LEO capability of more than 130 metric tons, model for international cooperation. as directed by Congress. Yet to be defined America relies on Russia, an outstanding are missions that utilize the larger specified ISS partner, for flying U.S. astronauts to lift requirement. The Orion spacecraft and from the station. The cost to the U.S. is larger than the Apollo spacecraft that of such flights is a bargain, contrary to As a new administration carried astronauts to the moon. NASA the comments of some observers. Russia takes office, a critical is developing Orion, and funding the provides not only flights to and from the development by private industry of two reassessment of NASA’s station, but also a rescue vehicle that is additional capsules that will transport current programs attached to the ISS that can safely return astronauts to the ISS. astronauts to Earth in an emergency. and future is essential Orion and the SLS have had a significant America has no capability to accomplish to ensure the nation’s impact on NASA’s budget, and the agency either of these required functions. continued leadership role has very little money left over to use for Without the space shuttle, carrying actual exploration. During a joint Senate- in human spaceflight. cargo to and from the ISS has become a NASA presentation in September 2011, NASA problem. Russia has an unmanned vehicle stated that the projected development cost that can carry limited cargo loads to the for the SLS project was $18 billion through space station, but it has no capability to 2017, which included $10 billion for the return cargo. Contractors SpaceX and SLS rocket, $6 billion for Orion, and $2 Orbital ATK can provide logistical support for billion for upgrades to the launch pad and the ISS to a limited degree, but only SpaceX other facilities at Kennedy Space Center. A can return cargo. subsequent independent cost assessment RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

report considered the projected costs and The present NASA budget, if properly schedules to be optimistic. Production spent, could support a return to the moon. and operation costs for the SLS and Orion This would necessitate a reassessment presently consume more than $3 billion of the need for a NASA SLS—as opposed annually. Two recent General Accountability to using launch vehicles developed by Office (GAO) reports contain warnings about industry—and the viability and usefulness the costs and schedules for the SLS and of a NASA Orion spacecraft to support Orion, and for Exploration Ground Systems human spaceflight. The construction and This policy brief is (EGS). These three elements constitute the assembly of the ISS has proven the value part of a series of major components of NASA’s Exploration and usefulness of a large structure in space. recommendations Systems Development Program. The GAO Neither the Orion nor the two capsules from the Baker believes the projected costs for the SLS and being funded by NASA to carry crews to EGS are too low, and raises concerns about the ISS have any capability to support the Institute for the the feasibility of a November 2018 first assembly of large structures in space, incoming president’s launch of the SLS. The GAO also states that such as the ISS. A shuttle-type reusable administration. cost and schedule estimates for Orion have spacecraft developed by Boeing that has failed to meet more than half of the best successfully flown several times in space—a practices for creating such estimates, thus scaled-up X-37—could not only accomplish making them suspect. missions envisioned for the NASA-funded Three competing heavy-lift rockets capsules, but could also provide a capability in the same class as the SLS are under to do assembly in orbit. And the assembly development in the private sector. SpaceX of new, large structures in Earth orbit could is developing the Falcon heavy booster well contribute to the optimum architecture and Blue Origin is developing the new for human missions beyond Earth orbit. See more policy briefs at: Glenn booster. United Launch Alliance, a NASA’s current plan speaks of human www.bakerinstitute.org/policy-briefs joint venture of Lockheed and Boeing, is flight to Mars but lacks any description of This publication was written by a developing the Vulcan rocket, with an upper the architecture, spacecraft, or systems researcher (or researchers) who stage being optimized for use between needed to achieve this goal—and more participated in a Baker Institute project. Earth and the moon. These are all expected importantly, it fails to project the cost of Wherever feasible, this research is to cost significantly less to fly than the SLS. such a voyage. reviewed by outside experts before it is As the National Research Council’s released. However, the views expressed herein are those of the individual congressionally chartered Committee on author(s), and do not necessarily RECOMMENDATIONS Human Spaceflight once wrote, for NASA “to represent the views of Rice University’s continue on the present course … is to invite Baker Institute for Public Policy. NASA’s annual budget is substantial and failure, disillusionment, and the loss of the its effectiveness is a function of how the longstanding international perception that © 2016 Rice University’s Baker Institute funds are spent. The next logical step for for Public Policy human spaceflight is something the United extending a human presence beyond Earth States does best.” The committee made this This material may be quoted or orbit is a return to the moon. Mars is a comment in a June 2014 report. In the years reproduced without prior permission, “bridge too far,” with many unresolved since, NASA has nevertheless continued on provided appropriate credit is given to technical issues. A mission to the moon, the same course. As a new administration the author and Rice University’s Baker only three days from Earth, provides the takes office, a critical reassessment of Institute for Public Policy. opportunity to not only develop needed NASA’s current programs and future is Cover image courtesy of the Johnson experience but also to resolve technical essential to ensure the nation’s continued Space Center/NASA. issues and prove and qualify the needed leadership role in human spaceflight. systems for a voyage to Mars. The world’s Cite as: spacefaring nations, with the exception of Abbey, George W.S. 2016. Why NASA the U.S., all support a return to the moon; Should Change Its Present Course. Policy Brief: Recommendations for the such an effort would provide an excellent New Administration. Rice University’s opportunity for the U.S. to continue the Baker Institute for Public Policy, outstanding international cooperation Houston, Texas. demonstrated so clearly by the ISS.

2 RECOMMENDATIONS FOR THE NEW POLICY BRIEF ADMINISTRATION U.S. Fiscal Policy

John W. Diamond, Ph.D., Edward A. and Hermena Hancock Kelly Fellow in Public Finance George R. Zodrow, Ph.D., Baker Institute Rice Faculty Scholar and Allyn R. and Gladys M. Cline Chair of Economics, Rice University

One of the most important issues currently to demographic changes as the baby confronting the United States is the boom generation ages, as life expectancy unsustainable nature of current fiscal increases, and as health care costs per policy. In the absence of meaningful beneficiary grow faster than GDP. reform, current policies will lead to growing It is obvious that closing this fiscal budget deficits, long-run increases in gap (the difference between spending and the debt-to-GDP ratio, reductions in revenues) will require either a reduction in economic growth, and a less competitive spending or an increase in revenues. While U.S. economy. The Congressional Budget we cannot count on GDP growth alone to Office’s long-term budget outlook shows close the fiscal gap, increasing GDP growth that in 2016 spending is 21.1% of GDP and will reduce the amount that spending must revenue is 18.2% of GDP. This implies a be cut or revenues increased to close the deficit of 2.9% of GDP. Over the last 50 gap, and thus should be a primary concern years (1966-2015), spending was 20.2% in addressing the unsustainability of current of GDP and revenue was 17.4% of GDP. fiscal policy. Thus, in 2016, spending is 0.9% higher and In the United States, several groups revenue is 0.8% higher than the 50-year have published ambitious plans for fiscal average. By 2046, CBO projects that reforms that are designed to address the current policies imply that spending will debt issue through various combinations While we cannot count increase to 28.2% of GDP while revenue of expenditure reductions and revenue- on GDP growth alone will increase to 19.4% of GDP. This implies increasing tax reforms. These plans typically to close the fiscal gap, a deficit equal to 8.8% of GDP and a debt- require sizable reductions in expenditures, increasing GDP growth to-GDP ratio of 141%. The rapid growth in which could only be accomplished by major the deficit and debt over the next three entitlement reform. will reduce the amount decades is caused by projected increases These plans also propose an increase that spending must in spending on Social Security, Medicare in revenues. Note that individual income be cut or revenues and other health care programs, and tax revenue as a share of GDP is projected increased to close the interest payments on the government debt. to increase significantly even before any Social Security expenditures are projected policy changes are adopted to address the gap, and thus should to increase from 4.9% to 6.3% of GDP. unsustainable nature of the U.S. budget. be a primary concern Government health care expenditures are CBO projects that individual income taxes in addressing the projected to increase from 5.5% to 8.9% will increase from 8.8% of GDP in 2016 unsustainability of of GDP. Interest payments on the debt to 10.5% of GDP in 2046. The growth in current fiscal policy. are projected to increase from 1.4% of revenues is a result of individuals being GDP to 5.8% of GDP. Other non-interest, pushed into higher tax brackets over time non-entitlement spending is projected to as nominal income grows faster than the decrease from 9.2% of GDP to 7.3% of GDP. tax bracket income cutoffs. Unfortunately, The projected increase in Social Security these built-in tax increases are negligible and health care expenditures is related relative to the projected increases in RICE UNIVERSITY’S BAKER INSTITUTE FOR PUBLIC POLICY // POLICY BRIEF

spending. Whether revenue as a share of domestic taxation—in contrast to the U.S. GDP remains at the projected level or is system under which such income is subject increased as part of a grand bargain, it is to a residual domestic tax. High statutory imperative that the United States reform its rates exacerbate all of the inefficiencies tax system to reduce economic distortions of the current tax system, encourage and maximize economic growth. Otherwise, tax avoidance and evasion, and increase the combination of rising taxes as a share administrative and compliance costs. of GDP and a relatively distortionary tax In addition, high statutory tax rates are This policy brief is system could significantly hamper economic especially harmful in the modern globalized part of a series of growth. This is particularly important given economy, as they drive capital out of the recommendations that, in general, the efficiency costs of country and create incentives for income from the Baker economic distortions increase exponentially shifting to lower tax jurisdictions that with the rate of tax. significantly reduces U.S. revenues. Institute for the Indeed, the income tax system in the With growing competition from incoming president’s United States is ripe for reform. The last abroad, the U.S. must reform its fiscal administration. fundamental reform of the system was the policy to reduce debt, maximize economic much-celebrated Tax Reform Act of 1986 efficiency—including minimizing the (TRA86), which followed the classic model distortions caused by the tax system—and of a base-broadening, rate-reducing reform maintain its areas of competitive advantage. that financed significant corporate and personal rate cuts with the elimination of a wide variety of tax preferences. However, REFERENCES since that reform the top marginal tax rate Diamond, John, and George Zodrow. 2011. has increased to 39.6% (with an additional “Fundamental Tax Reform: Then and 3.8% rate applied to certain investment Now.” Baker Institute for Public Policy income) from the 28% top rate enacted report, published in the Congressional See more policy briefs at: under TRA86, while the number and value Record, JCX-28-11, 27–38. Joint www.bakerinstitute.org/policy-briefs of individual tax preferences have grown Committee on Taxation, Washington, D.C. substantially. The arguments for reform are This publication was written by a the same as those made during the debates McLure, Charles, Jr., and George Zodrow. researcher (or researchers) who surrounding the Tax Reform Act of 1986 1987. “Treasury I and the Tax Reform participated in a Baker Institute project. Wherever feasible, this research is (e.g., McLure and Zodrow 1987; Diamond Act of 1986: The Economics and Politics reviewed by outside experts before it is and Zodrow 2011): high individual tax rates of Tax Reform.” Journal of Economic released. However, the views expressed coupled with widespread tax preferences Perspectives 1, no. 1. herein are those of the individual inefficiently distort decisions regarding labor author(s), and do not necessarily supply, saving, consumption patterns, and represent the views of Rice University’s Baker Institute for Public Policy. methods of compensation, significantly complicate administration of and © 2016 Rice University’s Baker Institute compliance with the tax system, encourage for Public Policy tax avoidance and evasion, and result in a tax system that is widely perceived to be This material may be quoted or fundamentally unfair. reproduced without prior permission, provided appropriate credit is given to The corporate income tax in the the author and Rice University’s Baker United States is also ripe for reform. The Institute for Public Policy. statutory tax rate in the United States is now the highest in the world among the Cite as: industrialized countries, we no longer have Diamond, John and George Zodrow. 2016. U.S. Fiscal Policy. Policy Brief: relatively low marginal effective tax rates, Recommendations for the New and most of our international competitors Administration. Rice University’s have moved to “territorial” tax systems, Baker Institute for Public Policy, under which the foreign source income Houston, Texas. of their multinationals is exempt from

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