The Latest in Economic Development – 4.26.2012

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This week’s blog highlights the implications of an export-oriented US, explores the oft-ignored US service export sector, explains the implications of the SBA’s definition of “small business,” clarifies realistic expectations for microfinance, and links to a McKinsey report on factors contributing to trends in employment. Comment below or send to

Get the last edition of “The Latest in Economic Development” here.

If we are indeed headed for an export-oriented economy here in the US, what does that mean, and what will it look like? Tyler Cowen, of The Great Stagnation fame, is fairly optimistic about America’s future, but it’s not all daffodils and lollipops. He says there are three factors that, when combined, have the potential to make the US an “export powerhouse”: our expertise in artificial intelligence and computing, possession of traditional and renewable energy sources, and increasing demand from developing countries. Cowen states “the closer other nations come to our economic level, the more they will want to buy our stuff.” So there’s reason to be cheery, but Cowen also notes that the “new export-based prosperity may not translate into higher wages for everyone, or even most people, in the United States.” This isn’t much of a surprise, as we have seen declining wages and jobs in manufacturing over the last decade due to increased foreign competition and highly productive, machine-based production processes. (The American Interest)

When we talk about increasing exports, we usually think of putting tangible stuff on container ships and sending it across the pond, but since we have a primarily service-based economy, is the manufacturing focus wrong? Catherine Rampell, writing in the New York Times, mentions that “America already exports more services than any other country in the world… up 10.1 percent from 2009, and up 136 percent since 1991.” And while US manufacturing firms get lots of support from Washington in trade disputes, there isn’t much attention paid to service trade barriers. There are many reasons for the lack of progress in reducing service trade restrictions, including mutual protectionism, strict immigration policies, and interestingly enough, the United States’ federalist nature.

With small business tax cuts on the House agenda this week, it is instructive to define which small businesses will be helped by the impending legislation. As NPR’s Tamara Keith reports, the typical mom-and-pop store we think of when small business is mentioned is not exactly the type of small business that will be helped by the bill, mostly because of the generous definition “small business” receives by federal agencies. According to the Small Business Administration, a small business has less than 500 employees, which is around 99.9% of American businesses. So the tax cut may be targeted at job creating “small businesses,” but the majority of the benefits of the tax cut would go to larger companies at the high end of the distribution. (NPR)

Can microfinance spur entrepreneurial growth, or is it a temporary means to an end? With the emergence of alternative funding mechanisms for ambitious entrepreneurial ventures and small family businesses alike, it is useful to take a realistic approach to the virtues of some of these mechanisms, particularly microfinance. While some think that microfinance can be used to jumpstart the growth of small businesses that can evolve into large profitable operations, they are mostly used by “necessity entrepreneurs” who are sole proprietors because they have to be. Carlos Moreno, who is interviewed in the article, points out that “most people just want a job.” In distressed areas, where job prospects are dim, microfinance acts like a credit card, smoothing consumption and cash flow problems. (Reuters)

The McKinsey Global Institute recently released a report outlining “five trends that are influencing employment levels and shaping how work is done and jobs are created.”  The five trends are: 1) Technology and the changing nature of work; 2) Skill mismatches; 3) Geographic mismatches; 4) Untapped Talent; and 5) Disparity in income growth.

McKinsey goes on to outline three options for policy makers to address these challenges:

  1. Enable growth in aggregate demand
  2. Make raising worker skills a national priority
  3. Unlock business-creating investment and innovation

Get the full report here.

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