Michael Levett, RIP

Michael Levett

By Daniel Runde

My friend and CSIS colleague, Michael Levett, died in his mid-70s over the weekend. A wonderful man who lived a truly interesting life, I feel cheated out of at least 15 years of friendship, and counsel.

Michael, a Californian, grew up in Los Angeles, went to UCLA and was editor of the newspaper there. He worked for the LA Times out of college for several years. He was active in Democratic politics in the late 60s and the 1970s. He volunteered or was paid staff on a number of Democratic and civil rights campaigns in California. Later, he worked for Lucas Films where he was a Vice President, contributing to the first three Stars Wars films (Episodes 4, 5, 6, of course) and the first Indiana Jones film. He knew George Lucas and all of the film stars and had wonderful stories about working with them. He helped developed the toys and commercial products that are associated with those films. Those toys were important totems of my childhood and of the childhoods of millions of other Generation Xers. I was fascinated about his pilgrimages to Bentonville, Arkansas to sell Wal-Mart on the idea of placing Stars Wars toys in each Wal-Mart. He also worked for a brief time for Dino DeLaurentiis, working on Dune and, I believe, Conan the Barbarian. Given his background, he was kind enough to see Once Upon a Time in Hollywood with me last September, a real treat.

Michael launched his career in Washington, D.C. a White House fellow in one of the inaugural classes. He was quite young when picked for this great honor. He worked in the Department of the Interior during the Nixon Administration. Always very liberal and idealistic, he loved being a White House fellow but perhaps the Nixon Administration was not the best “fit” for him. He stayed in close contact with his White House fellow alums and made lifelong friends.

At some point along the way, someone convinced him to move to Russia in the late 1980s. He believed that we needed to have dialogue with the Soviet Union and he voted with his feet. He organized rock music concerts and started a popcorn business in the Soviet Union becoming the “Orville Redenbacher of the Soviet Union.”

His experiences in Russia and his ties to Washington generated a phone call asking him to help run the Citizens Democracy Corps (“CDC”) in the mid-1990s. CDC was stood up as part of the Bush 41 Administration’s response to the end of the Cold War. It appointed a star board of American captains of industry and was funded largely by USAID at the beginning. CDC changed its name several times over the years and is now known as Pyxera Global. The original idea of CDC was: 1) private sector partnerships before these were common, 2) leverage the talents of volunteers at scale before this was “a thing” and 3) go where they were needed often to places that others would not go to. In the early and mid-1990s this meant the former Soviet Union and Poland including Central Asia, later this meant Iraq, Afghanistan and Africa. Michael spent at least 8 years travelling around the former Soviet Union, building partnerships with multinational companies, acquiring other NGOs, and diversifying CDC’s funding away from US Government funding. CDC, under Michael, were early adapters to leveraging the power of global supply chains for good, creating large scale volunteer programs tied to business activities for companies such as IBM, and creating new programming around the role of travel, tourism and hospitality as a driver of jobs and prosperity. Michael led CDC and its successor organizations for 15 years. Today Pyxera gets less than 20% of its money from the federal government and most from corporate sources.

In the early 1990s, he was the founding president of Business for Social Responsibility (BSR). Michael played a key role in mainstreaming “stakeholder” concerns including concepts such as “social license to operate” and “corporate social responsibility” when these ideas were very new and only had a toehold in the most progressive companies. Entire industries have sprung up because of the work of BSR championed and Michael pioneered. The recent statements by large investors and large business groups can be connected in a straight line from his work in the early 1990s.

At CSIS, Michael was a Senior Associate with the Project on Prosperity and Development for the last ten years. I saw or spoke with him at least every two weeks during that time. Given his experience and travel history, he was a constant resource for events and publications on a variety of international development topics. He brought a lot of ideas to the report we did in 2011 on development finance, titled Sharing Risk in a World of Danger and Opportunity. He also helped with a major report, Seizing the Opportunity in Public-Private Partnerships, that same year. In 2013, he was an advisor to a commission we did on the role of the private sector in development. At his instigation, we did a report on the travel, tourism and hospitality sector, Global Travel, Tourism, and Hospitality as a Strategic Sector for Development and Security. He served as an advisor to our task force on reforming and reorganizing U.S. foreign assistance in 2017, and he was a major part of our task force on confronting the global forced migration crisis in 2018, leading fact-finding missions to multiple countries. I have fond memories travelling with him to New York and Los Angeles various times. He traveled with some of my colleagues to Africa and elsewhere. His report on value chains, Maximizing Development of Local Content across Industry Sectors in Emerging Markets, is still read and is recognized as one of the few papers on this relevant and pressing topic. Offering his time and his talents to CSIS, Michael would provide comedic relief and adventure to everything he did. He took time to shepherd and share his experiences with young professionals at CSIS and throughout DC. He had strong, well-formed views and was wonderful to be around. He had a broad sense of the spiritual and the strong sense of what he thought was right or wrong and acted accordingly. Never far from a joke, Michael was a Mensch, and I am really going to miss him.

Is Digital Disrupting Development? Can technology be a force for Inclusion?

Digital-Transformation-in-Africa

Author: Aleem Walji, Former Chief Executive Officer at Aga Khan Foundation U.S.A. Aleem has also held senior leadership roles at the World Bank and Google.org.

Economic, political, and social exclusion are intertwined. When considering the rise of nationalism and xenophobia across the world, we know that lack of economic opportunity, globalization and the fear of automation contribute to our collective anxiety. Social unrest and instability are exacerbated by growing inequity and inequality.

Today, the richest one percent of the world own half the world’s wealth. Add to the mix disruptive technologies like artificial intelligence, machine learning, robotics, and bio-engineering (just to name a few), and you have a new and much more polarizing digital divide emerging. 

At the beginning of the twenty first century, we were obsessed with the idea that a digital divide would marginalize the most marginal. There are examples of this happening in many places but the catastrophe was largely avoided. What we didn’t fully appreciate was how quickly some technologies like the mobile phone and mobile networks would penetrate new markets, fall in price, and deliver services that benefit the rich and poor alike. It’s remarkable to consider the spread and speed of digital payments and financial inclusion in Kenya and Bangladesh, public service delivery through digital IDs through the India stack, and the use of remote sensing and AI to launch precision agriculture.

Having led efforts at Google.org, the World Bank, and the Aga Khan Foundation, I’ve learned that innovation thrives when constraints on private enterprises are lifted and governments are enabled by digital platforms, analytics, and data driven decision making. Technologies like AI can be drivers of economic, social and political inclusion rather than exclusion. But a more inclusive and tech-enabled model of development that moves us closer to realizing the UN Sustainable Development Goals will not happen by default. It will require forward-leaning policy makers, far-sighted investors and grant makers, civic-minded tech innovators and businesses, and a robust, digitally savvy civil society to work collaboratively for social and economic inclusion. 

Unless we are deliberate about ensuring that these benefits are accessible to the poor, they will be left further behind. A second generation digital divide could be much worse and affect many more people than the first. We have seen firsthand how robots reduce jobs in manufacturing and how repetitive tasks are replaced by machine learning in industrialized societies. But remote sensing and AI in Africa and Asia can also help farmers know where to plant, when to irrigate and when to harvest to increase their incomes. Fintech has provided millions of previously unbanked people access to financial services.

So what can we do today to ensure that social and economic dividends from fourth industrial revolution technologies (4IR) are human-centered and shared equitably within society? How can we build on and amplify early success with AI in agriculture and water management, natural language processing in education and personalized medicine? Here are some initial thoughts each of which require further attention and work:

  1. Governments must invest further in smart infrastructure. Universal broadband, reliable energy, mobile networks and access to data as a public good are foundational. Putting in place the right regulatory frameworks, governance and procurement mechanisms will catalyze private investment.
  2. Federal and state level government, the private sector and civil society must invest in skilling and re-skilling workers to prepare them for the future of work. Labor markets will shift constantly: skills and micro-credentialing may be more important than degrees. Vocational institutes and universities – many of which have not significantly updated centuries-old methods will need to re-think their roles in this ecosystem.
  3. Foundations, bilateral and multilateral institutions and impacts investors need to unlock capital, de-risk investments, incubate and accelerate new business models allowing more people access to basic services, markets, and opportunities.
  4. Multilateral institutions like the UN and the World Bank, bilateral donors and foundations need to mobilize a multi-stakeholder alliance to create a digital data commons making high frequency, subnational, granular and anonymized data related to achieving the SDGs a global public good.
  5. Leading tech companies need to role-model responsible business practices at the core of their business and not just through CSR. Business models need to be inclusive by design and consider gender, class, ethnicity and other differences between end-users.
  6. Think tanks and universities must interrogate what’s working to bring about social, economic and political inclusion. A responsible media can call attention to successful examples for policy makers, investors and civil society.
  7. Governments must enable social safety nets to protect the vulnerable who will not benefit from economic and social disruption that the 4IR will bring.
  8. Civil society must push governments and the private sector to ensure that the broader interests of society are foremost in our minds. Cyber security, data privacy and ownership, ethics and the threat of disinformation must be skillfully managed.

 

Perhaps it is time for a new social contract to emerge between citizens, businesses, and the state.

It is time we take a sober look at questions of equity and inclusion in society. Who stands to benefit most and how can we use the 4IR as a trampoline for inclusive and sustainable development? No institution can do this alone. It will take an ecosystem. It’s essential we act now in order to shape outcomes that are fair and equitable for all.

Shutting Down Digital Authoritarianism

Author: Rachel Abrams, Research Intern (Fall 2019), Center for Strategic and International Studies

A man darts across a busy street, taking advantage of the lack of traffic and capitalizing on the extra 30 seconds to justify a coffee before work. Minutes later, his panicked expression flashes on a billboard across the street, branding him as a jaywalker. His heart drops, and so does his social credit score. Although it sounds eerily familiar to the plot of a Black Mirror episode, this is actually a very real scenario in Rongcheng, China, where the city has implemented a social credit system, tracked by facial recognition, artificial intelligence, and vast quantities of personal data. This jaywalker (and others with low scores) can lose access to loans or potential promotions at work while model citizens (who donate to charity or do other good deeds that are arbitrarily determined) find themselves broadcasted at the City Hall or receive discounts on products. What is happening in Rongcheng is a real-world example of how digital authoritarianism is on the rise. This rise in authoritarianism is also being spread globally, with Chinese companies exporting their technologies to a number of governments, including Ethiopia, Ecuador, South Africa, Bolivia, Egypt, Rwanda, and Saudi Arabia. Their efforts have enabled authoritarian regimes to acquire digital tools for surveillance and control that they would not have the capability to develop on their own.

Digital authoritarianism, defined as using technology to enhance or enable authoritarian governance, has been a concern since the advent of the internet. However, as AI and other emerging technologies generate unparalleled amounts of data and new ways to harness it, authoritarian governments have managed to leverage a novel and efficient way to control their populations. Digital authoritarianism lets governments monitor, understand, and control their citizens far better than ever before, often at a reasonable cost. Most governments have access to huge amounts of data from tax returns, medical and criminal records, bank statements, location services on apps, and technologies that track biometric data and have facial recognition capabilities. Unbound by democratic principles like due process and the rule of law, authoritarian governments have no qualms about using that data for massive social control. These governments are also able to selectively censor information and public behaviors that may damage the regime while allowing for economically positive discourse and actions. China has become one of the major exporters of digital authoritarianism through state and private actors. It is important to note that many private firms around the world have exported dual-use technologies or technologies that can be used in both military and civilian spheres. However, due to the extremely close relationship between the Chinese state and its large technology companies, it is evident that Chinese firms are using these technologies in a way that aligns with state ideologies. For example, tools that inspect internet data to filter and block malware could be used to filter and censor online content, and CCTV cameras for security can be used for surveillance.

For the Chinese government, the idea of using technology to govern is not new. Once the Chinese government noticed technology was becoming a part of daily life, it realized it had a powerful new tool to both gather information and control culture, with the ultimate goal of making the Chinese people more “governable.” Several current Chinese initiatives, done by partnerships between government and Chinese tech companies, focus on harvesting data and using it to influence behavior. China’s use of digital authoritarianism to subdue and control its population while growing its economy challenges the theory that liberal democracy is the only means of achieving sustainable economic growth. In part, this is because there is a gap in understanding the proper and democratic use of new technologies that have emerged in the last generation that is getting exploited. Unless liberal democracies of the world come together and create a framework for data governance, authoritarian actors will continue to exploit this gap and build on the Chinese model to grow.

Technology is a core tenant of the Belt and Road Initiative, and China’s overall soft power strategy. The strategy has three components: first, digital power via tech-driven strength, “fore-power” via long-range planning and strategy, and third, sharp power via the regime’s ability to manipulate opinion abroad. China’s proliferation of dual-use technologies abroad illustrates how authoritarianism can spread. In Freedom House’s “Freedom of the Net” assessment, out of the 65 countries surveyed, 38 had installed Chinese telecom infrastructure (via companies like Huwaei or ZTE), 18 had installed AI surveillance infrastructure, and many countries had implemented a combination of the two. These technologies are being used both by governments to monitor their citizens, and for China to monitor governments; in January, it was reported that the IT-network in the African Union headquarters, which was built by China, had been secretly transmitting confidential data to Shanghai for five years. In many countries, including Zimbabwe, Singapore, and several Eurasian countries, Chinese companies are creating “Smart Cities” run by sophisticated surveillance systems composed of artificial intelligence and facial recognition, which allows governments to track civilian movements. Almost more importantly, representatives from 36 out of the 65 countries in the Freedom House list have had private training sessions with Chinese officials on their new technologies. In Uganda, Chinese employees helped hack into a political opponent’s personal Whatsapp so the regime could shut down his rallies before they started. Chinese actors are not only spreading technologies that could be misused but are also actively teaching governments how to use these technologies and spreading authoritarian values.

The United States needs to realize that if foreign governments start to see digital authoritarianism as a viable alternative to liberal democracy, they will feel no pressure to liberalize. The best way for democracies to stop the rise of digital authoritarianism is to prove by example that there is a better model for managing the internet that protects countries’ sovereignty and spurs economic growth. Overall, an ideal model for data governance should empower people and societies to make informed decisions about their data, protect individual privacy and civilian rights, and allow innovators, entrepreneurs, and service providers to share and use data freely as long as they abide by these protections. As the United States has historically benefited from having an open society that encourages innovation, growth, and design, instituting a data governance framework should not stifle its creators and companies.

Recommendations

While achieving a universally enforceable solution will require more time and consensus, there is a window of opportunity where the United States can leverage its commercial and economic ties with other countries to make smaller but meaningful gains in democratic data governance. This will begin with the U.S. government establishing a regulatory body and involving stakeholders outside of the traditional policy sphere, including lawyers, researchers, civil society, and advocacy groups, as well as representatives from technology companies, to ensure at-risk groups are not forgotten or discriminated against. This regulatory body should set guidelines that promote good data governance. Suggested guidelines could include:

1. Limit the Amount of Time Data is Stored and Reduce Collateral Information Collection

In the case of facial recognition technologies, the data should only be held for the time that it is needed, for example, in an ongoing police investigation, and faces captured by mistake should be blurred to protect individual privacy. Doing so will allay fears that the government is gathering data to monitor citizens, along with the added benefit of lessening the risk of these data being hacked or stolen by nefarious actors.

2. Restrict Data Sharing and Create Opt-out Policies

Similar to the idea of reducing collateral information collection, companies that share data need to be subjected to clear standards and must be able to justify why the sharing organizations need the data. Additionally, consumers must be aware that their data can be shared and either consent or opt-out of the process.

3. Ensure a Healthy Media Environment

The U.S. must learn from the 2016 presidential election and elections around the world and create standards for advertising and campaigning via social networks like those that exist in television and other media. For example, how the Federal Communications Commission requires that all political cable spots have a visual sponsorship identification.

Much of the conversation about digital authoritarianism focuses on the countries perpetuating it but also needs to focus on the companies that help enable it. A regulatory body specifically devoted to data governance could also be tasked with imposing sanctions and regulations upon these companies. Many U.S. companies have bowed to pressure to censor content on governments’ behalf in order to retain access to markets; in particular, Netflix currently complies with censorship requirements in China, India, and Saudi Arabia, and Apple, which fought the U.S. government to put backdoors in password-protected products, has deleted apps and built data centers that follow Chinese government requirements. Currently, companies like Facebook, Uber, and YouTube fall under the jurisdiction of the Federal Trade Commission, which is too overworked to handle the complexities that overseeing apps, and these tech giants entail. More importantly, many companies based in democracies create and export the very dual-use technologies that are being misused by authoritarian and authoritarian-leaning countries. The Trump administration took a stand against this by putting eight of the top Chinese surveillance and intelligence companies on a blacklist that forbids them to buy U.S-tech, citing the crisis in Xinjiang as their reason. This move sends a strong message in support of human rights and a stronger message to China about what they can and cannot get away with but is not a sustainable model for the future.

In its role as a world leader and champion of liberal democracy, the United States needs to set a new model for how to democratically govern data. By designating a regulatory body solely to matters of data governance and oversight, the U.S. will show the international community that there is an effective means of data use and governance that is not authoritarian in nature and provide a viable social and economic model to China. Additionally, by taking steps to regulate technology within its own borders, the United States will curb the lawlessness that is the tech industry and make long-overdue steps to creating a sustainable framework that promotes innovation and protects civilian rights.

The Future of Low-Skilled Manufacturing Labor in Industry 4.0

By: Nazla Mariza, Humphrey Fellow 2017-2018, Maxwell School of Citizenship and Public Affairs, Syracuse University; Visiting Researcher (Summer 2018), Center for Strategic and International Studies

Since the era of industrial revolution (IR), the manufacturing sector relied heavily on low-skilled physical labor, making it one of the largest job producers. Developing countries with large populations took advantage by offering abundant numbers of low-wage workers. China, as a country with the largest population in the world, has been benefitting from this situation. Their economy has been growing by hosting major manufacturing industries from foreign investment since early 1990s.

Technological advancement, or industry 4.0, has been influencing different aspects of human life including manufacturing. With investment in R&D, AI and robots are more efficient than human power and will eventually replace labor; its cost will no longer be the main consideration in manufacturing. This commentary will look at technology wave in manufacturing, its move toward a capital-intensive model, and the future of labor-intensive industry in developing countries.

The contribution of manufacturing to development

Historically, manufacturing has had significant contributions to economic development through dual function productivity gains and job-creation for low-skilled workers. Countries at the forefront of the industrial revolution now earn higher incomes on average. During the first IR, the manufacturing sector relied heavily on low-skilled physical labor, making it one of the largest job producers. Some economists believe that investing in manufacturing will effectively reduce poverty as it provides a steady income to the poor—at least initially—before boosting productivity. In the era of globalization, manufacturing processes often span several countries to produce a commodity. High-Income Countries (HICs) outsource some of their production processes to cost-effective locations. Countries with a large pool of low-wage laborers attract foreign companies and often gain the dual benefit of developing their manufacturing industry.

The Rise of China’s Manufacturing Sector

Shifting manufacturing to developing countries helps boost the economy. China is now a powerful emerging economy with the second largest gross domestic product (GDP) in the world after the U.S. Manufacturing is the foundation of China’s economic growth, which has prospered because of outsourced manufacturing activity, accounting for almost half of its GDP.

China has successfully expanded its manufacturing industry by changing and harnessing its comparative advantages in the 1980s and 1990s through privatization and opening markets to international trade. China has also been successful in maximizing its large pool of low-skilled laborers by using low wage/labor cost ratio in developed countries. Additionally, there are other benefits that China offers to companies, such as competitive product prices along with flexible minimum quantity supply chain systems. These reforms helped China engage in the international market and become a successful breeding ground for manufacturing, receiving an overflow of outsourcing from various companies.

Foreign investment has supported the manufacturing industry and economic growth has increased dramatically by 9 to 14 percent from 1992 to 2011. This growth has been sustained for over 20 years, making China the single largest producer of manufactured goods in the world and accounting for 10 percent of total global exports ($2.1 trillion). It is not surprising that China’s export of goods and services has increased by 43 times in under three decades. The poverty level has decreased from 6.6 percent in 1990 to 1.4 percent in 2014, although inequality remains high at 42.2 percent in 2012.

In the era of digitalization, technology innovation has affected the manufacturing industry. This change presents opportunities and challenges, but how can major players such as China capitalize on the opportunities of forthcoming technological advancement?

China’s rise to power in the international economy was successful, in part, because it had the right set of conditions. However, countries that aim to mimic China’s pathway to development face an obstruction to growth that China did not have – the Fourth IR (4IR). Manufacturing is transforming with the introduction of new technologies such as AI, robotics, 3D printing, and automation. The manufacturing sector will soon likely implement the use of innovative technologies that could eventually replace some manufacturing jobs – displacing existing human labor. For example, robots can build cars, but no one has yet made a robot that can sew a shirt, at least at a cost that would allow the producer to sell the shirt at a competitive price. As a result, productivity and revenues are predicted to spike— at the cost of downsizing of up to 25 percent.

Manufacturing new advanced goods such as autonomous vehicles, biochips and biosensors, autonomous medical devices, and control systems could also affect labor demand. Consequently, innovative technology in manufacturing will demand higher level skills (e.g. programming and IT). Currently, labor skill in manufacturing— mostly located in developing countries—is relatively low and will create skills gaps, so training and education programs should be more adaptive to shifted operations in manufacturing.

Given that HICs have established R&D facilities and high-skilled laborers (i.e. scientists, computer technology specialist, innovative product designers), they will likely benefit from digitalization and engage more with it. Potentially, HICs may move global production back to their own countries, as low labor cost becomes less relevant in determining production location.

Low- and middle-income countries (LMICs) will feel the biggest impact as they can no longer rely on labor cost for their comparative advantage. A critical question will be whether new technology trends will impede on manufacturing activities across LMICs or create new opportunities. Do LMICs need to focus on improving their competitiveness in producing traditional goods?

It is interesting to see how the transformation will affect the kings of manufacturing. China has been preparing itself to adapt to this emerging technology trend, realizing the need to be flexible. In 2015, China launched “Made in China 2025” (MC2025) intending to prepare itself to enter the age of smart manufacturing. China also aspires to be the biggest technological power by 2050. The MC2025 document outlines China’s response to Germany’s “Industry 4.0” and the “Industrial Internet” in the U.S. by developing ten industries, namely next-generation IT. This includes high-end numerical control machinery and robotics; aerospace and aviation equipment; high-tech maritime engineering equipment  and biopharmaceuticals. This big leap marks a shift in China’s manufacturing industry toward a more capital-intensive industry.

This ambitious plan will position China as the world’s manufacturing superpower, enabling it to reach HIC status. To do so, China realizes it can no longer rely on producing cheap goods. The Chinese government aims to move up the value chain to produce more advanced products and establish its domestic technology, removing foreign dependency.

To support all these ambitions, China has been committed to R&D activities, whose budget has been increasing every year to levels much higher than its competitors. In 2015, according to UNESCO Institute for Statistics, Germany allocated $110 billion to R&D, South Korea issued $73 billion, and Japan allocated $170 billion. China surpassed these countries’ budgets combined, with $370 billion that same year.

Despite high R&D investment, the use of robotics in manufacturing is still relatively low in China. In 2016, China developed on average 19 industrial robots per 10,000 industry employees, much less than Germany, which produced 301, and South Korea’s 531. This demonstrates that HICs may still play a key role in manufacturing if they can maintain their competitiveness in high innovative technology. Notwithstanding, China may soon catch up given its aggressive technological development. Recently, China opened new institutes for robotics and AI that aim to facilitate the transformation of traditional industries.

Above all, this new trend creates fear for developing countries that depend on a large pool of low-skilled labor to remain competitive. Manufacturing is not a feasible industry to provide the same dual benefits of productivity and job-creation for unskilled labor. How will developing countries fare in manufacturing, as China shifts its focus?

Despite the rise of automation, it won’t replace sectors that require human emotions, creativity, and instinctive decision-making (e.g. service industry, tourism, hospitality and nursing).China will be less competitive in producing labor-intensive goods such as car parts, electronic products, garments, textiles, shoes and toys with its declining work-age population expected to continue decreasing to 830 million in 2030. This affects the increase of labor costs ($9,907 annual labor wage in 2017).

In 2014, Chinese exports from labor-intensive manufacturing reached $1.5 trillion. Shifting away the labor-intensive manufacturing may open a window of opportunity for other countries to enter the manufacturing space. A study by Gustav Papanek from Boston Institute for Development Economics shows that moving half of China labor-intensive manufacturing to other countries would gain them up to $750 billion, a big opportunity for those with comparative advantages (labor, costs, proximity to raw materials).

However, there are concerns. Moving operations out of China to other countries is difficult. Some hindering factors include low productivity, inadequate supply and engineering, logistic costs and poor infrastructure. Thus, paying higher labor wages in China remains more competitive. If other developing countries want to take up the spill-over share from China, nothing is more essential for them than to seriously rebuild their comparative advantage. Developing effective macroeconomic policies and a robust financial sector is a must.

If developing countries with big population and fast economic growth such as India and Indonesia fail to seize the chance from China, new players will possibly take over. There are new frontier markets in Asia such as Sri Lanka, Bangladesh, and Vietnam, while Nepal, Cambodia and Laos have been preparing for economic growth.

What will happen in the future?

The future of economic growth in this region will depend on a variety of factors. Many of these are uncertain, but one: the competition among China, HICs and LMICs will continue. Countries still have a chance to enhance their unique competitiveness if they act strategically. The division of roles is possible if each can provide value in the chain of manufacturing process. Some could supply raw materials, while others focus on production or logistics. Failure to diversify will pave the way for China to be the single manufacturing superpower in the world. Support from HICs to LMICs in increasing LICs capacity in global value chain can help.

Challenges are not merely about automation, but also about the reallocation of resources to growing sectors such as the services industry. The growing pace of manufacturing will likely require greater services, whether as inputs, activities within firms or as output sold bundled with goods. This is known as “servification”, which means manufacturing sectors increasingly rely on services. Services account for about one third of value-added in manufacturing sales and exports, creating opportunities for LMICs and HICs to play a role as service suppliers.

The growing population in developing countries and ageing population in developed countries, create demand for the service sector. So, the problem is not a lack of need but one of effectively addressing the demand. The people who need healthcare, transportation, and education cannot afford it, and the government must step in to address the future shift of labor and service demands and adjust to changing needs.

John Sanbrailo – Rest in Peace

John Sanbrailo

This photo was taken on May 15, 2016 and features John Sanbrailo (left), Luis Almagro (OAS Secretary General-center), and Luis Ubinas (President of Board of PADF-right).

By Daniel Runde

I knew John Sanbrailo professionally and personally for more than 15 years. He had been having health struggles for the last 5 years. We’ve been on a committee together recently providing a sounding board to an author who is writing a history of U.S. Agency for International Development (USAID).

John dedicated his life to political and economic progress in the Western Hemisphere and believed the United States and the rest of the hemisphere had a shared future. He was driven partially by a strong sense of history and was the first person to show me that the U.S. had engaged in enlightened self-interest through acts of foreign aid, even in the 18th century. He wrote a paper, published in the American Foreign Service Association, about the first “aid packages” the U.S. sent in the Western Hemisphere. As early as 1792, the U.S. was accepting thousands of refugees from Haiti during the Haitian Revolution. The U.S. supported Haiti’s independence from France and provided aid to Haiti through the establishment of a relief fund. In 1812, Congress appropriated $50,000 in support to Venezuelan victims after an earthquake which took place at the start of the Venezuelan War of Independence. The U.S. supported Venezuela at this time not only for humanitarian purposes, but to help Venezuelans regain their footing against the Spanish and prevent further European influence in the region.

John joined USAID in the 1960s at the height of the Alliance for Progress. The Alliance for Progress was started by President Kennedy in 1961 alongside USAID; it was a part of President Kennedy’s goal to improve U.S. relations with Latin America and promote democracy and economic cooperation in a time that was threatened by communist insurgents. The Alliance for Progress was not only the right thing to do, but it was also a response to the Cuban Revolution in 1959 and our fear that other countries in the region would be tempted to go the way of Cuba. An entire generation of Latin Americanists, international development professionals, and business leaders were inspired by Kennedy’s foreign policy initiative through the Alliance for Progress and John was one of them.

John was particularly quick to note that the Alliance for Progress was not a Democratic party project but had strong support from the Republican party, in particular Nelson Rockefeller who had huge interest in Latin America. Rockefeller also worked in the Office of Inter-American Affairs and was the first Assistant Secretary for Latin American affairs in the early 1940s. He went on to establish two organizations in the mid-1940s focused on economic development in Latin America. Nelson Rockefeller (former Vice President under President Gerald Ford and former Governor of New York) heavily influenced his brother, David Rockefeller. David was interested in doing business in Latin America in the 1950s and 1960s. During his time at Chase National Bank, David significantly expanded the bank’s international operations. In the 1950s and 1960s, a series of organizations were established to support relations between the U.S. and the rest of the Western Hemisphere. In 1959, the Inter-American Development Bank was established. In 1963, David Rockefeller founded the Council of the Americas. Nelson influenced David who helped encourage American business interests in the Americas. John was a part of this renaissance between Latin America and the U.S.

John Sanbrailo was born in a generation that was familiar with the influential book, the Ugly American (published in 1958 with almost 4 million copies sold) which described our incompetence and cultural insensitivity while trying to engage with others in the outside world. The Ugly American had a profound impact on President Kennedy too.

John Sanbrailo loved working at USAID; he started working there in 1969 and left reluctantly in 1999. He served in a number of important places at critical times. He served as USAID Mission Director in Ecuador, Peru, Honduras, and El Salvador. In Peru, John was an early supporter of Hernando de Soto who established his think tank, the Institute for Liberty and Democracy (ILD) in Peru with major support from USAID. It is ironic that the ILD was supported by USAID because many of my conservative Republican colleague’s dislike USAID but really like Hernando de Soto and the ILD without realizing that USAID helped stand it up and supported it for decades.

In 1999, John joined PADF which was started in 1962 as a nonprofit arm with ties to the Organization of American States (OAS). John was always quick to remind you that PADF’s original charter talked about partnerships with the private sector. During his time as Executive Director, John took PADF from less than $10 million in annual operations in 1998 to $95 million in 2017. The organization was, by all accounts, not in a great place when he started, but he recruited a new board, reformulated the mission, recruited new people, and leveraged his relationships around the hemisphere, leading PADF to become one of the premier social enterprises in the Western Hemisphere with major partners including Haiti, Colombia, and the Dominican Republic. John was always very active in Colombia and the Northern Triangle. He had a special place in his heart for Ecuador, where his wife–Cecilia del Pozo–was from.

Over the course of John’s career, things changed dramatically in Latin America and he helped. The United States developed a different kind of relationship with countries in the region barring Nicaragua, Venezuela, and Cuba. In 1970, the adjusted net national income per capita was approximately $450 in Latin America and the Caribbean. According to the Freedom House Index, 11 countries in the Western Hemisphere were labeled as “free” and 4 countries were considered “not free” in 1972. When John retired from the Pan-American Development Foundation (PADF) in 2016, the average national income per capita is $6,407 in Latin America and the Caribbean. According to the Freedom House Index, 23 countries in the Western Hemisphere were labeled as “free” and one was considered “not free” in 2016.

John’s legacy can been seen in the strengthen relationship between the U.S. and the rest of the Western Hemisphere. He also left behind a strong and relevant PADF. As we face challenges in Venezuela and the Northern Triangle and as we embrace opportunities in Argentina, Brazil, and Colombia, we will miss John’s sense of history and his decades of experience.