40 results
Contributors
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- By Carmel Armon, Maria Baldwin, Kevin M. Barrett, José Biller, David J. Blacker, Thomas G. Brott, Ira Chang, Winston Chiong, Todd Czartoski, Arielle Davis, Janavi Dunuwille, John W. Engstrom, W. David Freeman, Leslie A. Gillum, Jeffrey J. Glasheen, David M. Greer, John W. Henson, S. Andrew Josephson, Sandeep Khot, Dimitriy Levin, David J. Likosky, Edward M. Manno, Glenn R. Markenson, David McCollum, Sarkis Morales-Vidal, David Palestrant, Alejandro A. Rabinstein, Michael J. Schneck, Brian J. Scott, Patricia D. Scripko, Macarena Cabrera Serrano, William O. Tatum, Jennifer Wulff
- Edited by S. Andrew Josephson, University of California, San Francisco, W. David Freeman, David J. Likosky
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- Neurohospitalist Medicine
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- 07 October 2011
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- 29 September 2011, pp x-xii
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12 - Renegotiations
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 287-322
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Summary
Introduction
For a number of chapters we have looked at infrastructure banks and partnerships, focusing on what they deliver in practice. Our aim has been to learn from experience when modeling our own domestic bank. This chapter looks at an important movement around the world that is under way right now. From Latin America to Africa, we live in a period of widespread renegotiations of extractive concessionary public-private partnership (P3) contracts. Almost universally, government-driven renegotiations are justified based on domestic demand. In other words, arguments are made by politicians, protestors, citizens, and others that the legacy of the privatization of natural resources represents a usurpation of ownership by a foreign entity over a national birthright. Claimants argue that foreign control over P3s is akin to neo-colonial rule. This argument harks back to the last period of renegotiations and cancellations – the initiation of the decidedly anticolonial New International Economic Order. The government thus acts as an instrument of the people to take back control of a national property.
This discussion of renegotiations highlights the fact that partnerships themselves can be dramatically reconfigured over time. Moreover, it is not always clear that shifts in the nature of partnerships result in more equitable outcomes. For this reason, as we revisit and reforge our own partnerships, it is important to benchmark them against both what has gone before and the types of issues that countries around the world have faced. This inequality that might inhere not only in partnerships but also in their renegotiation was also a persistent feature in the American nineteenth- and early-twentieth-century railroads.
Contents
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp vii-viii
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10 - Contracts
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 187-250
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Summary
Approaching the Issue
Governments generally pursue large-scale infrastructure and energy projects through public-private-partnership contractual techniques. Projects go by a range of names, including project finance, limited recourse financing, public-private partnerships, and P3s. Regardless of the chosen name, these infrastructures all involve shared control by a transnational set of actors over the project life cycle from planning to financing, tendering to construction, and operation to maintenance. This mode of pursuing projects gained in popularity during the 1980s and 1990s internationally.
In developing countries, P3s resulted from a range of endogenous and exogenous factors. Fully industrialized countries and infrastructure banks advocated the introduction of P3s into infrastructure sectors through technical assistance, tied aid, and loans and insurance policies. Host governments were often receptive because they faced substantial infrastructure needs and possessed limited financial liquidity. Many countries had large budget deficits that made tax-payer or sovereign loan–financed infrastructures not practicable. Here, project finance provided access to international pools of capital through off-balance-sheet financing, which made projects possible. Through project financing, lenders relied on revenue generated from user charges of projects rather than on government payments.
7 - P3s and Foreign Affairs
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 109-134
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Summary
Bringing P3s Home
Over the last twenty-five years, throughout the world, governments have shifted away from the quasi-public system toward a P3 one. The United States is a latecomer to this movement. For this reason, we have an opportunity to learn constructive lessons from the international experience. In addition, because many of the same investment banks, law firms, insurers, and construction companies involved in international projects are turning their attention increasingly toward the American market, lessons are transferrable. For example, we have yet to incorporate basic lessons from international experience about which types of P3 contracts are highly correlated with renegotiations and cancellations and conversely those agreements that have proved more durable. And through our own participation in international and American public banks as well as our diverse agencies within P3s overseas, we have ourselves developed a public institutional capacity in this area. As well, U.S. public interest groups have been on the forefront of driving transparent P3 projects for decades, and thus they possess constructive experience with contracts and regulatory agencies.
Because of the widespread use of P3s internationally, both commonalities and divergences exist in experience with them across regions, countries, and sectors. For this reason, generalizations are difficult. At the same time, this chapter provides a rough overview of how P3s came to be the dominant way of carrying out infrastructure and energy projects throughout the world. We then turn to how governments use companies to accomplish policy goals in this area in order to demonstrate the use and misuse of subsidies.
Obama's Bank
- Financing a Durable New Deal
- Michael Likosky
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- Published online:
- 05 June 2012
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- 13 September 2010
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The Obama administration aims to lay a sound foundation for growth by investing in high-speed rail, clean energy, information technology, drinking water, and other vital infrastructures. The idea is to partner with the private sector to produce these public goods. An Obama government bank will direct these investments, making project decisions based on the merits of each project, not on politics. This approach has been a cornerstone of US foreign policy for several decades. In fact, our government-led reinvestment in America is modeled explicitly on international public banks and partnerships. However, although this foreign commercial policy is well-established with many successes, it has also been deservedly controversial and divisive. This book describes the international experience, drawing lessons on how the Obama Bank can forge partnerships to promote a durable twenty-first-century New Deal.
13 - Recommendations
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 323-336
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Summary
Introduction
This book has described how our efforts to establish an infrastructure bank to promote reinvestment in American domestic infrastructure through public-private partnerships (P3s) is based explicitly on a model that has been the cornerstone of our foreign commercial policy for the last several decades. In the policy debates, we have painted this model as an unqualified success. In doing so, we have focused on two aspects of this model. First, an infrastructure bank has the ability to leverage sizable amounts of private capital to invest in much-needed projects, filling the gap between what government can afford and what our society needs. Second, a bank has the appeal of making decisions about which infrastructure projects are best for society based on the merits of the projects rather than on politics. Although these are both essential and laudable goals for a bank, as this book has explained, the track record of international banks in both these areas has been mixed.
The leveraging function of banks has often obscured liabilities of projects and resulted in hidden costs and nonassessed risks being passed on to public institutions. As a result, in using companies to advance public interest goals, we have often geared our accountability mechanisms more toward ensuring private firm profitability than the stated purpose of the projects. This policy distortion has often meant that international infrastructure banks and P3s have been frequently critiqued as promoting projects that advance insider dealings that undermine merit-based decision-making.
11 - Emancipation
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 251-286
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Summary
Introduction
In the previous chapters, we looked at institutions such as infrastructure banks and policy instruments like partnerships that aim to promote durable equitable growth. In foreign affairs, public-private partnerships (P3s) emerged as a response to the excesses of colonial-era concessionary agreements, often referred to as the unequal treaty system. This chapter focuses on the need to see partnerships themselves as diverse. The aim is also to focus on some of the difficulties countries have faced in using P3s to promote development and to remedy power imbalances. Despite sector-based differences, the next two chapters show how P3 contracts function similarly across infrastructure, oil, and metal minerals – the common contractual task of recouping up-front investments through incremental fees attached to extracting crude oil or road user tolls.
During colonialism, most contracts or treaties entered into between colonial enterprises and local societies dictated terms that are repugnant to modern sensibilities. Colonial companies often claimed open-ended rights to natural resources. At times, agreements ran without a stipulated end. A contract might have claimed a right to all resources, discovered or not, throughout the entire country. Moreover, the value of extracted oil, gas, or minerals was largely claimed by the overseas power on its own, and it rarely shared these resources. Thus, partnership agreements arose out of an effort to revisit these agreements, often extinguishing them and creating new contracts, in order to redress imbalance. What emerged were public-private partnerships.
6 - A New Foundation
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 89-108
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Summary
Re-laying the Foundation
We do not invest in infrastructure projects because they are inherently profitable. Instead, a quality portfolio of infrastructure projects is itself a precondition to self-sufficiency and economic development. President Barack Obama views infrastructure and energy projects as a way of re-laying the foundation of our economy, as we saw in earlier chapters. Our physical and social infrastructure is, for Obama, what “binds us together.” For this reason, the federal government should adopt a prudent management standard for its investments, as it did within the American Recovery and Reinvestment Act (ARRA), which viewed infrastructure investments as vehicles for preserving and creating jobs as well as providing long-term benefits. Such a standard ensures that the president, officers of the bank, and heads of agencies will view project investments as a holistic portfolio. In addition, attention will be paid not only to the cost of capital and leveraging ratios tied to project delivery, but also to the impact of the infrastructure projects on their intended beneficiaries.
Infrastructure is a foundational right. Professor Louis Henkin defines human rights as: “a floor,” which is “necessary to make other values flourish.” It is the precondition of our shift to an energy-independent twenty-first-century economy promoting equal opportunity. Likewise, laying infrastructure has been the necessary first step toward recovery after most large-scale financial crises, conflicts, and occupations. This was true with the Great Depression, the Second World War, and decolonization in Africa, Asia, and Latin America. Infrastructure was thus the cornerstone of the New Deal, the Marshall Plan, and nation-building among newly independent states.
Notes
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 337-368
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5 - Free Market Statism
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 65-88
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Summary
Introduction
Chapter 2 related how a dispute over President Barack Obama's economic philosophy took center stage shortly after his inauguration, as Rush Limbaugh popularized the opposition messaging, which used the word socialism as a boo word in an attempt to discredit Obama's policies. It argued that Obama's emphasis on an important role of government in the economy was not incompatible with his adherence to free market principles. In fact, the financial crisis itself was not caused by an absentee deregulatory government alone. Instead, for several decades, government used companies as foreign policy organs to promote a brand of globalization that undermined the domestic health of our economy and eventually resulted in today's systemic crisis. Thus, government plays an active role in our free market economy in both good times and bad. The aim then is to ensure that the government partnerships with private firms underpinning our economy advance, rather than undermine, the public interest. The success of the Obama recovery must ultimately be judged by his own standard: its ability to promote the common good.
Obama explained his economic philosophy as having three basic aspects. First, he is a firm believer in, a champion of, the free market. Second, he also takes the position that government can legitimately make sure that America invests in what is needed for long-term growth. Third, the success of the market must be judged based on its ability to advance the common good. This philosophy is firmly rooted in American economic tradition. This chapter defines it as free market statism. It explains that adherents of free market statism over the last hundred years have not only understood the American economy in similar ways, but they have also voiced a common set of concerns about accountability.
9 - Transparency
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 159-186
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Summary
“Electric Light the Most Efficient Policeman”
A central theme of this book has been how policy-makers promote infrastructure banks and P3s as an effective way to advance public values. In doing so, they point to the banks as exemplars of forward-looking planning that make effective use of companies to accomplish goals. Increasingly, these international banks and P3s are presented as inherently progressive institutions. For instance, at a 2007 Roundtable with then–Treasury Secretary Henry Paulson, California Governor Arnold Schwarzenegger set out the basic argument that we are as likely to hear from former Vermont Governor Howard Dean or Pennsylvania Governor Ed Rendell as from former Florida Governor Jeb Bush or former Speaker of the House Newt Gingrich:
As we have seen in Europe very successful public-private partnerships, we have seen it in British Columbia and in Vancouver, where they have wonderful public-private partnerships, or P3s as I call it, where trade is happy, the trade unions are happy, the private sector is happy, the politicians are happy, the people are happy. So, it's a win/win situation. That's what we want to do also in California.
These unqualified bipartisan endorsements of the international infrastructure banks and P3s as win-win propositions not only paint in primary colors, but they also distort the picture. Moreover, they impede grounded discussions of how to model an accountable institution and projects.
The accountability problems are aggravated by the fact that we are getting off on the wrong foot with them in two ways. The first wave of U.S. P3 deals since the 1980s was mainly tax-shelter schemes, a series of Sale-in, Lease-out arrangements and tax-depreciation road contracts. This class of P3s has accountability problems built into its DNA and is prone to degrading public assets rather than cultivating them.
Index
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 369-377
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8 - Companies as Policy Organs
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 135-158
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Summary
Uses and Abuses of Companies
The Introduction made the point that the members of Congress and others aim to model the Obama Bank on the European Investment Bank (EIB). Likewise, Secretary of Energy Steven Chu had, prior to his appointment, advocated the creation of a clean energy bank based on the United States Export-Import Bank (Ex-Im Bank) and the Overseas Private Investment Corporation (OPIC). Each is a public investment bank. While the EIB is a bank formed by several governments, both the Ex-Im Bank and OPIC are U.S. banks. Most countries are members of intergovernmental banks. Every fully industrialized country has its own public investment bank, as do a good number of emerging market countries. The most prominent public investment bank is the World Bank, which was created by the Allied Powers to promote development. Moreover, as we shall see in this chapter, the United States also promotes overseas projects through a range of additional domestic agencies that double as foreign affairs institutions.
Proponents of basing the Obama Bank on these infrastructure banks do not seek to mimic their institutional design in its entirety. Instead, the appeal of these banks is essentially threefold. First, these banks are vehicles for promoting a range of public purposes. Second, banks also engage in cross-infrastructure sector planning, coordinating energy, transportation, and water policies, for instance. This planning typically aims to integrate regions comprising several sovereign territories. Third, although banks have historically pursued projects through a range of vehicles, within the United States, politicians, bankers, and private firms are interested in how the infrastructure banks pursue projects through public-private partnerships (P3s) or leveraging.
3 - A Bank of Our Own
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 33-46
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Summary
Prior to his nomination to the post of secretary of energy, Nobel Prize winner Steven Chu, then the director of Lawrence Berkeley National Lab and also professor of physics and molecular and cell biology at the University of California, was a member of the Council on Competitiveness's Energy Security, Innovation and Sustainability Initiative Steering Committee. The Council on Competitiveness is a group of CEOs, university presidents, and labor leaders devoted to America's prosperity. As a committee member, Chu helped to draft A 100-Day Energy Action Plan for the 44th President of the United States.
The initiative was launched in July 2007 “with the belief that the crucial role of private sector demand in driving energy system transformation has gone largely unrecognized and unaddressed in prior policy initiatives.” Moreover, in line with the idea of free market statism, the initiative asserted, “The government has the power to greatly strengthen the business case for investment and innovation in sustainable energy solutions.” Among the recommendations put forward for the incoming president was to “jumpstart Energy Infrastructure Investments” by turning the U.S. foreign policy model discussed previously inward to the domestic economy.
2 - The Janesville Plan
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 7-32
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Summary
Obama's Axioms
On February 13, 2008, then-Senator Barack Obama delivered a speech that marked a turning point in his candidacy, one that helped propel him into the presidency and came to define at least his first year in office. On the factory floor of the General Motors assembly plant in Janesville, Wisconsin, Obama pivoted away from being the sole candidate to have opposed the Iraq War and toward positioning himself as the forceful champion of America's economic recovery. In this landmark speech, Obama argued for redirecting our energies away from reconstructing Iraq and toward reinvesting in America, proposing a national infrastructure reinvestment bank to direct these efforts.
By the time Obama took office as president roughly a year later, our national ailment had became synonymous with a financial contagion originating in the subprime mortgage sector. In line with this diagnosis, our economy was undergoing a course of capital injections initiated under the previous administration into blue-chip financial institutions and the market-dominant insurance firm AIG. Obama's apparent decision not to disrupt this treatment predominated the twenty-four-hour news cycle. However, despite the exasperation caused by bipartisan bailouts, non-performance-based bonuses, and Washington–Wall Street teamwork, it is nonetheless useful to take a Copernican view of things. The subprime mortgage crisis, although disastrous, is a symptom of a much larger, graver chronic illness.
Acknowledgments
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp ix-xiv
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Frontmatter
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp i-vi
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4 - Leverage
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 47-64
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Summary
In Janesville, Obama said that his infrastructure bank would take a government commitment of sixty billion dollars over ten years and turn it “into almost half a trillion dollars of additional infrastructure spending.” This multiplying investment will produce “nearly two million new jobs.” For those who complained that the initial stimulus package undercapitalized infrastructure, these figures in the pipeline might be reassuring. Along these lines, Secretary of Transportation Ray LaHood related a core benefit of the Obama Bank: “Some of us that have been thinking about it believe you can raise a pretty good chunk of money.” At the same time, how does this mathematics work?
In October 1988, Governor Michael Dukakis of Massachusetts was running for president against Vice President George H. W. Bush. During the campaign, Dukakis introduced a partnership-based model that would supplant traditional Democratic Party economic policy. The Wall Street Journal explained the approach:
Mr. Dukakis's campaign hinges in large part on his ability to redefine liberal Democratic social policies so they become more affordable. Instead of giant federal social programs, the Massachusetts governor proposes government-led “partnerships” with the private sector and the states to provide such things as health care, housing and student loans – in short, leveraged liberalism.
This concept of leverage at the heart of partnerships is a cornerstone of today's proposed infrastructure policy. In fact, during the Dukakis campaign, the two terms were used interchangeably. Moreover, leveraged liberalism was defined at the time as “the use of government leverage to direct the energies of the private sector toward achieving public goals”; “government as the engine for creating services, rather than paying for them outright”; or, in the words of Dukakis's director of economic development, Alden Raine, “catalytic government.” Frank Keefe, his secretary of administration and financing, explained, “It's activism, but measured activism and, most of all, inexpensive activism.…We leverage by leading the way”; in other words, what is being called here “free market statism.”
1 - Introduction
- Michael Likosky, New York University
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- Obama's Bank
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- 05 June 2012
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- 13 September 2010, pp 1-6
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I started researching this book in 1997 as I watched the East Asian currency crisis unfold. I was writing my doctoral dissertation at Oxford University on the role of Silicon Valley firms and the United States government in that regional crisis. At the time, I saw the crisis across the Pacific as, in part, an American crisis. We had contributed to the East Asian Miracle, while at the same time creating a brittle economic and social environment both in Asia and at home. In turn, our subsequent policies addressed, prolonged, and ultimately deferred aspects of the crisis itself. Since the early 1980s, we had progressively divested from our own real economy in America. In doing so, we had redirected our financial and political energies overseas, promoting globalization. We benefited some and disadvantaged others, both at home and abroad.
When the dot-com boom/bust cycled through the United States, I was in San Francisco. My first spurt of writing happened as I watched our underlying crisis deepen. We razed communities to create dot-com paper wealth. Although many Silicon Valley firms continued to produce real value, the boom cultivated paper wealth as a mix of readily available finance for business plans, resulting in stock market growth. That crisis and its aftermath continued to erode the foundations of our national economy while financing production abroad to meet steroid-induced consumer demand at home.