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Thursday, June 29, 2017

Brexit and Lingua France: Does Foreign Language Training Make Economic Sense?


Ingo Walter

Not known for his sparkling sense of humor, EU Commission president Jean-Claude Juncker may be seriously underrated in the “zinger” department. In a well-reported speech (in French) a couple of weeks ago, he prefaced his remarks by noting (in English) that after Brexit the English language would gradually lose its commercial importance to the 24 continental European languages, notably French and German - the two post-Brexit EU “working languages.” His remarks, widely reported in the media and overanalyzed by the global elite, raised some interesting questions.

Imagine how much brainpower is invested by the thousands of Eurocrats, members of the European Parliament, national delegates, lobbyists and other hangers-on who are fluent or at least competent in four languages - the three current working languages plus the language of their home countries. The English, French and Germans get one exemption   each as do the Irish and Maltese, for whom English is the official language.  Plus many countries retain local dialects that have been remarkably persistent over the centuries, part of the enduring charm of Europe.

Becoming fluent in a modern foreign language takes a lot of time and effort, and comes at the expense of other activities that might be more productive. In the implicit cost calculus of the EU bureaucracy, it probably ranks with moving the annual plenary sessions of the European Parliament to Strasbourg from its HQ in Brussels due to political concerns early in the EU’s history. But things being what they are, within the halls of the EU and its agencies, the extraordinary commitment to modern foreign languages is likely to continue well after Brexit. Except maybe at the European Central Bank, which works in English despite the absence of the UK among its members.

Modern foreign languages have both personal and commercial value. Learning them involves investment in consumption or production, or both. Consumption-driven language investment allows access to literature in the original language, the performing arts, ability to converse across cultures, enhancement of tourism and a generally better informed and more cultured existence. Production-driven language investment allows better market access, lower information and transaction costs that ease commerce – international trade in goods and services, foreign investment and all kinds of financial flows. It can pay off very directly for a tour guide, for example, or in much more subtle ways that result in higher incomes that come from functioning more effectively in a multi-lingual world.

Languages are economic catalysts. They create lots of benefits without themselves being consumed in the process. And the more a language gets used, the more it gets used, with a tendency toward a winner-takes-all lingua franca. Unfortunately for Jean-Claude Juncker, it isn’t French or German. The drift toward English began in the far distant past, with the British exploration, trading and colonial history depositing the language the world over. Others like Spain and Portugal provided alternatives, but none had the domestic commercial, legal and business infrastructure to form a serious global challenge - or a powerful US acolyte. Even a credible newcomer like China stands little chance.

Today English is far enough down the slope of lingua francaness that arguing against it is like challenging gravity. Outside of commerce, English has come to dominate much of academia and technology as well, where ideas are heavily globalized. Other languages have liberally contributed key words or phrases for which English has no easy replacements - like entrepreneur and Schadenfreude, fait accompli and Wanderlust - and the English language is happy to incorporate them.  It is also relatively easy to learn, constantly evolving (as annual additions to the Merryam-Webster English Dictionary show) and eager to export plenty of its own words and expressions to other languages free of charge.

Even in the EU. It seems that 66% of EU citizens are competent in a foreign language, according to Eurostat – the EU’s statistical office - with 94% of them studying English, 34% studying French and 23% studying German at the secondary school level. At the primary school level 79% are studying English versus 4% French.[1]

In a recent study one of my students, Jessica Yang, conducted an interesting empirical analysis of the relationship between commercial and financial integration and cross-border migration in the EU and investments in learning foreign languages among pairs of member countries.[2] The study was based on a data panel containing both language-education stats and economic flows among four countries - Spain, France, Germany and Italy – so that paired conclusions could be drawn.

The causality, of course, could run both ways. Language education could lead to higher intensity of economic relationships among the EU countries examined. Or stronger economic ties among these countries could increase the personal payoffs from investment in language education and encourage attainment of fluency.

The finding? Rien du tout, Garnichts, niente. nada. Nothing? For better or worse, is seems that English swamps everything else. Casual observation over a couple of decades savoring the delights of Paris or Madrid – on and off the beaten tourist track - confirms this English language-creep, and practical business-related motives doubtless have a lot to do with it. But go ahead and study modern foreign languages anyway. You will be better for it. But for most people it won’t pay the rent.

In the rarified EU halls in Brussels, of course, form doesn’t necessarily follow function and there seem to be plenty of resources to waste, including brainpower dedicated to mastering multiple languages. Even so, English will doubtless continue to gain market share in remaining 27 member states well after the EU’s official languages drop from three to two after Brexit. Britain will leave behind a gift that keeps on giving. Stay tuned for Jean-Claude Juncker’s next bon mot on the subject.

[1] As reported in The Economist, May 13, 2017, p.47.

[2] Jessica Yang, “Foreign Direct Investment, Trade and Cross-border Migration as Drivers of Foreign Language Education,” Stern School of Business, New York University, 2015.

Saturday, June 24, 2017

The Apprentice: Borrowing a Little Common Sense From the Old World

by Heinz Riehl and Ingo Walter

“The Germans are bad, really bad,” President Trump tweeted a few weeks ago. How’s that? He really meant “They’re good, really good. So good at competing in world markets, that they’re really bad.”

So how come President Trump this week gave a speech on the need to take the modern “apprenticeship” pages from the German playbook and make the case for opening a new chapter on the US professional labor force - one that can compete more effectively with the best-trained and most productive workers around the world? Adapting the apprenticeship model to US conditions, currently pretty much limited to German companies manufacturing here, has a lot of potential but requires some new thinking.

America’s economic challenges today include labor shortages in key high-skill vocations – set against a large overhang of young people lacking marketable qualifications. True, the US is not producing enough technicians, programmers and engineers who understand “the hard stuff.” But we fall particularly short at the lower end of the skills spectrum, including plenty of college grads looking for meaningful work or functionally underemployed. Nor are these same college grads particularly good candidates for the many high-paying positions for skilled manufacturing workers, technicians and specialists.

Many are weighted-down by uneven high school preparation, lack of focus, and illusions about the world of work. So what else is new? Sounds like many of us at age eighteen. The obvious question is, should everyone go to college? The standard American answer has been “yes,” even though we are perhaps doing a disservice to young people who end up after 4-6 years of college, perhaps as better human beings but no better trained for productive employment than the latest crop of high school grads.

This reality contrasts sharply not only with the usual suspects like China and India, whose young people have voracious appetites for applied education and training, but also countries in “Old Europe,” like Germany, which has performed superbly in global markets and absorbing the unemployed despite high prevailing wages. Germany bounced back faster and better from the Great Recession than most countries, and one reason may be a more effective approach to vocation-oriented education and training. Germany eschews traditional university education for all in favor of challenging, highly structured apprenticeships — distinctly different from US-style on-the-job training.

German-type apprenticeship programs are tough to get into and complete. They combine practical training with classroom education equivalent to two years of college. Tracing their roots back to the medieval Guilds, apprenticeships continue to provide a path to professional success path for young people, even in a high-tech world.

Classic apprenticeships — more recently renamed “dual education”— are available for hundreds of professions, ranging from crafts like auto mechanics, bakers, chimney sweeps, masons, electricians, and opticians to tax accountants, insurance agents, restauranteurs and hoteliers. Apprentice-based careers include telecommunications, business analytics-based agriculture, marketing, public relations, and medical care.

Following secondary education, around age 16, professional education and training occurs predominantly via the "dual" system — "dual" because the know-how and skills for each profession are conveyed in two distinct settings: (1) A company, business, or workplace for the practical component; and (2) A related professional trade school for the more academic education content. Dual education takes between two and three years, with the apprentice working three or four days every week for the employer and attending professional trade school for one or two days. Besides the cost of training, the employer pays a modest wage.

The professional trade schools complement the practical learning with a profession-specific yet comprehensive, college-style education. Bakers learn the chemical composition of yeast and flour, bankers learn the difference between a mortgage and a loan secured by real estate, and all apprentices learn how federal, state, and local governments are organized and how elections work. Employers and schools cooperate closely. Importantly, apprentices are exposed in their employer’s business to mature, skilled, and professional adults as successful role models.

The typical apprenticeship concludes with a government-supervised examination confirming the successful apprentice as a certified professional in his or her occupation. Certification almost always leads to successful placement in a permanent position. The system also provides additional full-time schooling in a "master class," which again ends with a state-supervised examination. So the more ambitious can go on to become “master craftspeople,” supervising others and educating subsequent generations of apprentices. Only businesses employing one or more “masters” may hire apprentices, so there is always someone from whom young people can learn.

Germany’s arrangement is a successful model that can be adapted to provide job opportunities and well-paid careers for US high school grads — a time-tested system we could emulate to generate more skilled workers who can compete with the best craftspeople in global markets and create goods and services that people want to buy. The model is technologically robust and adaptable to disruptive technologies. And it is a ready-made approach to promote entrepreneurship among small and medium-size businesses — where the bulk of new jobs are created — and to rebuild the American middle class. Next time you call an electrician, see if the guy isn’t dreaming about going into business for himself and starting an electrical contracting business.

President Trump is onto something. As usual, the devil is in the details. But the idea has legs. We should learn from the apprenticeship masters of the Old World. With the right incentives, there are plenty of benefits to be had.

Sagging Hopes for Trump’s Growth Plans

By Roy C. Smith

Trump-drama may be obscuring an important reality – the US is still stuck in a 2% growth mode with little relief in sight. The real culprits may be the professional politicians of both parties.
Since Mr. Trump’s election there has been strong market rally, and the economy has recovered to the point that Janet Yellen in April proclaimed it “pretty healthy,” thanks in part to the Fed’s long-running stimulus campaign, which it is moving to end. “Looking forward, I think the economy is going to continue to grow at a moderate pace,” she added. Financial markets seem to agree with her.
Her upbeat comments were made just after the first quarter GDP growth of 0.7% was announced. This less-than-moderate figure has since been revised to 1.1%.  A WSJ poll of economists now puts the consensus expectation for 2017 growth at 2.3%, with most saying the risk is on the high side. Forecasts for 2018 average 2.4%
Growth in the low 2’s is a long way from the 3% forecasted in Mr. Trump’s 10-year budget proposals, the result of his bold new economic policies. Lifting the US growth rate to the 3% level would almost bring it back to the long-term 3.3% rate enjoyed in America from 1950-2000.
Indeed, falling below that level to a 2.0% average growth rate for the 16.5 years since 2000 is what has hardened up the economic discontent that has coursed through the American electorate, empowering such extreme, outlier figures as Mr. Trump and Senator Bernie Sanders.
But six months into Mr. Trump’s administration, there is little in his economic policies that seem able to make the big jump to 3%.  His trade and immigration polices are actually inconsistent with growth in our fully globalized economic system with a shrinking labor force.  (Both of these policy initiatives have generated enough resistance to suggest that significant dilution in them will be needed to put them into effect).
Other policies (health care, tax and banking reform, government spending cuts but military and infrastructure increases) aim to provide a job-boosting stimulus effect financed by increased debt. Because the budget forecast assumes higher tax revenues from the 3% growth rate the net deficit result is supposed to be minimal, but it is hard to see how the proposals (even if sound economically) could generate that much new growth in a full-employment economy with low inflation and aging demographics. It might just produce inflation instead.
The economic plan is to be accompanied by executive orders that will reverse some Obama administration policies, and deregulate where it can. So far these orders have mainly been staged political events requiring new studies or extra efforts to be more efficient.  Even so, when the administration is fully staffed, which it is far from now, we have to assume that newly appointed regulators would undo what they can.  A 2013 study by The American Enterprise Institute concluded that the aggregate economic cost of regulation in the US since 1949 -- i.e., the total cost of compliance and reduced investment -- led to a 2% average annual reduction in U.S. GDP growth. Not all of this regulation is federal, or bad, but there is certainly room for some of it to go. However, how much of it might be unwound by the Trump administration without legislative changes is unclear.
Anyway, the combined Trump economic program, as we now see it, does not appear likely to affect the GDP growth rate very much in the near term. Other administrations have learned how hard it is to boost growth when you need it.
But most important, Mr. Trump, even with a Republican majority in both houses of Congress is unlikely to get what he wants because he won’t be able to pass it through Congress. His own party has balked at a replacement for Obamacare, producing House and Senate bills that seem cruel to most Americans. It is hard to guess what, if anything, is likely to get passed by a Congress as chronically divided as this one is, especially when it operates on a strictly partisan, cram-down basis with no support at all from the Democrats.
Tax reform, infrastructure spending and financial reforms all have been pushed back, perhaps until next year during a Congressional election campaign. These will involve increased government borrowing, and some of Mr. Trump’s fellow Republicans, fearful of the increasing government debt ceiling and perilous debt-to-GDP ratio (now at the highest level since WWII), are likely to resist his budget plans. Others may fear that supporting Mr. Trump’s economic plans that harm the middle class could endanger their support at home. Most observers, however, believe that some, watered-down version of Mr. Trump’s proposals will get through.
By now, most of America’s “establishment” community of business and civic leaders (the ones who have run the country in the past) have now recognized the Trump phenomenon for what it is – an accidental political event that sprang from serious economic deceleration and imbalances, and realize that the best they can do is ignore what Mr. Trump has to say (and tweet) and just watch what he does.
So far this has been much less radical and dysfunctional than what was promised during the campaign. Mr. Trump is still a controversial figure with only around 40% support, and much of that is still based on the idea that he will shake things up for the better. If this doesn’t happen, and at this point it seems unlikely that it will, then Trump and his party may be in big trouble when they seek reelection. 
That of course will also depend on whether new leaders of the Democrats, with more deliverable economic programs, can be found. So far, none has emerged but there is still plenty of time.
But for good, deliverable economic policy to be put in place major efforts to rethink what our competing political parties really want to stand for are required.
Both parties need to broaden their political bases and not rely only on the narrowest, most extreme factions. Both parties need to support economic growth as the best way to create opportunity and prosperity for all.
A large part of the American electorate believes it has been left out by policies that have favored the well to do. This group has been persuaded of the evils of globalization, deregulation, and incentive compensation schemes that are necessary to keep the private sector that generates two-thirds of our economic growth and employs 85% of all US workers in a healthy state.
Both parties also need to recognize that 47% of Americans paying no federal income taxes means that they don’t earn very much and are far from participating in the American Dream. That is too large a segment of our society to be left behind. As a trade off for allowing the private sector the freedom it needs to resume a 3% growth rate, there also have to be public policies that provide job retraining, and insure adequate health care and retirement income.
Blusterous and ill informed or not, Mr. Trump cannot really govern without a political base of both parties that is broader and more moderate than what we have now. That may be the real lesson of the Trump era.