With its belt and road projects, China risks falling into the biggest debt trap of all – Yasheng Huang

MIT Sloan Professor Yasheng Huang

Yasheng Huang, Epoch Foundation Professor of International Management and Faculty Director of Action Learning, MIT Sloan School of Management

From South China Morning Post

Critics often claim China is using its massive Belt and Road Initiative as a form of coercive debt-trap diplomacy to exert control over the countries that join its transnational infrastructure investment scheme. This risk, as Deborah Brautigam of Johns Hopkins University recently noted, is often exaggerated by the media. In fact, the initiative may hold a different kind of risk — for China itself.
At the recent belt and road summit in Beijing, Chinese President Xi Jinping seemed to acknowledge the “debt trap” criticism. In his address, Xi said that “building high-quality, sustainable, risk-resistant, reasonably priced, and inclusive infrastructure will help countries to utilise fully their resource endowments”.

More than a decade after the start of global financial crisis, we must reevaluate the Dodd-Frank Act – Laura Kodres

Laura Kodres, Golub Distinguished Senior Fellow and Senior Lecturer in Finance, MIT Sloan School of Management

From The Hill

Banking rules and regulations are rewritten every few decades, frequently following a crisis. The Great Depression gave rise to the Glass-Steagall Act, which separated investment and commercial banking activities. The Savings and Loan debacle led to significant industry reform, including a “Prompt Corrective Action” rule to close weak banks before their capital is completely depleted. And Black Monday resulted in trading curbs (so-called “circuit breakers”) to prevent panic-selling.

Yes, waves of post-crisis regulation are typical and often necessary. But in the aftermath of the most recent global financial crisis, Congress’s regulatory reaction was far bigger than a wave; it was more like a tsunami.

The 2,300-plus page Dodd-Frank Wall Street Reform and Consumer Protection Act made sweeping changes to the financial landscape. It created a consumer protection agency, installed new capital requirements for banks, and reined in poor mortgage practices and risks in over-the-counter derivatives trading. Some of these changes have improved conditions; others have had unintended consequences; and some have made things worse.

Read More »

Brazil at a crossroads: re-asserting the importance of science and technology for development – Ezequiel Zylberberg and Elisabeth Reynolds

Ezequiel Zylberberg, Research Affiliate, Massachusetts Institute of Technology’s Industrial Performance Center

Elisabeth Reynolds, executive director of the MIT Industrial Performance Center

From Valor

The Brazilian government has pursued a state-led development approach for nearly a century. In the last twenty years, it has enacted various policies and programs explicitly designed to strengthen its national system of innovation. It has sought to build upon early successes in agriculture, commercial aviation, and deep sea oil & gas exploration to create new engines of growth for the 21st century.

Brazil has increased spending on science and technology, encouraged greater collaboration between industry and universities, and fostered the creation of new institutions whose primary aim is to facilitate greater private spending on research and development (R&D). Yet, recent headwinds threaten to derail what, despite several well-known shortcomings, has been a remarkable story of progress.

Beginning with the economic recession and political fallout associated with the Lava Jato corruption scandal that began in 2014, and continuing with the proposed dramatic cuts to science and technology spending and the ouster of respected leaders in the scientific community, Brazil’s science, technology, and innovation agenda has faced serious challenges and now faces an uncertain future.

During these difficult times, it is important for the business and scientific communities to re-assert the value of science, technology, and innovation, not as an end in itself, but as a platform for sustained economic growth and social development. Brazil cannot afford to fall behind as the pace of technological change quickens and the globalization of production and innovation grows in scale and scope.

It was in the context of these ongoing challenges that MIT’s Industrial Performance Center (IPC) began a five-year research collaboration with the Brazilian National Service for Industrial Training (SENAI) in 2014. The project recently culminated in the publication of a volume entitled Innovation in Brazil: Advancing Development in the 21st Century (Routledge, 2019, Portuguese edition by Elsevier forthcoming).

This book represents a true transnational collaboration. It includes contributions from MIT researchers as well as leading Brazilian academics and practitioners, and proposes a forward-looking innovation agenda for the country. This research will be the focus of an upcoming presentation at the MIT Sloan Future of Work Conference to be held on August 29th in São Paulo.

We find that in order to effectively accelerate innovation and position itself for growth in the 21st century, Brazil should address five key areas. First, the country should strengthen its engagement with the rest of the world through global value chains and knowledge networks. This is made more urgent by the arrival of a set of fast moving, complex, and globally integrated digital technologies.

Read More »

How helping disabled people find employment affects the job market – John Van Reenen, Barbara Petrongolo, Felix Koenig

John Van Reenen, Professor of Applied Economics at MIT Sloan School of Management

From OUP Blog

Policy makers have long been concerned with helping people on disability benefits find some employment as this group has grown dramatically in recent decades. In the UK, as in several other countries, there are now many more people on disability benefits than on unemployment benefits. The chances of leaving disability benefits once someone is enrolled is low and although many disabled people cannot work at all, many others would like to have some access to the labor market, such as part-time employment.

Introducing performance rewards for public employment service staff may be a cost-effective way to help the disabled find jobs. The UK Jobcentre Plus reform introduced modern management practices into the welfare system. Similar incentive schemes have been associated with substantial productivity gains in the private sector. The reform offered caseworkers greater career rewards if they successfully placed benefit recipients into work. Jobcentre Plus was introduced at different times in different districts between 2001 and 2008, so this staggered timing enabled researchers to implement a thorough examination of the impact of the policy.

Read More »

Homelessness and the high cost of living – Christos Makridis

Christos Makridis, digital fellow at the MIT Sloan Initiative on the Digital Economy

From The Hill

The recent spotlight on homelessness and poverty in BaltimoreLos Angeles and other major cities highlights a growing challenge in urban America: the rising cost of living.

The economy is booming by nearly all accounts. Year-to-year real GDP growth has been at least 2 percent since President Trump was elected, the unemployment rate is at its lowest point since 1969 and year-to-year nominal wages are growing faster than they have since the 2008-09 Great Recession. But a handful of metropolitan areas are experiencing growing rates of homelessness and labor market exits.

For example, California’s population growth in 2018 was the slowest in recorded history. And, while the overall number of homeless people is at its lowest point since 2007, according to the latest statistics from the U.S. Department of Housing and Urban Development (HUD), the number of unsheltered people has grown from 175,399 in 2014 to 194,467 in 2018.

Read More »