I've been touting the fact, i.e., as I understand it, that this new US/Mex NAFTA agreement just struck yesterday largely gets rid of investor dispute rules (investor state dispute settlement, or ISDS) that many progressive have long complained about. (To be clear, whether this deal is going anywhere is a whole other story; I'm skeptical.)
I'm working on a piece about how the new deal looks a lot better for workers on both sides of the border than prior agreements, but re ISDS, the very knowledgeable Lori Wallach tell me it "ends the possibility of any future U.S.-Canada ISDS cases. This is huge given major US-Canada cross investment." For Mexico, where domestic courts are less reliable, investors who want to bring a case must first exhaust domestic court and administrative remedies, before turning to new procedures that significantly raise the bar to investor compensation (the fact that the Business Roundtable is already complaining about this part of the deal is revealing in this regard). There is apparently a carve out for investments in Mexican energy production that would allow a small group of U.S. investors the same protections as in earlier agreements, but this looks to have been the negotiating price for the larger advances just noted.
My friend Jay Shambaugh, presumably implying that ISDS ain't so bad, asks the reasonable, though rhetorical (if not snarky: surely Jay, a former Obama-admin economists who's one of my go-to peeps on international trade, knows the answer). Has a company used ISDS under NAFTA to overturn a US law or regulation?
No, meaning fears about the process overriding US sovereign laws have not been realized. If that's Jay's point, it's a relevant one with which I agree.
But their are still at least two big, existing problems. First, ISDS has been used by corporate bullies of rich countries to extract millions in fines and fees from poorer countries, and not for investor takings (which would be legit) but for protections prohibited by trade deals (examples here and here). What I want to see much more in U.S. trade agreements–and Jay might agree–is less protectionism of the advanced countries' investor class and its IP and drug patents, and more lifting of standards in poor countries.
The second problem with ISDS is broader:
Through the backdoor of trade agreements, the ISDS process imposes extreme property rights' concepts rejected repeatedly by Congress and U.S. courts, such as the notion that governments should pay "regulatory takings" compensation to property owners for the right to enforce environmental, health and other safeguards that could undermine the value of their property or investment. We must not solve the problem of weak rule of law among our trading partners by having the broad public bear investment risk or by changing fundamental principles of U.S. law. Instead, investment risk must be borne by the investors themselves; it is their skin, not ours, that should be in the game.
Final point. While the US hasn't lost a case, a country is only really exposed to ISDS risk when partner countries have substantial investments in the other countries in the deal. That's why, according to Lori, "54 of the 56 NAFTA ISDS cases to date attacking U.S. or Canadian laws were brought by investors from the Canada or the U.S., not from Mexico."
Surely, this makes no sense. ISDS isn't in place–or at least it shouldn't be–to be invoked in advanced countries with mature legal systems. Let the nationally-sanctioned, highly functional court systems work it out! (Jay: agree or disagree?.)
In fact, recent journalistic research reveals speculation by financial investors in ISDS cases, wherein investors either purchase companies with the express purpose of filing an ISDS claim or directly bankrolling the cases in order to claim a share of the fine. (Investors refer to this practice as "third-party funding of international arbitration against foreign sovereigns".) Gus van Harten, a law professor who has studied these activities, finds that investors "…can get an award for billions of dollars when that award would never come out in domestic law. It's just a jackpot for speculators."
End of the day, the fact that ISDS hasn't overridden any U.S. laws is comforting and Jay's right to "ask" about it. But that doesn't mean it's non-evil!
Most technology nerds know "tel" as a prefix meaning "transmission over a distance," as in telecommunications, television, or telemarketing. Most are unfamiliar with an altogether different meaning as found in the phrase "technology tel," which is the modern and digital equivalent to an archaeologist's tel.
Archaeologists define tel as a mound created by many generations rebuilding on the same location, where past efforts become foundations for new generations. This meaning of tel arises in locations that humans have inhabited for many centuries, such as the ancient cities of the Near East and Mediterranean.
Similarly, a technology tel accumulates generations of digital infrastructure built in one location, where it serves interdependent or independent functions. Technology tels exist in every major city, and though city dwellers interact with them regularly, they tend to blend into the background.
Unlike its archaeological counterpart, a technology tel accumulates material in a matter of decades or faster, which makes it possible to observe and illustrate its economic determinants. Those economics occasionally gain attention from developers and city planners, and they are worth some attention from anyone interested in the modern digital experience.
FINANCIAL DISTRICTS
Technology tels grow due to three economic factors:
• infrastructure is built in locations where the most users create the most demand,
• the presence of a prior generation lowers the cost of installing the next, and
• technical factors raise the productivity of collocating two distinct pieces of equipment.
These factors reinforce one another, keeping equipment in the same location.
Southern Manhattan contains the mother of all technology tels. Long before the era of modern technology, anyone affiliated with financial markets already crowded into the district. Then, electronics worked their way into the location to serve the industry. It is obvious why. Financial users have long been lead users of information technology, so every financial office needed equipment from the frontier. Accordingly, after the early 1980s, the district became home to LANs, laptops, servers, screens, printers, and WiFi routers. Plenty of advanced infrastructure also found its way there, both to serve the same set of users and to increase effectiveness through collocation. Many workers use the same ISPs, Internet cables, 4G antennae, LAN maintenance staff, and hosting facilities.
Although sharing is efficient, organic growth is uncoordinated and does not stress efficiency. Instead, competition induces duplicate supply. Multiple upgrades of buildings attract the best tenants, so competitive incentives induce earlier upgrades, and the cycle continues—keeping the technology tel near the frontier.
Users and equipment compete for space, driving up its price. And so arises one of the most telling symptoms of a crowded technology tel: Despite expensive real estate, some buildings house data-centers filled with servers for nearby users who demand low latency. Those datacenters also hap-pen to be in place where there is easy access to the fiber. That is as it should be. The functional value of the datacenter is highest there, which contributes to the willingness to pay for the space.
Today, crowding is visible everywhere. Data equipment, servers, and switches inhabit every closet and basement, and antennae and dishes crown the top of every building. Data lines snake through every tunnel and available duct, including Manhattan's bridges. Wires traipse every elevated path-way, especially telephone poles, if available. Aesthetics are optional. Equipment goes wherever it can fit and, in some places, where it should not have gone.
Most crowded technology tels generate spawning, that is, the movement of activity to other locations away from the technology tel, either to escape the price of space or the lack of available space. For example, today, the equipment for the electronic New York Stock Exchange and related ex-changes for high-frequency traders sits in northern New Jersey. These are organized around some datacenters, which, if you think about it, are just miniature technology tels coordinated by a manager.
Crowding and spawning are not unique to southern Manhattan. The same economics created other technology tels in many other locations. Consider the second-largest financial center in North America: Chicago. Yet again, that city contains a large network of preexisting tunnels and conduits to support an enormous knot of wires and connections. All the electronics inside the down-town loop today take advantage of it. In another parallel, part of the electronic infrastructure to support the electronic exchanges also left the financial district. Part resides at a datacenter in Arora, a western suburb, and part resides at a datacenter at 350 E. Cermak, two miles south of downtown.
The latter is a retrofitted printing building (which used to print the Sears Roebuck catalogue, among other things). It is a massive building containing nearly infinite conduits and pipes. With more than a million square feet, I see little reason to doubt its claim as one of the largest datacenters anywhere.
POLICY
The accumulated investments of a technology tel create a number of opportunities and headaches. Catalogue them as growth, neglect, and security.
Growth looks like the attractive part of a technology tel. Once started, an existing location acts as a magnet for more investment and people. For example, in the last few decades, the technology tel built around San Francisco's financial district spawned a nearby technology tel in the area south of Market Street—albeit, with some help from city planners. That area was among the seediest parts of the city during my childhood, but now it's a showcase for technology-led urban growth.
As in the case of San Francisco, organic growth often does not just happen on its own. That motivates a question: Can growth be jumpstarted in a new location by a city planner? Some cities in low-density locations have tried to do so through abatements for property and/or sales taxes, as well as expedited permitting. In recent times, this has worked with a propitious situation, namely, a location next to (transcontinental) access lines and inexpensive (overbuilt) electrical supply.
Critics of such programs note that these programs mostly attract datacenters, which create limited employment for construction work and modest employment thereafter. A moderately sized datacenter employs a few dozen people—maintenance and security staff, and a few technicians—and has limited local consequences. It mostly acts as a footloose secondary facility for backup storage for distant users. Giant warehouses and low-rise buildings (with little architectural beauty) typically do not result in a particularly attractive business district.
The addition of a few steady jobs hardly seems worth the effort and expense. So why do so? For one, if enough such buildings can be located in the same area, it can motivate investment in shared infrastructure, such as cellular towers, which spurs further investment. For two, these mini technology tels generate little traffic, meaning there will be few burdens for public administrators. Many planners in low-density locations would prefer that over nothing.
Even with such modest payoff, it is easier said than done. A thriving technology tel depends on each piece working well. Ask a city planner, and he or she will explain the challenges of lining up all the pieces. A local electrical, cable, or cellular company might fail to keep up with the frontier; a freeway exit might need repaving; or a state agency might drag its feet issuing permits.
Some difficult economic problems also can get in the way. For example, the deployment of 5G has many city planners vexed. The prior upgrade between 3G and 4G lowered the costs of deployment by using the existing rights-of-way and infrastructure, such as towers and pathways for backhaul of signals. As of this writing, however, 5G signals do not operate like 4G signals. That could drive up expenses in a local technology tel that wants to remain relevant.
Security risks raise different issues. Consider the technology tel in Ashburn, Virginia, next to Washington Dulles International Airport. That location became focal because it contained one of the original switches for the Internet, and then AOL and other dot-com wunderkinds moved in. For more than two decades, it has had a momentum all its own, with almost no spawning. Today, this location contains an enormous collection of datacenters, Internet switches, and private firms who take advantage of the connectivity, making it one of the largest technology tels in North America. Any firm trying to service the Eastern Seaboard or the federal government invests there.
Notice the historical irony. Building secure communication infrastructure in military applications provided one of several motives for DARPA to invent packet switching many decades ago. Yet, economic forces have created just about the opposite of what the military wanted: potential for a single point of technical failure due to a concentrated geographic target.
Interdependence links one failure to another in a technology tel, and this too creates potential head-aches. One of Chicago's experiences illustrates this well. In April 1992, some misplaced pile drivers in the Chicago River started a leak in a conduit tunnel, which was first discovered by a workman inspecting fiber lines running through the tunnel. The city ignored the warnings, and the unrepaired leak eventually became a flood. Many basements were served by interconnecting underground tunnels, so the flood spread. Swimming fish appeared in basements. It took a while to clean up. Settling the insurance claims was an even bigger mess.
CONCLUSION
A technology tel is propelled by the relentless urge to build and agglomerate. Crowding and spawning have become part of the landscape. Take a look around you. It is everywhere and notice-able, if you just look for it.
Copyright held by IEEE. To view the original essay click here.
-- via my feedly newsfeed
The empirical studies are finding more and more hysteresis—more hysteresis in the sense of a persistent downward shadow cast by a recession than I would have believed likely. I keep hunting for something wrong with these studies. But there are too many of them. And they all—at least all those published that cross my desk—point in the same direction: Karl Walentin and Andreas Westermark: Stabilising the real economy increases average output: "DeLong and Summers (1989)... argue that (demand) stabilisation policies can affect the mean level of output and unemployment...
As Chief Acolyte of the "hysteresis view", I must protest! The "hysteresis view" has proved correct: Benoît Cœuré: Scars that never were?: Potential output and slack after the crisis: "To be clear... I do believe that deep recessions can have effects on the supply capacity of the economy that may take some time to unwind...
We are not yet at maximum feasible employment: Jared Bernstein: Employment Breakeven Levels: They're higher than most of us thought: "We know neither the natural rate of unemployment nor the potential level of GDP...
Nick Bunker: JOLTS Day Graphs: February 2018 Report Edition: "The quits rate continues to hold steady at 2.2 percent. The rate has been 2.2 percent on average for the past 3 months as well as the past year..
Nick Bunker: "What does this tell us?: ".@de1ong asked so here it is: the Beveridge Curve with the prime employment rate instead of U3...
Josh Bivens: The fuzzy line between "unemployed" and "not in the labor force" and what it means for job creation strategies and the Federal Reserve: "Jobless people are classified into... either unemployed or not in the labor force...
Nick Bunker: JOLTS and the Beveridge Curve
Valerie Cerra and Sweta C. Saxena: The Economic Scars of Crises and Recessions: "According to the traditional business cycle view... our new study casts doubt on this traditional view and shows that all types of recessions...
Simon Wren-Lewis: mainly macro: The Output Gap is no longer a sufficient statistic for inflationary pressure: "From 1955 to 2007 prosperity grew at an average rate of almost two and a quarter percent each year...
Nick Bunker: Just how tight is the U.S. labor market?: "Spoiler: There's room for the job market to improve...
Katharine G. Abraham and Melissa S. Kearney: Explaining the Decline in the U.S. Employment-to-Population Ratio: A Review of the Evidence: "Within-age-group declines in employment among young and prime age adults have been at least as important...
Nick Bunker: Weekend reading: "A jolt in the markets" edition: "This week marks the 25th anniversary of President Bill Clinton's signing the Family and Medical Leave Act into law...
Danny Yagan: EMPLOYMENT HYSTERESIS FROM THE GREAT RECESSION: "This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment...
