Infrastructure

MILAN – The global economy is settling into a slow-growth rut, steered there by policymakers’ inability or unwillingness to address major impediments at a global level. Indeed, even the current anemic pace of growth is probably unsustainable. The question is whether an honest assessment of the impediments to economic performance worldwide will spur policymakers into action. Since 2008, real (inflation-adjusted) cumulative growth in the developed economies has amounted to a mere 5-6%. While China’s GDP has risen by about 70%, making it the largest contributor to global growth, this was aided substantially by debt-fueled investment. And, indeed, as that stimulus wanes, the impact of inadequate advanced-country demand on Chinese growth is becoming increasingly apparent. Growth is being undermined from all sides. Leverage is increasing, with some $57 trillion having piled up worldwide since the global financial crisis began. And that leverage – much of it the result of monetary expansion in most of the world’s advanced economies – is not even serving the goal of boosting long-term aggregate demand. After all, accommodative monetary policies can, at best, merely buy time for more durable sources of demand to emerge. Moreover, a protracted period of low interest rates has pushed up asset prices, causing them to diverge from underlying economic performance. But while interest rates are likely to remain low, their impact on asset prices probably will not persist. As a result, returns on assets are likely to decline compared to the recent past; with prices already widely believed to be in bubble territory, a downward correction seems likely. Whatever positive impact wealth effects have had on consumption and deleveraging cannot be expected to continue. The world also faces a serious investment problem, which the low cost of capital has done virtually nothing to overcome. Public-sector investment is now below the level needed to sustain robust growth, owing to its insufficient contribution to aggregate demand and productivity gains. The most likely explanation for this public investment shortfall is fiscal constraints. And, indeed, debt and unfunded non-debt liabilities increasingly weigh down public-sector balance sheets and pension funds, eroding the foundations of resilient, sustainable growth. But if the best way to reduce sovereign over-indebtedness is to achieve higher nominal GDP growth (the combination of real growth and inflation), cutting investment – a key ingredient in a pro-growth-strategy – is not a sound approach. Instead, budget rules should segregate public investment, thereby facilitating a differential response in fiscal consolidation. Increased public-sector investment could help to spur private-sector investment, which is also severely depressed. In the United States, investment barely exceeds pre-crisis levels, even though GDP has risen by 10%. And the US is not alone. Clearly, deficient aggregate demand has played a role by reducing the incentive to expand capacity. In some economies, structural rigidities adversely affect investment incentives and returns. Similarly, regulatory opacity – and, more broadly, uncertainty about the direction of economic policy – has discouraged investment. And certain types of shareholder activism have bred short-termism on the part of firms. There is also an intermediation problem. Large pools of savings in sovereign wealth funds, pension funds, and insurance companies could be used, for example, to meet emerging economies’ huge financing needs for infrastructure and urbanization. But the channels for such investment – which could go a long way toward boosting global growth – are clogged. Meanwhile, technological and market forces have contributed to job polarization, with the middle-income bracket gradually deteriorating. Automation, for example, seems to have spurred an unexpectedly rapid decline in routine white- and blue-collar jobs. This has resulted in stagnating median incomes and rising income inequality, both of which constrain the private-consumption component of aggregate demand. Even the one factor that has effectively increased disposable incomes and augmented demand – sharply declining commodity prices, particularly for fossil fuels – is ultimately problematic. Indeed, for commodity-exporting countries, the fall in prices is generating fiscal and economic headwinds of varying intensity. Inflation – or the lack of it – presents further challenges. Price growth is well below targets and declining in many countries. If this turns to full-blown deflation, accompanied by uncontrolled rising real interest rates, the risk to growth would be serious. Even very low inflation hampers countries’ ability to address over-indebtedness. And there is little sign of inflationary pressure, even in the US, which is near “full” employment. Given such large demand shortfalls and output gaps, it should surprise no one that even exceptionally generous monetary conditions have proved insufficient to bolster inflation. With few options for fighting deflation, countries have resorted to competitive devaluations. But this is not an effective strategy for capturing a larger share of tradable global demand if everyone is doing it. And targeting exchange-rate competitiveness doesn’t address the aggregate demand problem. If the global economy remains on its current trajectory, a period of intense volatility could destabilize a number of emerging economies, while undermining development efforts worldwide. That’s why policymakers must act now. For starters, governments must recognize that central banks, however well they have served their economies, cannot go it alone. Complementary reforms are needed to maintain and improve the transmission channels of monetary policy and avoid adverse side effects. In several countries – such as France, Italy, and Spain – reforms designed to increase structural flexibility are also crucial. Furthermore, impediments to higher and more efficient public- and private-sector investment must be removed. And governments must implement measures to redistribute income, improve the provision of basic services, and equip the labor force to take advantage of ongoing shifts in the economic structure. Generating the political will to get even some of this done will be no easy feat. But an honest look at the sorry state – and unpromising trajectory – of the global economy will, one hopes, help policymakers do what’s needed. This article originally appeared on project-syndicate.org.

Here’s a fun party game. The next time you are at a cybersecurity industry event—an evening event with an open bar—find one of the many lawyers in the room and ask them whether the Cybersecurity Information Sharing Act (CISA) would apply to internet service providers (ISPs). Every time one of them answers with “it depends,” take a shot. If the lawyers are any good, you’ll be hammered by the time you call for your Uber ride home. Here’s why. As I wrote about in my last post, for most companies, the problems that CISA is trying to solve don’t exist. Companies share tons of cybersecurity information with each other every day. They also use defensive measures that inspect their Internet traffic for malicious activity and block it. All in a day’s work for your average IT administrator. No one ever gets sued and no laws are being broken. But for ISPs, it’s not so simple. Under the Electronic Communications Privacy Act (ECPA), an ISP like AT&T, Verizon, or Comcast is a bit different than say, the Ford Motor Company. While Ford can look at all the traffic crossing its network, AT&T can’t. AT&T is a big dumb pipe that passes on packets no matter what is in them, be it malware, child pornography, or stolen copies of The Interview. The only traffic monitoring AT&T can legally do is what it can justify as necessary to keep those packets zipping along (the so-called “owner operator exception”) or if one of its customers has contracted with it to provide security services, thereby providing consent to be monitored. CISA, in one view, would allow ISPs to monitor all traffic for cybersecurity threats, operate defensive measures to stop those threats, and share information about these threats with the federal government. That, to Senator Wyden, and others looks a lot like mass Internet surveillance under the guise of a voluntary information sharing bill. Although CISA contains language in a series of notwithstanding clauses that would seemingly override ECPA, definitional problems create some doubt. The monitoring and defensive measures authorized by CISA can only take place on “information systems.” CISA defines information systems as “a discrete set of information resources organized for the collection, processing, maintenance, use, sharing, dissemination, or disposition of information.” It’s basically the same definition used from U.S law governing federal information systems. So, does the Internet backbone qualify as an information system under CISA? Is it a discrete set of resources? The words alone are confusing enough. Now place them in context. Many lawyers, though not all, will conclude that the definition pertains to Ford’s computer network but not AT&T’s Internet backbone. Some lawyers, though not all, will draw a distinction between information systems and “telecommunications systems”. To make things clear as mud, CISA’s drafters explicitly included one other type of information system in the definition—industrial control systems (ICS). Some lawyers, though not all, will view the fact that the drafters included the ICS definition as evidence that the existing definition was not all inclusive. If ICS need to be explicitly included, so would ISPs. If the bill goes forward with these definitions, whether CISA applies to ISPs will depend on where their lawyers come down on these definitions, how risk averse their CEOs are, and, ultimately, whether a judge agrees with the ISPs’ lawyers. With the bill headed to a conference with the House, a simple request to conferees: insert a clause in the definition that explicitly includes or excludes ISPs. It will save years of court battles and the livers of anyone who tries out this drinking game.

It was a brilliant political maneuver. In the spring of 2011, the Obama Administration put out an ambitious legislative proposal on cybersecurity. Among other initiatives, it called for granting the Department of Homeland Security the authority to regulate cybersecurity for critical infrastructure providers. The Chamber of Commerce made it its mission to kill the bill. They used a simple argument: government doesn’t need to regulate; it needs to make it possible for companies to share information with each other. The argument worked. The idea of regulating our way out of cybersecurity died a slow and painful death. When the Obama Administration put out a second legislative proposal in the winter of 2015, there was nary a mention of regulation. Yet the “information sharing problem” was never anything more than a digital age red-herring. The reality is that companies share cybersecurity information all the time. Literally, millions of indicators everyday. Fears that the Justice Department will bring up charges of antitrust violation have proven unfounded for over a decade. ISACs have been sharing information among their members since 1998. More recently, Symantec and Intel Security (formerly McAfee) are two of four founding members to the Cyber Threat Alliance. The core requirement to join is to share 1,000 unique malware samples a day. If these two rivals in the same industry can share cybersecurity information with each other legally and in full view of the public, who can’t? If the long precedent of cyber information sharing was not enough to convince wary general counsels that antitrust was not a concern, the Department of Justice and the Federal Trade Commission have gone out of there way to make that point clear. In a statement of policy issued in 2014, the chief enforcers of antitrust law made clear that not only was sharing cybersecurity information not a concern, “information exchanges could be procompetitive in effect.” Any general counsels that still have concerns can ask the Department of Justice for a business review letter. Thus far, only one company, TruStar Security, has done that. You can read the letter here. Want to share information with the federal government but worried it could be subject to the Freedom of Information Act (FOIA) or shared with regulators? You don’t need the Cybersecurity Information Sharing Act (CISA) to pass. The Department of Homeland Security already operates the Protected Critical Infrastructure Information sharing program—PCII for short. Information shared through it cannot be disclosed under FOIA, state and local sunshine laws, through civil litigation or to regulators. Cybersecurity information is categorically considered PCII. Many companies already share cybersecurity information with the federal government through this program. So, what then, if anything would CISA do? For most companies, the answer is nothing. Information sharing will continue. If any companies thought monitoring their Internet traffic for security threats was a problem not solved by end user agreements and security banners, Congress has you covered (if this was actually a problem, we wouldn’t have companies like FireEye today). The privacy and civil liberties communities believe the intention of the bill is not to allow the private sector to share more information but to be able to collect more information. As Senator Ron Wyden put it, “it’s a surveillance bill by another name.” I used to agree with Senator Wyden. But that was before the Snowden revelations made cozy relationships with the U.S. government bad for business. Before Snowden, a system where private companies could voluntarily share information with, oh say the NSA, would have been a problem. Now, the U.S. government is lucky to get information out of companies with a court order. The list of companies that on a voluntary basis actually want to share information with the Federal government, let alone the intelligence community, is pretty short. If CISA passes, it probably won’t do much harm. It also won’t do much to increase cybersecurity information sharing. But it will have one tremendously positive effect: finally, we will be able to shut up about information sharing and figure out what legislation might actually do something to improve cybersecurity in this country.

Alex Grigsby is the assistant director for the Digital and Cyberspace Policy program at the Council on Foreign Relations.  The International Telecommunication Union (ITU) and United Nations Economic, Social, and Cultural Organization (UNESCO) Broadband Commission released its annual report on Monday, with statistics on the state of Internet access. Here are some highlights: Approximately 3.2 billion people will have Internet access by the end of this year, representing just over 43 percent of the world population. The vast majority of those people are in the developed world, where 82 percent of people are online. The developing world only has about 35 percent Internet penetration. The growth of Internet usage is slowing. This can largely be explained by the fact that most urban areas, where it is more economically viable for providers to deploy equipment, now have some form of Internet access. Rolling out broadband to rural and remote areas will likely take more time, hence the slowdown in growth. Most of the developing world’s first interaction with the Internet will probably be on a smartphone as mobile broadband subscriptions outpace fixed broadband subscriptions. Internet access is getting considerably cheaper, with a majority of the world’s countries having reached a target of fixed broadband service available for 5 percent of gross national income per capita. Although the report praises the growth of Internet access, it also provides an overview of the major challenges that will continue to impede broadband rollout to the roughly 4 billion people without access. On the supply side, providing access to people in rural areas makes it less commercially viable for providers to deploy equipment, often requiring government investment to incentivize providers. On the demand side, many in the developing world don’t necessarily perceive a need for Internet access. According to the report, "a significant number of national languages (such as Hindi and Swahili) are used by less than 0.1%" of the ten million most popular websites in the world. It’s hard to grasp the value of the Internet if the content or applications are in a language that someone can’t comprehend. It’s a bit of a chicken and egg problem. Developers won’t create local applications and services unless there’s a market for those services, but it’s hard to gauge whether a market exists if people don’t see the utility of getting online. With the release of the zero-draft of the WSIS+10 outcome document earlier this month and the negotiations slated to begin in earnest next month, countries are likely going to use the report to their advantage. Russia and the G-77 (UN-speak for a grouping of developing countries) could use it to argue that the 57 percent who continue to lack Internet access justifies new targets and international mechanisms to get 4 billion people online. Their respective position papers submitted to the UN in advance of the negotiation process include references to the need for a new multilateral body to manage Internet issues, a position they have consistently taken over the last decade. Opponents of new mechanisms, including most Western countries, could point to the Broadband commission as proof that the digital divide is narrowing. And while they will probably argue that more work needs to be done, alternative solutions such as regulatory environments that favor broadband deployment and spectrum policy are more likely to bridge the divide than new international institutions. For example, the U.S. government is slated to announce a new "Global Connect" initiative in the next two weeks at the UN General Assembly, which will aim to bring 1.5 billion people online over the next five years with the help of the World Bank. You can read the report in its entirety here.

Alex Grigsby is the assistant director for the Digital and Cyberspace Policy program at the Council on Foreign Relations.  Late last year, I wrote that the United States should consider publishing its policy on zero-day disclosures as a confidence-building measure. The logic with my proposal was simple. Publishing the process by which the United States evaluates computer vulnerabilities would demonstrate to China and Russia that it is not stockpiling computer flaws for later use. Over time, as the United States became more open about the vulnerabilities it disclosed to vendors, it could reduce misperceptions or tensions among rivals and hopefully prevent escalatory activity. Thanks to the Electronic Frontier Foundation (EFF), we now have a bit more insight into the U.S. government’s decision-making process. As a result of a Freedom of Information Act request, EFF was able to obtain a heavily redacted copy of the government’s vulnerabilities equities and policy process (VEP). It sets out the process the U.S. government uses to determine whether it will notify a vendor of a security vulnerability. Here’s what we now know of the process: When a U.S. department, agency, or contractor discovers a vulnerability not yet known to the public, that agency will notify something called the VEP executive secretariat, housed within the NSA. The executive secretariat notifies other departments and agencies of the vulnerability. Once department and agencies are notified, subject matter experts discuss the vulnerability. Presumably, they discuss the seriousness of the vulnerability, the ease with which an exploit can be developed, and the likelihood of others having discovered it among other things. It’s unclear exactly what criteria subject matter experts must consider because they seem to be redacted despite the fact that Michael Daniel seems to have discussed them in a April 2014 blogpost. Subject matter experts then provide a recommendation on disclosure to something called the equities review board (ERB). The ERB, comprised of "senior level department/agency representatives," then decides whether to ratify the recommendation.  The policy notes that ERB decisions should be made by consensus but that if impossible, a decision will be made by majority vote. That decision is pushed out to departments or agencies via the VEP executive secretariat. Any one department or agency can appeal an ERB decision, though to whom is redacted. In an interview last year with Wired, White House Cybersecurity Coordinator Michael Daniel said that the White House would play a larger role in the process, possibly making it the final arbiter on disclosure decisions. The VEP executive secretariat is required to draft an annual report that includes a host of information, such as which parties obtained information about a vulnerability and the use of the vulnerability in cybersecurity sensors. While it’s great to know about these procedures, there are still huge gaps in our understanding. First, it’s a mystery which departments or agencies take part in the VEP. The document notes that "other" departments such as State, Justice, Homeland Security, Energy and others "may" participate in the process, suggesting they’re not the primary actors. The process is likely dominated by the security and intelligence agencies that probably send multiple representatives (e.g. the counterintelligence and cybercrime divisions of the FBI would each want to be represented, same with the SIGINT and information assurance directorates at the NSA), each arguing their specific equities. It’s impossible to know that for sure as the paragraph spelling this out is redacted despite being marked as unclassified. While the dominance of the intelligence community isn’t necessarily surprising--they would be most likely to discover and use new vulnerabilities after all--it isn’t reassuring given its track record of deliberately introducing vulnerabilities in widely used cryptography. It makes one wonder whether they’re going to favor the offense over the defence unless organizations with solely defensive cyber-related missions like Homeland Security, which houses US-CERT, or the NSA’s information assurance directorate are consistently part of the decision-making process. Second, it’s unclear the extent to which the United States’ Five Eyes allies (Australia, Canada, New Zealand and the United Kingdom) are integrated into the process. The Five Eyes’ intelligence collection activities are arguably the most integrated in the world. Often, Five Eyes officials will work together to solve an problem, like breaking into a particular device or developing new techniques to collect intelligence, that can involve discovering new vulnerabilities. Say a U.S.-led team that includes Brits and Canadians finds a new vulnerability, what happens then? Are UK and Canadian law enforcement or intelligence agencies able to make their case in the equities process? Would the United States make a equities decision that would run counter to the interests of its closest allies that played a role in the vulnerability’s discovery? It’s a hypothetical scenario, but I’d be surprised if a case like this hasn’t come up in the past five years. I believe Michael Daniel when he asserts that the United States discloses the majority of the vulnerabilities that it discovers. Thanks to Edward Snowden, a lot of people in the cybersecurity community don’t. The Obama administration could rebuild some of that trust if it was more transparent on the process. One easy step is to release some of the annual reports that the VEP requires. Obviously some classification issues would need to be worked out but they are not insurmountable. The administration could release a range of the percentage of vulnerabilities it has disclosed, similar to what already exists for tech companies that want to disclose government surveillance requests. Not only will that help rebuild the trust between security researchers and the U.S. government, but provide tangible proof to U.S. rivals that its vulnerabilities stockpile isn’t as big as they think it is.

The following is a guest post by Stephen E. Flynn, Professor of Political Science, Director of the Center for Resilience Studies, and Co-Director of the George J. Kostas Research Institute at Northeastern University. He can be reached at [email protected] The flooding of New Orleans during Hurricane Katrina was a human-made disaster, not a natural one. The flood-protection system for the city had been poorly designed and maintained. It also turned out that a series of waterway engineering decisions to try to contain the flow of the Mississippi River and to facilitate river navigation to and from the Gulf of Mexico, were badly out of sync with the region’s ecosystem. In short, it was a failure of critical infrastructure at multiple levels that nearly doomed one of America’s major cities. Ten years later, what happened to New Orleans should serve as a forceful reminder of the costly consequences of hubris, denial, and neglect. Sadly, though, this attitude continues to characterize the relationship Americans have with their built and natural environments. New Orleans’s primary line of defense against the sea and the Mississippi River has long been a levee and flood-wall system. Unfortunately, that system saw little investment in the half century prior to Hurricane Katrina. The city is like a fishbowl, with the water on the outside and a half a million homes on the inside. New Orleans has been sinking at a rate of three feet per century, so that it lies at an average of six feet below sea level, with some neighborhoods as low as eleven feet below. Without the levees and flood walls, much of the city would be a shallow lake. When Hurricane Katrina made landfall it had hooked east, sparing the city its worst winds. But the waters from the storm found a ready path to assault the “Big Easy,” thanks to the construction of a 76-mile canal that was completed by the U.S. Army Corps of Engineers in 1968. The Mississippi River Gulf Outlet (MRGO), known locally as “Mr. Go”, was built to shorten the time and distance required for oceangoing vessels to transit from the Gulf of Mexico to the New Orleans waterfront. During Katrina this cement-sided waterway provided a ready path to funnel the storm surge originating from the Gulf of Mexico for a direct hit on New Orleans. As the hurricane came onshore, the water steamrolled down the MRGO on a collision course with the Industrial Canal, causing an 800-foot breach. Many of the communities to the east of New Orleans were victims of the overtopping of the MRGO. More than 80 percent of the city was flooded and nearly 250,000 residents were forced to flee; today the population is still nearly 100,000 below its pre-Katrina level. Given its clear vulnerability to flooding, the haphazard management of New Orleans’ storm protection system prior to Hurricane Katrina is mystifying. Invading floodwaters not only put lives at risk, they created a toxic cauldron of debris that contaminated and scarred the urban landscape. Yet throughout the 1990s, federal funds that might have been used to repair and strengthen the city’s levees and flood walls and protect the pumping stations were bled off for other projects, such as widening the MRGO. In 2004, the Army Corps of Engineers asked for $22.5 million for storm protection projects for New Orleans. The Bush administration cut that budget request to $3.9 million and then dropped it to $3.0 million in 2005. Sadly, the sense of denial and neglect of critical infrastructure that led to the near-drowning of New Orleans in 2005 continues to endanger many U.S. cities today. Miami, Norfolk, New York, and Boston all face the twin risks of rising sea-levels associated with climate change along with the likelihood of more frequent and intense hurricanes. Seattle sits astride the Cascadia subduction zone that belongs to the Pacific Rim’s seismically active “Ring of Fire,” and Los Angeles lies along the San Andreas Fault. In America’s heartland, cities such as St. Louis and Memphis could be devastated by an earthquake along the New Madrid Fault Line. Across the nation, Americans have been taking for granted the critical infrastructure built with the sweat, ingenuity, and resources of earlier generations. Not only are we not upgrading it to keep pace with modern needs, Congress and state legislatures have been squandering this legacy by failing to adequately fund basic repairs and maintenance for roads, bridges, ports, wastewater and drinking water systems, dams, and levees, and the electrical grid and pipeline distribution systems. Even for “blue sky” days, our ongoing neglect of that infrastructure is a national disgrace. But as New Orleanians can attest, it translates into reckless endangerment when disasters strike. For too long Americans have been pretending that disasters are rare and unknowable. Additionally, we have been resistant to making sensible investments in mitigation measures before storms occur, such as placing flood barriers around electrical substations or moving emergency generators out of basements to higher floors. Insanely, in the aftermath of disasters we have a national bad-habit of returning to “business as usual” by often allowing reconstruction in areas that will almost certainly be flooded again. Hurricane Katrina, along with Hurricane Sandy in 2012, are reminders that the gravest source of danger for Americans derives not from acts of God or acts of terror but from our own negligence. The ongoing risk associated with disasters is far more knowable than we often assume and the means for mitigating their consequences are well within the reach of the most-advanced and wealthiest country in the world. What has been in too short supply is the political will and leadership that will ensure our communities, metropolitan regions, and nation can better withstand, nimbly respond, recover, and adapt to the inevitable disasters heading our way. There are few more important imperatives that the next president will need to advance than bolstering national resilience.

The National People’s Congress posted the draft of a new cybersecurity law (in Chinese) on Monday. The purpose of the law, according the NPC, is to maintain "cyberspace sovereignty." The law is open for comments until August, and the important questions will be in how it is modified, interpreted, and implemented. But here are some of the key points: Government will establish national security standards for technical systems and networks. Real name registration to be enforced more strictly, especially with messaging apps where enforcement has been lax. Internet operators must provide “support and assistance” to the government for dealing with criminal investigations and national security. Nicholas Bequelin, East Asia Director at Amnesty International, tells Reuters that Article 50 gives authorities the legal power to cut Internet access in to maintain order as Beijing did in Xinjiang in 2009. “Timely warning and notification” system for cybersecurity incidents. Greater investment in cybersecurity (including subsidies for cybersecurity companies, internet operators, etc.) and cybersecurity education. The Cyberspace Administration of China (CAC) will review cybersecurity practices of key telecommunication operators, conduct regular emergency drills, and provide help in implementing the law. Employees must undergo background checks, and the CAC will review procurement. User data for the key operators must be stored in China (if there’s a business imperative to store data overseas, they can apply for exceptions). Collection and use of user data must “comply with the principles of legality, justice, and necessity” (遵循合法、正当、必要的原则) and operators must secure users’ agreement to have their data used. Data collected must be related to the service the Internet operator is providing. Collected user data must have adequate protections and data breaches must be responded to in a timely manner. The foreign business community will be reading the law closely, trying to determine how the cybersecurity standards and procurement provisions will be implemented. The past few months will not give them great comfort, as Beijing has adopted a national security law and other provisions to make technology used in China "secure and controllable." Just weeks after the Strategic and Economic Dialogue ended, and months before President Xi Jinping’s visit to the United States, cybersecurity and information technology are becoming an even greater source of tension in the bilateral relationship.

This is a guest post by Emilie Sweigart, an intern here at the Council on Foreign Relations who works with me in the Latin America Studies program. Even as Brazil pushes forward austerity measures and entitlement reductions, the administration of President Dilma Rousseff is hoping to increase infrastructure investment. The recently announced Programa de Investimentos em Logística (PIL) would launch nearly R$200 billion (USD$64 billion) in concessions for rail (R$86.4 billion), roads (R$66.1 billion), ports (R$37.4 billion), and airports (R$8.5 billion). Roughly a third would be completed by 2018, when Rousseff will leave office. There is no question about the need. The World Economic Forum ranked Brazil’s infrastructure 120th out of 144 countries, alongside Mongolia (119th) and Zimbabwe (121st). With few railroads, coffee, sugar, soybeans, cotton, and other export bound commodities travel on run-down roads from the interior to the coast. Once there, trucks can line up for days at the port. Of the tens of billions spent for the 2014 World Cup and now the 2016 Olympics, much has gone to stadiums and sports venues, less to long-term transportation infrastructure. Airport terminal renovations in São Paulo and Curitiba and Rio’s promised subway extension and port expansion remain unfinished. Previous efforts to boost infrastructure spending haven’t turned out particularly well. Rousseff managed to invest just a fifth of the announced R$210 billion in the first phase of the PIL that was launched in 2012. Auctions for 14 railways and over 160 port terminals attracted no bidders, and the vaunted R$35 billion high-speed train linking São Paulo and Rio de Janeiro was shelved indefinitely. This time around, the government promises less regulation and less involvement from the national development bank, the BNDES, opening up more space for private capital. The Chinese in particular sound interested. During a May visit, Chinese premier Li Keqiang promised a joint 50 billion dollar infrastructure fund between Chinese and Brazilian banks for just such opportunities. And the Chinese have already signed onto the single biggest project in the PIL, a R$40 billion railway from Brazil’s Atlantic coast to Peru’s Pacific coast. Still, the political and business climate is difficult. Rousseff’s approval ratings continue to fall, now at just 10 percent. The construction industry remains under the Petrobras scandal cloud, and the recent arrests of Marcelo Odebrecht of Odebrecht SA and Otávio Azevedo of Andrade Gutierrez, the CEOs of Brazil’s largest construction firms, may scare potential international partners. Brazil’s lagging economy, stubbornly high inflation, and significant public debt levels combined with U.S. tapering expectations later in 2015 suggest the government can’t fund much of this ambitious project on its own. Against this backdrop, Rousseff arrives in New York on June 29 to woo the financial crowd before heading to Washington, DC, to meet with President Obama the next day. Most investors believe in her finance minister, Joaquim Levy. Rousseff’s challenge is to convince them about her support for a more market directed and friendly path for Brazil.  

For most of the past 35 years, China’s policymakers have set their focus on the domestic economy, with reforms designed to allow the market to provide efficiency and accurate price signals. Though they had to be increasingly aware of their country’s growing impact on the global economy, they had no strategy to ensure that China’s neighbors gained from its economic transformation. But now China does have such a strategy, or at least is rapidly developing one. Moreover, it extends well beyond Asia, embracing Eastern Europe and the east coast of Africa. A key element of China’s strategy is the recently established Asian Infrastructure Investment Bank (AIIB), and to some extent the BRICS’ New Development Bank, established last year by Brazil, Russia, India, China, and South Africa. Both banks are obvious alternatives – and so rivals – to the Western-dominated World Bank and International Monetary Fund. Also vital to the new strategy are two prospective modern-day Silk Roads: an overland route through Central Asia to the Black Sea and a “Maritime Silk Road” by which shipping will pass from the South China Sea, through the Strait of Malacca, across the Indian Ocean to East Africa, and from there through the Red Sea into the eastern Mediterranean. Economists sometimes portray the global economy as a huge bazaar. But it is not. It is a network, in which the links are built by expanding the flows of goods, services, people, capital, and – importantly – information. China’s goal is to create these links, and it has plenty of assets that will allow it to act as a catalyst of global growth and development. The most obvious asset is China’s large and growing domestic market, to which other economies can gain access via trade and investment. China will thus be joining the ranks of the advanced countries in providing an export market (and jobs) for countries at earlier stages of economic development. In addition, because China has built up a capacity to invest that is far larger than its domestic economy can now absorb, it will inevitably seek opportunities abroad, both public and private. Chinese companies, in particular, will increasingly want to establish their brands internationally. With the involvement of the AIIB and the New Development Bank, China has developed what amounts to a multinational development strategy. While there are skeptics, broad support for the AIIB suggests that the benefits outweigh the risks, and that China’s initiatives may help build a network that is open to everyone. After all, the trade and investment that will follow could not possibly all flow through China. Meanwhile, by virtue of more than 30 swap arrangements with other central banks (the first was with South Korea in December 2008), China is using its foreign-exchange reserves to help its neighbors and others defend themselves against volatile international capital flows. This is in tandem with the authorities’ efforts to promote the internationalization of the renminbi, which is rapidly expanding its role in trade settlement. There are significant efficiency gains to be had by settling transactions in trading partners’ currencies, without the intermediation of, say, the US dollar. Of course, there is much more to the internationalization of a currency, not least large and liquid domestic financial markets and the establishment of trust and confidence. This takes time, but China is already applying to the IMF to have the renminbi included in the basket of currencies that determines the value of the Fund’s unit of account, Special Drawing Rights, with a decision likely in late 2015. Joining the US dollar, the British pound, the euro, and the Japanese yen in the SDR club would be symbolically significant. More important, as with China’s accession to the World Trade Organization in 2001, which required substantial reforms, fulfilling the conditions for joining the SDR promises to speed progress toward full capital-account liberalization – and thus toward a fully convertible renminbi. China’s policymakers have long time horizons. Their strategy will doubtless face obstacles in the coming years. The question is whether the strategy is worth pursuing now. The answer almost certainly is yes. The overland “silk road,” for example, will reduce China’s reliance on sea-lanes, which can be blocked or disrupted, especially at the Strait of Malacca. More generally, Chinese investment will ease the constraints on the silk road economies caused partly by slow growth and investment shortfalls in advanced economies. Ultimately, vibrant growing economies in the region will benefit China’s economy and its stature. Many believe that public-sector investment is a good way (perhaps the best way) to use the global economy’s productive resources and increase its efficiency and growth potential. But this requires a multinational effort. China’s leaders surely want international recognition of their country’s global stature. But they also want China’s rise to high-income status to occur in a way that is – and that is perceived to be – beneficial to its neighbors and the world. The new external focus of China’s growth and development strategy seems to be intended to make that vision a reality. This article originally appeared on project-syndicate.org.

The United States has the most heavily-trafficked aviation system in the world, but its airports and airlines lag other developed countries in performance. While the United States is a leader in aircraft manufacturing, investment in airport infrastructure has stalled over the past decade. However, new technologies could have major implications on the industry as a whole, such as the use of satellite-based air traffic control systems, and the emergence of unmanned drones. A new backgrounder, U.S. Aviation Infrastructure, explores the strengths, shortcomings, and opportunities for air transportation in the United States.

When World War II ended 70 years ago, much of the world – including industrialized Europe, Japan, and other countries that had been occupied – was left geopolitically riven and burdened by heavy sovereign debt, with many major economies in ruins. One might have expected a long period of limited international cooperation, slow growth, high unemployment, and extreme privation, owing to countries’ limited capacity to finance their huge investment needs. But that is not what happened. Instead, world leaders adopted a long-term perspective. They recognized that their countries’ debt-reduction prospects depended on nominal economic growth, and that their economic-growth prospects – not to mention continued peace – depended on a worldwide recovery. So they used – and even stretched – their balance sheets for investment, while opening themselves up to international trade, thereby helping to restore demand. The United States – which faced considerable public debt, but had lost little in the way of physical assets – naturally assumed a leadership role in this process Two features of the post-war economic recovery are striking. First, countries did not view their sovereign debt as a binding constraint, and instead pursued investment and potential growth. Second, they cooperated with one another on multiple fronts, and the countries with the strongest balance sheets bolstered investment elsewhere, crowding in private investment. The onset of the Cold War may have encouraged this approach. In any case, it was not every country for itself. Today’s global economy bears striking similarities to the immediate post-war period: high unemployment, high and rising debt levels, and a global shortage of aggregate demand are constraining growth and generating deflationary pressures. And now, as then, the level and quality of investment have been consistently inadequate, with public spending on tangible and intangible capital – a critical factor in long-term growth – well below optimal levels for some time. Of course, there are also new challenges. The dynamics of income distribution have shifted adversely in recent decades, impeding consensus on economic policy. And aging populations – a result of rising longevity and declining fertility – are putting pressure on public finances. Nonetheless, the ingredients of an effective strategy to spur economic growth and employment are similar: available balance sheets (sovereign and private) should be used to generate additional demand and boost public investment, even if it results in greater leverage. Recent IMF research suggests that, given excess capacity, governments would probably benefit from substantial short-run multipliers. More important, the focus on investment would improve prospects for long-term sustainable growth, which would enable governments and households to pursue responsible deleveraging. Likewise, international cooperation is just as critical to success today as it was 70 years ago. Because the balance sheets (public, quasi-public, and private) with the capacity to invest are not uniformly distributed around the world, a determined global effort – which includes an important role for multilateral financial institutions – is needed to clear clogged intermediation channels. There is plenty of incentive for countries to collaborate, rather than using trade, finance, monetary policy, public-sector purchasing, tax policy, or other levers to undermine one another. After all, given the connectedness that characterizes today’s globalized financial and economic systems, a full recovery anywhere is virtually impossible without a broad-based recovery nearly everywhere. Yet, for the most part, limited cooperation has been the world’s chosen course in recent years, with countries believing not only that they must fend for themselves, but also that their debt levels impose a hard constraint on growth-generating investment. The resulting underinvestment and depreciation of the global economy’s asset base are suppressing productivity growth and thus undermining sustainable recoveries. In the absence of a vigorous international re-investment program, monetary policy is being used to prop up growth. But monetary policy typically focuses on domestic recovery. And, though unconventional measures have reduced financial instability, their effectiveness in countering widespread deflationary pressures or restoring growth remains dubious. Meanwhile, savers are being repressed, asset prices distorted, and incentives to maintain or even increase leverage enhanced. Competitive devaluations, even if they are not policymakers’ stated objectives, are becoming increasingly tempting – though they will not solve the aggregate-demand problem. This is not to say that sudden “normalization” of monetary policy is a good idea. But, if large-scale investment and reform programs were initiated as complements to unconventional monetary-policy measures, the economy could move onto a more resilient growth path. Despite its obvious benefits, such a coordinated international approach remains elusive. Though trade and investment agreements are being negotiated, they are increasingly regional in scope. Meanwhile, the multilateral trade system is fragmenting, along with the consensus that created it. Given the level of interconnectedness and interdependence that characterizes today’s global economy, the reluctance to cooperate is difficult to comprehend. One problem seems to be conditionality, with countries unwilling to commit to complementary fiscal and structural reforms. This is especially evident in Europe, where it is argued, with some justification, that, without such reforms, growth will remain anemic, sustaining or even exacerbating fiscal constraints. But if conditionality is so important, why didn’t it prevent cooperation 70 years ago? Perhaps the idea that severely damaged economies, with limited prospects for independent recoveries, would pass up the opportunity that international cooperation presented was implausible. Maybe it still is. If so, creating a similar opportunity today could change the incentives, trigger the required complementary reforms, and put the global economy on course to a stronger long-term recovery. This article originally appeared on project-syndicate.org.

The United States and China have developed competing visions for reviving ancient trade routes connecting Asia and Europe. The U.S. diplomatic strategy focuses on Afghanistan, while China hopes to economically integrate Central and South Asia. India and Russia also have regional ambitions.

Allyson Beach is an intern for energy and environment at the Council on Foreign Relations. As a requisite resource, water and its infrastructure are decisive targets in the self-declared Islamic State’s (IS) strategy for regional expansion in the Middle East. Although IS has not demonstrated the capacity to operate technologically intensive water infrastructure, it continues to pursue control of dams and water systems in Iraq and Syria that, if acquired and adequately maintained could partially legitimize its rule, or alternatively be exploited as a weapon. To counter this threat, the United States should prioritize the protection of major hydroelectric dams and water infrastructure in areas under or near IS occupation. It should also create viable alternatives to IS-supplied resources through increased water aid in Syria and Iraq, and support to allied infrastructure and supplies increasingly challenged by migration and water scarcity. Delaying this action poses added barriers to the coalition strategy to defeat IS because, as one Mosul resident stated, “if [IS] could only maintain services—then people would support them until the last second.” Institutionalizing management of water resources and systems is a realistic means for IS to expand its sources of funding and further legitimize itself among local populations. Unlike IS’s production of oil that (illegally) operates within a global market, water is a regional commodity that is largely dependent on the operation of local hydroelectric dams. For IS, these dams are “the most important strategic locations in the country,”says Shirouk al-Abayachi, a member of the Iraqi parliament and former adviser to the Ministry of Water Resources in Iraq. “They should be very well protected because they affect everything—economy, agriculture, basic human needs and security.” In the ongoing conflict, the desire to command water is nothing new. IS’s quest to seize water infrastructure began in 2013 with the occupation of the Tabqa Dam, Syria’s largest hydroelectric dam that supplies electricity to rebel and government territories, including the city of Aleppo. Advancing toward a hydraulic state during its invasion of Fallujah, IS effectively employed surrounding dams, canals, and reservoirs as weapons—denying water to areas outside of its territory and flooding the route of the approaching Iraqi army. And in the eastern Syrian city of Raqqa, IS exhausted water reserves and disrupted distribution networks, forcing residents to rely on untreated water sources and leading to the spread of waterborne diseases such as Hepatitis A and typhoid. Although other actors, including the Bashir al-Assad regime and Syrian rebel groups, target water systems and strategically withhold aid, IS’s endeavors have the potential to inflict greater damage. This was evident in the organization’s occupation of the Mosul Dam, Iraq’s largest hydroelectric facility that supplies water and electricity to the majority of the country and is considered “the most dangerous dam in the world.”A 2006 U.S. military survey concluded that its collapse would release a twenty meter-high wave on the city of Mosul, which could destroy the city and kill over fifty thousand people. During its occupation, IS ultimately did not have sufficient forces to sustain its control, and the dam was reclaimed by Kurdish forces with the help of U.S. airstrikes in August 2014. While the annexation of the Mosul Dam did not end in a devastating collapse, IS sufficiently damaged the region by failing to perform basic state functions—reports claimed that the city experienced dire shortages of water and food, and near economic collapse during the occupation. IS did, however, employ destructive flooding in the April 25 seizure of the Tharthar Dam near Fallujah. U.S. intelligence reports suggest that IS has opened at least one of the dam’s gates to flood nearby areas following an attack which reportedly killed 127 Iraqi troops. Source: “Key Iraqi dams taken or at risk of being taken by Islamic State,” BBC, September 7, 2014 Reckless behavior in Fallujah, Raqqa, and Mosul are indications that IS does not possess the resources needed to employ soft power governance through the management of the region’s technologically intensive infrastructure. Unlike IS’s common forms of funding, such as cash from the plunder of antiquities and kidnappings for ransom, wealth accrued from the command of resources like oil and water is contingent upon infrastructural planning and a skilled workforce. Supervision of dams requires a highly specialized skill set, and, according to Russell Sticklor, a water researcher for CGIAR, “there is no indication that the Islamic State possesses it.”Rather than initiate its own civil workforce, IS has borrowed skilled labor from its predecessors—the Assad Regime and government in Bagdad continue to pay many engineers and skilled workers operating under IS supervision. Although this unsustainable appropriation of labor prolongs the opportunity for the United States and its allies to build an alternative to IS command, as IS’s sources of revenue diminish, the organization may increasingly shift their focus towards state building tactics of water infrastructure management to maintain influence in the region. This would not be surprising given that, IS reportedly collects money from business owners in Raqqa in exchange for electricity, water, and security. Previously estimated at $1 million per day, the organization’s crucial revenue derived from oil has significantly declined due to airstrikes against IS’s already incapable industrial base—reducing production to 5 percent of its previous extraction capabilities. According to Iraq expert Michael Knights, the jihadis will have a hard time providing basic services without oil revenue:“Very quickly, Islamic State has gone from the richest terrorist group in history to the world’s poorest nation-state.”Colin Clark from the RAND Corporation argues, “Without this oil money they are going to have to maybe rethink some of the state building efforts that have been fairly ambitious up to this point.” Unfortunately, water insecurity spreads beyond Iraq and Syria, to U.S. partner countries such as Jordan, increasing the risk that disenfranchised populations will turn to IS if the terrorist organization develops the capacity to provide adequate water resources. Syrian and Iraqi refugees are congregating in some of the most water stressed areas in the Middle East—the region now loses water at the second fastest rate worldwide, behind only northern India. Jordan has faced added stress with the influx of 750,000 Syrian refugees and 60,000 Iraqi refugees. The country is currently exhausting its supply of water at three times the recharge rate, facing extreme drought as it accommodates three thousand new refugees every day. This has left both refugees and Jordanian citizens water insecure. Without addressing this resource burden and insufficient standard of living, disenfranchised Jordanians believe IS will strengthen its territorial hold. “We are waiting for this moment,”said Abu Abdullah, an IS sympathizer in Ma’an. Should IS successfully govern this water infrastructure, refugees may be compelled to return home where there are more reliable sources of water and sympathize with IS—similar to the growing sympathy for IS among the Yarmouk population in Syria, which suffered from Assad’s extreme tactics that resulted in severe water and food shortages. As the leader of the anti-IS coalition, the United States should prioritize the protection of water systems to prevent IS expansion and infrastructural abuse. Unlike the U.S. strategy to halt funding from oil by attacking oil refinement installations, the protection and reclamation of dams requires a strategy that preserves water infrastructure and continues the provision of basic services to the surrounding population. As these operations remain consistent with Obama’s pledge not to reintroduce ground combat in Iraq, the United States will need to rely heavily upon Iraqi ground forces and prioritize the prevention of IS incursion into areas of Iraq and Syria where there is standing water infrastructure. Despite setbacks from airstrikes and counteroffensives across Iraq, IS attempts to broaden its arsenal continue as they pursue control of water infrastructure in Iraq and Syria with the potential to serve as a state building mechanisms or weapons in the ongoing conflict. The April 25 seizure of the Tharthar Dam and opening of one of the dam’s gates demonstrates the growing prioritization of water infrastructure in IS’s strategy. As the leader of the anti-IS coalition, the United States, in collaboration with Iraqi troops, should prioritize the protection of Iraqi-controlled water infrastructure and efforts to reclaim IS-occupied infrastructure. As stated by Michael Stephens, a Middle East expert at the Royal United Services Institute, IS “understands how powerful water is as a tool, and they are not afraid to use it.”

The big idea emerging from the Global Conference on Cyberspace 2015—the latest iteration of the London Process—is the Global Forum on Cyber Expertise (GFCE). According to The Hague Declaration, the GFCE will facilitate “inclusive and greater collaboration in the area of capacity building and exchange of expertise in the cyber domain.” These purposes, and the language describing them, suggest the forum will target low-hanging fruit. Although skepticism might eventually prevail, the GFCE reflects policy needs, normative principles, and political interests that make it potentially significant. The GFCE Under its Framework Document, the GFCE will be “a flexible, action-oriented and consultative forum” involving “countries, companies and intergovernmental organisations.” In a “voluntary, complementary, inclusive and resource driven” manner, the forum will “build cyber capacity and expertise” through initiatives on cybersecurity, cyber crime, data protection, and e-governance. GFCE activities will be non-binding but consistent with international law, including human rights, and will “contribute to bridging the digital divide.” The GFCE will inventory existing capacity-building activities, facilitate new projects, and host high-level policy discussions. The forum has forty-two founding members—twenty-nine countries, seven private-sector entities, and six intergovernmental organizations. Policy Needs Cybersecurity policy reflects three overlapping but distinct tracks that, at present, reflect different prospects for international cooperation: Most countries classify cyber threats under traditional security categories—crime, terrorism, espionage, and armed conflict. Increasingly, policy and law in each category confront problems that limit the effectiveness of collective action. Frustrated by worsening cyber threats, a number of countries—including the United States—are developing “full spectrum” capabilities, including offensive capabilities, to deter state and non-state adversaries. This approach raises different challenges, including how deterrence works in cyberspace, but they are not traditionally addressed through international cooperation. Countries have adopted an “all hazards” approach to cyber threats that involves improving cyber due diligence, defensive, and resilience capacities, including information sharing, especially for cyber-enabled critical infrastructure. As The Hague Declaration observed, “the area of capacity building and exchange of expertise within the cyber domain is rapidly becoming one of the most important topics on the international cyber agenda.” The GFCE enhances the “all hazards” track and its momentum in cyber diplomacy. It seeks to build capacity to defend against the range of cybersecurity threats, including threats from criminals and threats to digital data. The GFCE will not displace existing capacity-building activities, but it aims to link and weave these disparate efforts into a bigger, stronger global regime for strengthening cyber due diligence, defense, and resilience. Normative Principles Cyber capacity building is becoming prominent because all states need to improve their cybersecurity. However, the GFCE also has a normative edge in embracing a multistakeholder approach to improving cybersecurity as part of achieving “a free, open and secure cyberspace.” This approach and rhetoric connects with the multistakeholder model of Internet governance and Internet freedom issues that have been sources of contention among states. The GFCE’s references to human rights are also important. The Hague Declaration mentions the Universal Declaration of Human Rights and International Covenant on Civil and Political Rights. It also states the GFCE will be consistent with the UN Guiding Principles on Business and Human Rights, which addresses the human rights responsibilities of companies. These principles cover civil and political rights (e.g., not exporting technologies governments use to violate freedom of expression) and economic, social, and cultural rights (e.g., facilitating use of Internet-enabled technologies to advance the rights to education and health). Less developed is the objective of bridging the digital divide. This concept is associated more with expanding access to information and communication technologies (ICTs) than strengthening cybersecurity. These goals are not incompatible, and the GFCE might support initiatives that increase access to more secure ICT services and narrow the digital divide. Political Interests Although cyber capacity building is important to many states, the GFCE particularly aligns with U.S. interests. In keeping with its commitment to capacity building, the United States supports the GFCE and announced two initiatives with the African Union to improve cybersecurity in Africa, one with Japan and Australia on Southeast Asia, and one with Canada on worldwide cyber threats. But, the GFCE is important to the United States for reasons beyond capacity building. The GFCE allows the United States to show pragmatic leadership in an area of policy need, and the forum reinforces normative principles the United States has long championed. The GFCE helps U.S. efforts to push past damage Snowden caused to its reputation and diplomatic relations. U.S. prominence in the GFCE contrasts with the absence of China and Russia in the list of founding members. In addition, the U.S. initiatives in Africa and Southeast Asia demonstrate that, despite Snowden, countries will partner with the United States in ways and on a scale no other cyber power can match.