Issue No. 4, Fall 2015

Enterprise Report Restoring Liberty, Opportunity, and Enterprise in America

Building Human Capital By AEI President Arthur Brooks

By the time you receive this newsletter, I will have recently returned from the Brooks family’s vacation, biking around Crater Lake in Oregon and working off that haunted look that my kids see in Dad’s eyes during a new book launch. For most of the summer, I was giving speeches and interviews about my new book, The Conservative Heart, to articulate a vision for a humanistic, purpose-driven conservative movement that fights for the most vulnerable members of our society and reunites our country. My colleagues and I have been bolstered by the response from business leaders, students, political pundits, US presidential candidates, journalists, and policymakers—conservative and liberal alike—who are drawn to our broad, inclusive reform agenda. In the weeks and months ahead, AEI will continue to articulate how our shared beliefs in free enterprise and American leadership can revive our nation and help the world.

Central to the reform agenda is a human capital approach to poverty alleviation, viewing the most vulnerable members of our society not as liabilities to manage, but as assets to develop. Charity for the truly indigent is important, and we should make sure the safety net is always there for those who need it. The safety net, however, should be limited to people who are truly indigent, as opposed to being spread around in a way that metastasizes into middle-class entitlements and imperils our economy. Just look to Greece, where its overextended welfare state has led to insolvency and austerity—and has hurt the poor the most. (AEI’s Adam Lerrick has been closely following the events there and offers his perspective on the crisis in this issue’s installment of “Q & AEI.”) Arthur Brooks AEI President and Beth and Ravenel Curry Scholar in Free Enterprise “Our policies must focus on building human capital, which means first demanding education reform and then fighting for entrepreneurship where hard work, innovation, and personal responsibility are rewarded.”

So how do we avoid traveling down the same path as Greece? By investing in the poor and offering them the dignifying power of work. Our policies must focus on building human capital, which means first demanding education reform and then fighting for entrepreneurship where hard work, innovation, and personal responsibility are rewarded. My colleague Rick Hess leads AEI’s Education Policy Studies team, and as you’ll read on page six, his ideas on how to unleash innovation in our nation’s schools and scale back the federal government’s role in K–12 education worked their way into the recently passed bills in the House and Senate regarding the reauthorization of the No Child Left Behind Act. It is this type of impact that will help us build human capital. As a deeply divided Congress returns to Washington this fall facing a challenging docket of votes, AEI scholars will offer their analysis, innovative ideas, and recommenda- tions on the most crucial policy questions of the day. As the pages of this newsletter detail, AEI’s work is having a real-world effect, influencing policy and setting the narrative for the debates in our country, from education reform to the nuclear deal with Iran to China’s increasing global investment amid issues of reciprocity and cyberespionage. You have played an important part in this influential work by helping to support the work AEI is doing. As I travel around the country I am encouraged to meet many of you and see how you are practicing—and sharing—the principles of the conserva- tive heart. Thank you for standing with us and helping to unite our country behind our movement.

The Conservative Heart Debuts at Number 9 on New York Times Best-Seller List

Thanks to the support of AEI’s friends business; on college campuses; in and donors and a strong marketing community groups; in nonprofits; and media campaign, Arthur Brooks’s and in government at the federal, latest book, The Conservative Heart: state, and local levels. You can How to Build a Fairer, Happier, and purchase the book through any More Prosperous America (Harper major book retailer. If you are Collins, July 14, 2015), debuted in interested in making a bulk purchase the top 10 of the New York Times, of 100 or more copies, contact Washington Post, Wall Street Journal, Spencer Moore at 202.862.5835 and Publishers Weekly best-seller lists. or [email protected]. Arthur launched the book with a blitz of media appearances, includ- Visit www.arthurbrooks.com ing MSNBC’s Morning Joe and for a complete list of the clips and The Cycle, Fox News’s The Five and press stemming from the book’s Happening Now, NBC’s Meet the AEI has scheduled dozens of launch, as well as information Press, CNBC’s Squawk Box, and speaking engagements in more about Arthur’s book tour. You can Bloomberg’s Bloomberg Surveillance. than 20 states across the country for also subscribe to the bimonthly The book has been featured in publi- Arthur to discuss the book’s themes, newsletter in which he connects cations such as the Washington and we anticipate that he will be directly with AEI’s supporters to Post, Wall Street Journal, New invited to speak at dozens more share what he’s writing, reading, York Times, Time, New York through the 2016 election. AEI is and thinking about. Post, the Economist, and National also disseminating copies of the Review Online. book to interested audiences in

Tweet All about It! #ConservativeHeart

Debating the Conservative Heart: Does the GOP Care about People Like Me? August 5, Cleveland, OH. Arthur joined Ed Gillespie, Kristen Soltis Anderson, and AEI’s Marc Thiessen for a dis- cussion and reception in Cleveland, Ohio, before the Republican presidential candidate debate. Panelists discussed the importance of a new approach to communicating the conservative message and the effect it could have on the primary season and upcoming presidential election.

3 An “Astoundingly Good Deal” for Tehran

“The nuclear agreement with Iran . . . is an astoundingly good How Congress Can Make a Bad Iran Deal Better deal, far surpassing the hopes of Danielle Pletka outlines what Congress could do to make a bad deal with anyone . . . in Tehran,” wrote AEI’s Iran better in a piece for Politico on August 3. She suggests the following Fred Kagan in the Wall Street Journal minimum parameters: on July 14. In the days following the •  A genuinely phased agreement linked to announcement of a deal, AEI scholars performance, appeared on television, on radio, •  An end to research and development on and in the nation’s leading news- advanced centrifuges, papers, providing commentary and •  A sharper reduction in operating insights on the grave implications of centrifuges, the deal that the Obama administra- •  Shuttering the underground facility at tion has touted as one that “will make Fordow and the Arak heavy water Danielle Pletka America and the world safer and reactor, Senior Vice President, more secure.” AEI’s scholars could Foreign and Defense •  Shipping out Iran’s enriched uranium not disagree more. Policy Studies stockpile, • Anywhere-anytime inspections, and “In effect, Obama has •  Most important: no lapse of Iran’s played Russian roulette obligations after 10–15 years. with the US Congress, pushing a bad deal but hemorrhaging all • Increase oppression for Shiite for sanctions relief that can lead to leverage so it’s impossible minorities, a future arsenal of nuclear weapons to go back.” • Bolster the military capabilities rather than a single bomb. of Iranian proxies, —AEI Resident Scholar Michael Rubin As the deadline looms for Con- • Render ineffective the Nuclear gress to vote on the agreement, Nonproliferation Treaty, Danielle Pletka appeared on AEI’s scholars will continue to speak • Increase bloodshed in Syria, NBC’s Meet the Press on July 19 out against the deal as irresponsible • Push Iraq further into Iran’s to discuss the deal. And in nearly and a step toward rampant nuclear orbit, 50 op-eds and blog posts within proliferation in the world’s most • Cement the US partisan divide two weeks of the deal’s announce- unstable region, and they will contin- over foreign policy, and ment, two “AEI Top Three” videos ue to offer their thoughts on what a • Further weaken the UN congressional resolution on the deal on YouTube, and infographics, AEI Security Council. scholars have explained the deal’s should look like. potential unintended consequences. Our scholars have warned that For the latest from AEI scholars on the This deal may: Iran is playing the long game on its Iran deal, visit www.aei.org/ • Reinforce the Muslim sectarian nuclear program, seeing temporary feature/iran-2/. divide, restrictions as a reasonable exchange

4 AEI Hosts Interactive, Comprehensive Data Set on Chinese Global Investment

Authored by AEI’s Derek in the first half of 2015, in Scissors, AEI and the Heritage both the number of transac- Foundation’s China Global tions and their total value Investment Tracker (CGIT) is ($11.1 billion). It remains the only public, comprehensive to be seen how the business data set of Chinese global investment climate between investments and engineering the United States and China contracts of $100 million will develop. or more. Reciprocity and progress Global investors, academics, on cyberespionage will be journalists, business consultants, especially important. Scissors and US government analysts forecasts that unless the are using the CGIT to gauge Chinese government acknowl- the strength of the Chinese edges and takes steps to limit economy—where it is investing In July, AEI launched an interac- cyberespionage of foreign and building and how its priorities tive online platform where audiences industries, Chinese companies will have changed over time. The CGIT can engage with data and map out be increasingly seen as corrupt and data have been cited by many major China’s global footprint by country, untrustworthy, which could have major news outlets, most recently in the region, sectors of investment, and implications for the global economy New York Times. years ranging from 2005 through and US policy. The CGIT includes approximately 2015. As the tracker shows, China’s 1,600 large transactions worth well investments overseas are set to top To explore the China Global Investment over $1 trillion across many sectors $100 billion this year. Tracker, visit www.aei.org/china and industries including energy, real The latest tracker updates show that -global-investment-tracker/. estate, and high-tech fields, as well as the United States again led all coun- more than 150 troubled transactions. tries in receiving Chinese investment

Key Points about Chinese Investment:

• China concentrates its investments in resource-rich, well-developed countries. The top 10 recipients of Chinese investment since 2005 have received almost $350 billion, or more than half of overall investment volume.

• Chinese investment in the energy and metals sectors has sharply declined since the beginning of 2014, while its investments in finance and real estate have trended upward.

• China’s engineering and construction contracts are much more dispersed and are awarded overwhelmingly to developing economies such as Nigeria and Pakistan. The top 10 recipients of Chinese construction contracts since 2005 received about $180 billion, or nearly 40 percent of overall volume.

5 How Does a Think 2001 Congress passes the No Child Left Behind Act with an Tank Influence the overwhelming bipartisan majority. Policy Debates? Republicans will now see if the billions the federal government has been spending is actually improving student performance. The federal government, however, will be mandating testing and transparency and penalizing states A Look at AEI’s Role in NCLB falling behind in progress toward 100 percent proficiency by 2014. Reauthorization X X X 2004 Hess and the Thomas B. Fordham Institute’s Chester E. Finn Jr. publish the first substantive conservative review and critique of the law in 2004 in an essay in The Public Interest. They note that the law’s structure is convoluted, spurring more bureaucratic compliance than innovation.

2007 When NCLB is supposed to be rewritten, Hess writes seminal policy essays about the law, offering a more modest, conservative direction by scaling back the federal penalties while maintaining transparency. AEI’s Frederick (Rick) Hess has played a leading role since 2004 in critiquing the No Child Left Behind (NCLB) Act and offering 2011 reforms that would decrease bureaucracy Hess publishes a number of pieces in the press criticizing the law’s approach and releases an edited volume in 2011, while increasing transparency and innovation. Carrots, Sticks, and the Bully Pulpit: Lessons from a Half Century Over the past several years, he has been the of Federal Efforts to Improve America’s Schools, to make a sustained case from history for a more modest federal role. most thoughtful and persistent critic of the Obama administration’s “waiver” deal to states—essentially allowing the Department of

Education to dictate policy to the states. As 2014 approaches, more 2014 and more schools are labeled Hess publishes an essay Through a number of essays, op-eds, and by the federal government in the Room to Grow compendium as “failing” and subject to federal asking “What Should Conservatives an edited volume of work, Hess has worked sanctions. The Obama administration Be for in Education?” and throughout offers to waive penalties if states adopt 2014 and 2015 meets with top to articulate the proper federal role in K–12 the government’s policy priorities. Republican education committee education. The 2015 Student Success Act staff in the House and Senate. and the Every Child Achieves Act, put forward by the House and the Senate, respectively, both closely track Hess’s vision for NCLB reauthorization. 2015 The House’s 2015 Student Success Act and Senate’s 2015 Every Child Achieves Act both closely track the vision for NCLB reauthorization Hess has sketched out. He pens several articles in the popular press discussing the merits of the new House bill.

In July 2015, both the Senate and the House pass reauthorizations of NCLB that are moving toward conference. Shortly after the House bill passes by the narrowest of margins, an education committee staffer tells Hess that they “couldn’t have pushed the Student Success Act across the finish line without [AEI’s] work.”

6 with Adam Lerrick

ment they choose (which can pursue its relative wages and costs another whatever policy it wants). But if the 20 percent. The question is, do you government is not following policies do that quickly by leaving the euro that the eurozone believes will lead to and devaluing, or do you do it slowly the stability of the European Union and through deflation? Unfortunately, you improve Greece’s economy, then the are dealing with a country that does other members have no obligation to not have a functional government. The lend Greece large amounts at highly one thing that the Greek people are subsidized interest rates. The other more frightened of than the austerity members are also democracies that from northern Europe is putting Greek must answer to their voters for the politicians back in charge of their AEI Visiting Scholar Adam Lerrick is use of taxpayer money. Greece is money; 70–80 percent of the Greek the Friends of Allan H. Meltzer Profes- trying to blackmail the eurozone into population wants to remain in the euro. sor of Economics at the Tepper School giving it money while refusing to If Greece had an effective government, of Business at Carnegie Mellon Uni- follow policies that the eurozone it would certainly be better for it to versity. He has been closely following believes will increase the stability of leave the euro. the European debt crisis, offering his the European Union. If a small country like Greece can blackmail the other If Greece were to leave the expert analysis and commentary on members into a “transfer union” eurozone, what would be the how to stabilize Greece’s economy effect on the euro? without conditions or controls, then and financial system. He sat down the euro cannot survive. with AEI’s Kevin Hassett, the State Many people believe that if Greece Farm James Q. Wilson Chair in leaves, that is the end of the euro. How long can Greece keep going That is not true. The euro is effectively American Politics and Culture and without paying its debts? If it a contract between France and director of Economic Policy Studies, were to leave the euro, would its Germany. It is not based on the fiction to discuss the latest events. economy be better off five years from now? that no country can leave. France What is the fundamental issue at and Germany together are 50 percent stake between the eurozone and Greece can go on like this for quite a of the eurozone’s economy. To strength- the Greek government? while. Government revenues will be en market confidence in the common used solely to pay suppliers, public- currency, the remaining members Greece’s radical left-wing government sector employees, and pensioners. must tie their economies more closely has attempted to portray the conflict No payments will be made on the together with greater controls on with the eurozone as a struggle of debt. If it literally runs out of euros, fiscal spending and with policies democracy versus the imposition of the Greek government can issue a that improve competitiveness by policies by foreign technocrats at the parallel currency with which to pay increasing the flexibility of labor International Monetary Fund and the its bills. and product markets. European Commission against the will But no matter what happens, of the Greek people. That’s not what whether they stay in or leave the To learn more about Adam Lerrick this fight is about. euro, the Greek people will be much and to read his latest work, visit No one is questioning the Greek poorer five years from now than they www.aei.org/scholar/adam-lerrick/. people’s right to elect whatever govern- are today. Greece needs to reduce

7 AEI’s Annual Dinner to Be Held Make a Legacy in November Commitment to AEI

Do you wish to ensure that AEI will have the resources neces- sary to carry on our free enter- prise mission for generations to come? Please consider joining AEI’s Legacy Society by making a planned or estate gift to AEI. We are very grateful for the foresight of the members of our Legacy Society who have included AEI as a beneficiary of their estates or long-term plan- AEI’s black-tie Annual Dinner and ning through a variety of ways, Irving Kristol Lecture will be held Annual Dinner such as unrestricted bequests, on Monday, November 9, 2015, Sponsorship Levels charitable estate trusts, and at the National Building Museum in retirement accounts. Dinner Underwriter: $100,000 Washington, DC. Planned giving offers many The Irving Kristol Award, AEI’s Co-Chair Table: $50,000 choices and tax benefits for

highest honor, recognizes individu- Patron Table: $25,000 donors and their beneficiaries, als who have made extraordinary while also providing substantial Sponsor Table: $10,000 intellectual or practical contributions current or future support of AEI. to improved government policy, social Supporter: $1,000 To learn more about how you welfare, or political understanding. can make such a gift, please Past award recipients have in- visit www.aei.org/donate/ cluded Richard Cheney, Gerald Ford, If you are interesting in sponsor- planned-giving or contact Alan Greenspan, Ronald Reagan, Paul ing a table for the dinner, please AEI Senior Vice President Jason Ryan, and James Q. Wilson. We look contact Senior Development Manager Bertsch ([email protected]; forward to shortly announcing this Windle Jarvis ([email protected]; 202.862.5873). year’s honoree. 202.862.5906).

The American Enterprise Institute is a community of scholars and supporters committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise. AEI’s work is made possible only by the financial backing of those who share our values and support our aims. 1150 Seventeenth Street, NW To learn more about AEI’s scholars and their work, visit www.aei.org Washington DC 20036 202.862.5800 | www.aei.org To find out how you can invest in our scholars’ work, visit www.aei.org/support

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