US Multinationals Expand their Foreign-based Research and Development

"For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries (such as Germany, Japan, and Canada) to many parts of the developing world ..."

Lee G. Branstetter, Britta Glennon, andJ. Bradford Jensen discuss this shift in "The Rise of Global Innovation by US Multinationals Poses Risks and Opportunities" (June 2019, Peterson Institute for International Economics,  Policy Brief 19-9).

Here's the quadrupling in foreign-based R&D by US multinationals in the last couple of decades:

Another measure looks at what share of the patents files by US multinationals are based on cross-border collaboration. It used to be less than 2%; it's now more than 10%--and rising. 

It used to be that almost all the foreign R&D of US multinationals was in five high-income countries Germany, the UK, Japan, Canada, and France.Now, less than half is in those five countries.

The shift here shouldn't be exaggerated. "While US MNCs’ foreign R&D expenditures have increased dramatically, they still conducted about 83 percent of their R&D in the United States in 2015 (down from 92 percent in 1989)."

But the shift is still a real one. Of course, it's driven in part by the fact that US multinationals are building supply chains across borders and selling output in other countries. Emerging market have been growing faster than the US economy in recent decades, and with some stops and starts, will probably continue this pattern of faster "catch-up" growth in the next few decades. Another factor is that an interconnected world economy, research is more likely to cross borders than research in older industries.

Your reaction to US multinationals expanding their overseas R&D efforts may be shaped by whether you are a half-empty or a half-full kind of person. US multinationals accounted for 57% of total US R&D spending in 2015. 

The half-empty concern would be that when US companies shift their R&D overseas, there is a danger of losing US-based technological leadership, with potentially negative consequences for US workers and the US economy. There is a legitimate concern that technology developed outside the US may offer less benefit to the US economy, and may be harder to protect with intellectual property rules.

The half-full response is that centers of technological excellence are developing all around the world, with or without participation by US firms. If US firms wish to stay at the technological cutting edge, they need to  engaged with the researchers and expertise all around the world. not to be separated from it. Also, if US multinationals by basing some of the R&D in other countries, US multinationals are building connections to supply chains and to consumers in those markets. 

"Loyalty to the Nation All the Time, Loyalty to the Government When it Deserves It."

Mark Twain wrote an essay back in 1905 called "The Czar's Soliloquy" (North American Review, Vol. 180.No. DLXXX).  The essay was triggered by a sentence in the London Times, reporting: "After the Czar's morning bath it is his habit to meditate an hour before dressing himself." Twain imagined that the Czar, standing naked in front of a mirror, was for a few moments honest with himself about the injustices and cruelties that he had allowed and perpetrated, and hoped for a better future. Imagining the Czar's words to himself, Twain wrote:

There are twenty-five million families in Russia. There is a man-child at every mother's knee. If these were twenty-five million patriotic mothers, they would teach these man-children daily, saying : "Remember this, take it to heart, live by it, die for it if necessary: that our patriotism is medieval, outworn, obsolete; that the modern patriotism, the true patriotism, the only rational patriotism, is loyalty to the Nation all the time, loyalty to the Government when it deserves it.

On the Fourth of July in particular, it makes me sad to run into people whose patriotism ebbs and flows according to what political party occupies the White House. There ought to be a large and real line between support of whoever who is in government at a particular time, and a broader patriotism. A country is a mixture of people, ideals, geography, history, cultures, and more. It should be possible to love your country, whether your feelings about the government are positive, negative, neutral, ambivalent, or don't-give-a-damn.

James Truslow Adams and the Origins of "The American Dream"

The phrase “the American Dream” was coined by a Pulitzer prize-winning historian named James Truslow Adams in his 1931 book The Epic of America. Truslow described the American Dream in this way (pp. 415-416):

But there has been also the American dream, that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position. I once had an intelligent young Frenchman as a guest in New York, and after a few days I asked him what struck him most among his new impressions. Without hesitation he replied, "The way that everyone of every sort looks you right in the eye, without a thought if inequality. Some time ago a foreigner who used to do some work for me, and who had picked up a very fair education, occasionally sat and chatted with me in my study after I had finished my work. One day he said that such a relationship was the great difference between America and his homeland. There, he said, "I would do my work and might get a pleasant word, but I could never sit and talk like this. There is a difference there between social grades which cannot be got over. I would not talk to you there as man to man, but as my employer."

No, the American dream that has lured tens of millions of all nations to our shores in the past century has not been a dream of merely material plenty, though that has doubtless counted heavily. It has been much more than that. It has been a dream of being able to grow to fullest development as man and woman, unhampered by the barriers which had slowly been erected by older civilizations, unrepressed by social orders which had developed for the benefit of classes rather than just for the simple human being of any and every class. And that dream has been realized more fully in actual life here than anywhere else, though very imperfectly even among ourselves.

Adams puts this idea of the "American dream" at the center of his description of telling the American narrative and describing what it means to be an American (p. 174):

If Americanism in the above sense has been a dream, it has also been one of the great realities of American life. It has been a moving force as truly as wheat or gold. It is all that has distinguished American from a mere quantitative comparison in wealth or art or letters or power with the nations of old Europe. It is Americanism, and its shrine has been in the heart of the common man. He may not have done much for American culture in its narrower sense, but in its wider meaning it is he who almost alone has fought to hold fast to the American dream. This is what has made the common man a great figure in the American drama. This is the dominant motif in the American epic.

It seems to me that the American dream is sometimes reduced to the idea of upward economic mobility, and while that's certainly part of the vision, it's useful to remember that Adams meant something considerably broader: not just material well-being, but also the opportunity to shape one's destiny; when social order means less and individuals mean more, when social equality is a common presumption in a way that reaches beyond equal treatment before the law, and when the successes and failures of the country are judged by how they affect everyday people.

George Washington on the Dangers of Political Partisanship

George Washington's Farewell Address in 1796 is perhaps best-remembered today for his advice: "'Tis our true policy to steer clear of permanent Alliances, with any portion of the foreign World." But on this Fourth of July, I felt moved to remember and to reconsider Washington's warnings about how political parties set up false alarms, misrepresent others, agitate the community, and can even lead to foreign influence and corruption.

As a sampler, Washington said:

• "One of the expedients of Party to acquire influence, within particular districts, is to misrepresent the opinions & aims of other Districts."
• "The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissention, which in different ages & countries has perpetrated the most horrid enormities, is itself a frightful despotism." 
• "[The spirit of Party] serves always to distract the Public Councils and enfeeble the Public Administration. It agitates the Community with ill founded Jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot & insurrection. It opens the door to foreign influence & corruption, which find a facilitated access to the government itself through the channels of party passions." 

Here's a fuller quotation:

"One of the expedients of Party to acquire influence, within particular districts, is to misrepresent the opinions & aims of other Districts. You cannot shield yourselves too much against the jealousies & heart burnings which spring from these  misrepresentations. They tend to render Alien to each other those who ought to be bound together by fraternal Affection. ... ...

"I have already intimated to you the danger of Parties in the State, with particular reference to the founding of them on Geographical discriminations. Let me now take a more comprehensive view, & warn you in the most solemn manner against the baneful effects of the Spirit of Party, generally.

"This Spirit, unfortunately, is inseperable from our nature, having its root in the strongest passions of the human Mind. It exists under different shapes in all Governments, more or less stifled, controuled, or repressed; but in those of the popular form it is seen in its greatest rankness and is truly their worst enemy.

"The alternate domination of one faction over another, sharpened by the spirit of revenge natural to party dissention, which in different ages & countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders & miseries, which result, gradually incline the minds of men to seek security & repose in the absolute power of an Individual: and sooner or later the chief of some prevailing faction more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of Public Liberty.

"Without looking forward to an extremity of this kind (which nevertheless ought not to be entirely out of sight) the common & continual mischiefs of the spirit of Party are sufficient to make it the interest and the duty of a wise People to discourage and restrain

"It serves always to distract the Public Councils and enfeeble the Public Administration. It agitates the Community with ill founded Jealousies and false alarms, kindles the animosity of one part against another, foments occasionally riot & insurrection. It opens the door to foreign influence & corruption, which find a facilitated access to the government itself through the channels of party passions. Thus the policy and the will of one country, are subjected to the policy and will of another.

"There is an opinion that parties in free countries are useful checks upon the Administration of the Government and serve to keep alive the spirit of Liberty. This within certain limits is probably true--and in Governments of a Monarchical cast Patriotism may look with endulgence, if not with favour, upon the spirit of party. But in those of the popular character, in Governments purely elective, it is a spirit not to be encouraged. From their natural tendency, it is certain there will always be enough of that spirit for every salutary purpose. And there being constant danger of excess, the effort ought to be, by force of public opinion, to mitigate & assuage it. A fire not to be quenched; it demands a uniform vigilance to prevent its bursting into a flame, lest instead of warming it should consume."

Is the Health Care Policy Focus Shifting from Access to Cost?

In my experience, complaints about the system of health care finance over the years almost always began with the lack of universal health insurance coverage, and how many tens of millions of Americans lacked health insurance. Then, somewhat later in the conversation, the high per capita costs of US health care spending might or might not come up.

The Patient Protection and Affordable Care Act of 2010 was a reflection of these priorities. The strength of the legislation was that it increased federal spending by over $110 billion per year to cover an expansion of health insurance for about 22 million people. But in terms of controlling healthc are costs, not much happened. US health care spending was 8/9% of GDP in 1980, 13.4% of GDP in 2000, 17.3% of GDP in 2010 when the legislation passed, 17.9% of GDP for the most recent data in 2017, and projected to hit 19.4% of GDP by 2027 by the Centers for Medicare and Medicaid Services. One can argue back and forth over whether this increase in health care spending as a share of GDP has been worth it, but you can't argue that health care costs have held steady or been reduced.

But there are some glimmerings that health care costs are becoming a more prominent and focal issue. For example, West Health and Gallup published "The U.S. Healthcare Cost Crisis" (March 2019, free registration required to download). Based on a nationally representative survey in January and February of this year, here are some findings:

• "Indeed, when given the choice between a freeze in healthcare costs for the next five years and a 10% increase in household income, 61% of Americans report their preference is a freeze in costs. This sentiment runs inversely to income: Among those low-earners with annual household incomes under $24,000 per year, two-thirds would prefer the rising cost of healthcare be fully curtailed for five years over a pay raise. Even among high-earning households with annual incomes of $180,000 or more, there is majority support for frozen costs over increased wages, which would represent at least another $18,000 per year."
• When asked ""Relative to the quality of care, do you think Americans generally are paying too much, too little, or the right amount for most of the care that they receive from the U.S. healthcare system?" 76% of Americans answer "too much."
• "77% of Americans fear rising healthcare costs will damage the U.S. economy, and 45% fear a major health event will lead to bankruptcy."
• "47% of Americans never know what a visit to the emergency room will cost, and 41% report forgoing care in an emergency department due to cost in the past 12 months."
• "Americans borrowed an estimated $88 billion to pay for healthcare, and 65 million adults report having a health issue but not seeking treatment due to cost in the past 12 months."

Other reports are emphasizing cost reduction, too. I wrote earlier this year about how the Society of Actuaries and Henry J. Kaiser Family Foundation have created Initiative 18/11, where the numbers refer to the fact that the US spends about 18% of GDP on health care and other high-income countries spend about 11%, to consider ways of holding down health care costs. 

Polling by the Kaiser Family Foundation (KFF) finds similar concerns about health care costs, and about a greater level of concern about costs. Ashley Kirzinger  Cailey Muñana, Bryan Wu, and Mollyann Brodie  write in a "Data Note: Americans’ Challenges with Health Care Costs" (June 11, 2019)

Americans have consistently put health care costs at the top of their list when it comes to health care issues they want the government to address and for political candidates to talk about. Prior to the passage of the 2010 Affordable Care Act, politicians spoke frequently about health care during elections with equal attention paid to “health care costs” as “access to coverage.” For example, leading up to the 2008 presidential election, a KFF Health Tracking Poll found that “reducing the cost of health care and insurance” (41 percent) was the top health care issue chosen by voters from a list of possible health care issues, but it was closely followed by “expanding health coverage for the uninsured” (31 percent). Since the implementation of the ACA, health care costs now occupy a tier of their own on the public’s list of pressing health care issues. For example, leading up to the 2018 general election, KFF found at least twice as many voters said they wanted hear candidates talk about health care costs (27 percent) as any other health care issue such as increasing access or decreasing the number of uninsured people (11 percent) or universal coverage (8 percent).

The question of why health care costs are taking on greater importance is overdetermined--that is, it has too many plausible answers. People are worried about health care costs directly. I suspect that over time, people are figuring out that the continually rising premiums for their employer-provide health insurance is eating their pay raise.  For state governments, continually rising Medicaid costs are one of the biggest budget stressors. For the federal government, higher spending on health care programs is a large part of what is driving current and future budget deficit problems (for discussions, see here and here). Also, one of the main stresses on the middle class is a sense that the costs of certain items that play a big role in defining what it means to be middle class--health care, housing, and higher education--are climbing out of reach.

As with any serious problem, there will be some easy, deceptive, and flawed answers on display. For example, waving a magic wand called "single payer" or "Medicare for All" won't avoid a need to make a bunch of hard choices. Every dollar spent on health care represents income to someone, somewhere, and cutting healthcare spending is thus inevitably controversial. For discussions of some of these issues, starting points with a focus on US healthcare spending are "How to Reduce Health Care Costs?" (February 7, 2019) or "Why Does the US Spend More on Health Care Than Other Countries?" (May 14, 2012), or for a discussion with an international focus how countries everywhere are trying to hold down health care costs, see "Wasteful Health Care Spending" (February 23, 2017)

Global Population Projections: Parameters Shaping the Future

Social scientists sometimes say that "demography is destiny," which never seemed quite right to me. Yes, demography has powerful and often underestimated effects. It constrains and shapes the options available to society. But society also makes decisions about how to react to demographic forces, too. In that spirit, here are some of the population constraints that will be shaping and constraining global politics and economics in the next few decades, from World Population Prospects 2019 done by demographers at the United Nations. In particular, I'm drawing here from the World Population Prospects 2019: Highlights report (June 2019).

"The world’s population continues to grow, albeit at a slower pace than at any time since 1950, owing to reduced levels of fertility. From an estimated 7.7 billion people worldwide in 2019, the medium-variant projection indicates that the global population could grow to around 8.5 billion in 2030, 9.7 billion in 2050, and 10.9 billion in 2100."

"In 2018, for the first time in history, persons aged 65 years or over worldwide outnumbered children under age five. Projections indicate that by 2050 there will be more than twice as many persons above 65 as children under five. By 2050, the number of persons aged 65 years or over globally will also surpass the number of adolescents and youth aged 15 to 24 years. ..."

"Total fertility has fallen markedly over recent decades in many countries, such that today close to half of all people globally live in a country or area where lifetime fertility is below 2.1 live births per woman, which is roughly the level required for populations with low mortality to have a growth rate of zero in the long run. In 2019, fertility remains above this level, on average, in sub-Saharan Africa (4.6 live births per woman), Oceania excluding Australia and New Zealand (3.4), Northern Africa and Western Asia (2.9), and Central and Southern Asia (2.4). ..."

"Life expectancy at birth for the world’s  population reached 72.6 years in 2019, an improvement of more than 8 years since 1990. Further improvements in survival are projected to result in an average length of life globally of around 77.1 years in 2050. ..."

"With a projected addition of over one billion people, countries of sub-Saharan Africa could account for more than half of the growth of the world’s population between 2019 and 2050, and the region’s population is projected to continue growing through the end of the century. By contrast, populations in Eastern and South-Eastern Asia, Central and Southern Asia, Latin America and the Caribbean, and Europe and Northern America are projected to reach peak population size and to begin to decline before the end of this century. ..."

"More than half of the projected increase in the global population up to 2050 will be concentrated in just nine countries: the Democratic Republic of the Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, the United Republic of Tanzania, and the United States of America."

"Disparate population growth rates among the world’s largest countries will re-order their ranking by  size: for example, India is projected to surpass  China as the world’s most populous country around 2027."

Food Stamps: Evolution and Rising Take-up Rates

The number of people receiving benefits from the Supplemental Nutrition Assistance Program (SNAP), perhaps better know as "food stamps," rose slowly in early 2000s, then leaped during the Great Recession, and now has been sagging lower for a few years, although remaining above pre-recession levels.  Victor Oliveira gives a quick overview in "The Food Assistance Landscape:FY 2018 Annual Report" (US Department of Agriculture, April 2019)

Here's a figure showing the number of SNAP recipients and total spending on the program.

And here's a figure showing the percentage of Americans receiving food stamps.

The modest rise in food stamp spending before the Great Recession reflects changes in federal rules making it easier for people to apply, and also easier for states to certify to the federal government that the benefits are being targeted.

The sharp rise in food stamp spending did not reflect any substantial change in eligibility standards. Instead, it mostly showed that many more people fell under the pre-existing eligibility rules when the recession hit. There was also a temporary boost in SNAP benefits in the Recovery Act of 2009. But there was also an additional change. The "take-up rate" for SNAP benefits rose: that is, those who were eligible for benefits were more likely to apply for them and receive them.  Dottie Rosenbaum and Brynne Keith-Jennings of the Center on Budget and Policy Priorities provide some information in "SNAP Caseload and Spending Declines Have Accelerated in Recent Years" (June 6, 2019). Here one of their figures:



What seems to have happened is that more people became aware that they were eligible for SNAP benefits, and even as the unemployment rate has fallen in recent years, the take-up rate for benefits has stayed high. Here's a breakdown by age of what they call the "participation rate," meaning the share of those who are eligible who participate in the program.


Of course, these higher participation or take-up rates aren't occurring in a vacuum. People tend to think of the SNAP program as supporting food purchases, but as economists have pointed out for a long time, providing a way for people to buy food also frees up other income to purchase other goods. For this reason, SNAP plays much broader role in the safety net than just a nutrition-assistance program.

For context, SNAP spending was $68 billion in 2018, and it all comes from the federal government with the same rules applying across states. This is about the same size as the Earned Income Tax Credit, counting both tax revenues foregone and refundable credits paid under that proram. As another comparison, total spending on Temporary Assistance for Needy Families (TANF) is often thought of as the nation's main welfare program, but it spent only about half as much in 2018--and half of that funding came from states with a high level of variation in benefits. For example, monthly TANF benefit levels for a family of three were $714 in California in 2018, compared with $170 per month in Mississippi. In many states with low TANF benefits, SNAP offers considerably more assistance to low-income families.

A different report from the Center on Budget and Policy Priorities, "Policy Basics:

The Supplemental Nutrition Assistance Program (SNAP)" (June 25, 2019) provides a quick overview of how the program works: 

The average SNAP recipient received about $127 a month (or about $4.17 a day, $1.39 per meal) in fiscal year 2018. The SNAP benefit formula targets benefits according to need: very poor households receive larger benefits than households closer to the poverty line since they need more help affording an adequate diet. The benefit formula assumes that families will spend 30 percent of their net income for food; SNAP makes up the difference between that 30 percent contribution and the cost of the Thrifty Food Plan, a diet plan the U.S. Agriculture Department (USDA) establishes that is designed to be nutritionally adequate at a very low cost.

A family with no net income receives the maximum benefit amount, which equals the cost of the Thrifty Food Plan for a household of its size ...  For example, a family of three with $600 in net monthly income receives the maximum benefit ($505) minus 30 percent of its net income (30 percent of $600 is $180), or $324. ...

SNAP is heavily focused on the poor. About 92 percent of SNAP benefits go to households with incomes at or below the poverty line, and 55 percent go to households at or below half of the poverty line (about $10,390 for a family of three in 2019). 

Thus, what's happening with SNAP benefits in recent years is that the number of people eligible is declining, as it should when unemployment rates have fallen this low, but the take-up or participation rate in the program has remained high. As one more sign of this shift, the share of SNAP recipients who are also working has been rising over time.