Daily Archives: July 25, 2012

Among the oddities of the US system of government is the vice president. The position was created by the Constitution, but the founding fathers neglected to give him anything to do. His only constitutional role is to preside over the US Senate and break ties; he can’t even speak except to deliver vote totals and make the occasional parliamentary ruling; and the vast majority of the time his function is fulfilled by random members of the majority party who serve as president pro tempore of the Senate.

Of course, the vice president becomes president in the event that the president should die in office or resign. Of the 43 men who have served as president, nine achieved the office this way. Additionally, the vice presidency is often a stepping stone to the presidency, with five vice presidents later being elected president in their own right. George H.W. Bush is the most recent to do so.

Therefore, a third of American presidents became president directly or indirectly through the vice presidency. It is a decision to which great thought should be given.

Unfortunately, this is often not the case. The vice president is often chosen to satisfy some political need within a party. For example, Ronald Reagan thought he needed Mr Bush to balance his ticket and soften his image as a hardline conservative.

Ideally, presidential nominees would like to find a vice president who can deliver a big state that he would not otherwise carry. The classic example is John F. Kennedy’s choice of Lyndon Johnson in 1960. He undoubtedly carried the state of Texas for him and helped throughout the South.

Since it is rare for there to be a potential vice president who can carry a key state, presidential nominees often look for vice presidents who appeal to certain interest groups. Mr Bush chose Dan Quayle in large part because he thought his youth would appeal to younger Americans.

The key constraint in terms of using the vice president for purely political purposes is that he or she really does have to be capable of becoming president. Nominating someone who is manifestly unqualified can drag a candidate down to defeat.

It is widely believed that John McCain’s choice of Sarah Palin as vice president in 2008 doomed him to defeat, as it became clear during the campaign that she had neither the minimum knowledge nor temperament to be president.

Consequently, much of the discussion about who Mitt Romney should name has centered on those considered safe choices—people clearly qualified to be president who won’t pull the ticket down.

Current speculation has centered on 5 men: Ohio Senator Rob Portman, former Minnesota Governor Tim Pawlenty, Florida Senator Marco Rubio, Louisiana Governor Bobby Jindal, and South Dakota Senator John Thune. Last week there was also some speculation about former Secretary of State Condoleezza Rice.

Mr Rubio and Mr Jindal clearly are long shots because of their youth and relative inexperience. Some Republicans believe Rubio, who is of Cuban heritage, would help with the fast-growing Hispanic vote, although there is no evidence of this in polls. Mr Jindal, whose parents were born in India, would showcase the party’s inclusiveness.

Political professionals, however, think Mr Romney will probably pick one of the “boring old white men”: Mr Portman, Mr Pawlenty or Mr Thune. Each is qualified to be president and would be unlikely to cause controversy. But none would measurably strengthen the ticket except possibly Mr Portman, who may help Romney carry a state, Ohio, he needs to win.

Some scholars have long been troubled by the common practice of allowing a party’s presidential nomination to have the sole say-so in naming his running mate. Although the party’s convention nominally names the vice president, in practice it merely rubber-stamps the presidential nominee’s choice.

I think it would be a good idea to give parties a bigger role in choosing the vice president. Perhaps nominees could provide the party convention with a slate of acceptable choices and let them sell themselves to party delegates. At least it would add some excitement to an event that is otherwise almost entirely devoid of substance in an era when presidential nominees are chosen by state primaries long in advance of party conventions.

Related link:
US elections 2012 – FT

With global demand seemingly in free fall, both the US and China see increased foreign direct investment as a possible cushion. But despite the US and China having the world’s largest bilateral trade flows, Foreign Direct Investment flows between the two are surprisingly negligible.

During the so-called US – China Strategic and Economic Dialogue, a meeting of respective honchos from both countries, the most heated discussions involve China complaining about US security restrictions on direct investment and America arguing that China is too fixated on promoting “indigenous innovation.” Differences in culture certainly play a role as well, but mismatched motivations in intentions pose an even greater challenge.

Contrary to popular belief, the US accounts for only a few percent of FDI into China. This is puzzling given the prominent role that such investments played in jumpstarting China’s economy, making it among the top two destinations globally, second only to the US. FDI from European countries also has been much higher than from the US, mirroring their stronger export presence in higher end machinery and consumer products compared with the US whose top two export lines are food grains and recycled waste products, which do not warrant supportive FDI.

American affiliates in China also played a surprisingly minor role in mediating the contentious export growth of Chinese-made but American-branded products. US companies have found that retailing is more profitable than production. Thus most of the high valued components are produced elsewhere and only assembled in China, and even then often by overseas firms such as Foxconn (Taiwanese) in the case of Apple. In areas where prominent US brands stand out—fast food and hotel chains—the major costs are on the books of local partners while US multinationals benefit from franchise fees.

These days, American firms entering China are primarily driven by the desire to tap a huge consumer market. But Beijing does not need more capital; it wants technology that is unavailable locally.

No wonder US FDI in China is so trivial.

And going the other direction, even though China’s outward direct investment only became significant recently, a mere 1 per cent so far has gone to the US. Can America create a more receptive climate for China’s inflows given the hostility experienced by Japan decades ago when it was already a US ally?

Chinese companies seeking opportunities abroad are now primarily motivated by the search for resources with showcase examples in Africa and Latin America and a notable victim of politics being Cnooc’s pursuit of Unocal in the United States. That failure contrasts with the Cnooc’s attempted $15bn acquisition of Nexen’s oil and gas assets, which if approved by the Canadian Government could represent a landmark shift in how Canada views the US and China.

Collaboration on clean energy technologies offers such an opportunity. China’s rise to dominance in the manufacturing of solar energy equipment and wind turbines reflects its push to make clean energy a growth industry. Combining state support with acquired technical advances, the resulting scale economies have reduced energy costs to a fraction of what they were only recently.

From the US perspective, however, China’s emergence is yet another example of not playing by the rules. Public attention is dominated by the anti-subsidy cases filed against China by a small group of US clean energy manufacturers even though they run counter to the wishes of the larger numbers involved in distribution.

The politically charged scrutiny of bankrupt Solyndra’s access to US loan guarantees confirms that the clean energy business is risky. But given the environmental and energy security benefits, most countries provide subsidies. Without the technical improvements and volumes to lower costs, commercially viable approaches will remain unrealised. As the two biggest carbon emitters globally, the US and China have the most to gain.

Beneath all the sparring, however, investors from both countries are starting to make deals. China concentrates in relatively low margin hardware and assembly while American firms focus on niche, higher valued-added upstream production or more profitable downstream installation. Rising labour costs in China combined with the benefits of proximity to technology centers and more sophisticated markets are starting to generate proposals to produce more in the US. This provides an option similar to the relocation of Japanese auto plants to the US which helped to ameliorate tensions.

With US funding for clean energy drying up and pressures to develop lower cost approaches mounting, both sides should channel their political capital into encouraging mutually beneficial arrangements rather than entering into protectionist battles.

The writer is a senior associate at the Carnegie Endowment and a former World Bank country director for China.

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