Roosevelt 2009

ideas
10 for

economic
development
 10 Ideas for Economic Development
Summer 2009

National Director
Hilary Doe

Chair of the Editorial Board

Gracye Cheng

Director of Center for Economic Development

Lucas Puente

Senior Fellow
Daniel Townsend

National Editorial Board

Clayton Ferrara
Frank Lin
Fay Pappas
Melanie Wright
Yunwen Zhang

The Roosevelt Institute Campus Network

A division of the Roosevelt Institute
2100 M St NW
Suite 610
Washington, DC 20037

Copyright 2009 by the Franklin and Eleanor Roosevelt Institute.

All rights reserved.
The opinions and statements expressed herein are the sole view of the authors and do
not reflect the views of the national organization, its chapters, or affiliates.
 ideas
10
for

economic
development
This series was made possible
by the generosity of
Mr. Stephan Loewentheil.
 P
Table of Contents
An End to Agricultural Subsidies: Introducing an Insurance Model 8
Katherine Blaisdell

Tax Policy and Innovation: the R&D Tax Credit 10

Sanjay Bhatt

The Dangers of Fair Value Accounting 12

Matthew McCullough

American Asset Management Program 14

Atif Ali, Shan Khan, Naakorkoi Pappoe, Kai Zhang

Islamic Banking: the Alternative Pillar of Prosperity 16

Jian Wei Ang

Promoting Community Banks in Under-Banked Markets 18

Eric Jones, Joseph Geylin, Tsuki Hoshijima, Ryan Beauchamp,
and Nathanial Schwalb

A Volunteer-Based Solution to Homelessness in Small Cities 20

Daniel Hornung, Catherine Osborn, Samuel Garner, Lepi Jha,
and Steven Winter

Saving the MTA and Reducing Urban Congestion 22

Michael Spitzer-Rubenstein

Combating Demographic Imbalance in Vermont 24

Hallie Fox, Claire Williams, Mai Ann Healy, Maggie O’Hara,
and Scott Klenet

Commodity Tracking to Reduce Violence in the DRC 26

Kelly Steffen
p Letter from the Editor
E arlier this year, the Roosevelt Institute Campus Network adopted Think Impact, a
model that re-emphasized our organization’s founding goals of looking to young people
for ideas and action, twin forces necessary in the pursuit of change.

The ideas you will read about in this year’s first 10 Ideas series are the result of the ad-
mirable creativity, hard work, and scholarship of Roosevelters. These publications—on
Defense and Diplomacy, Economic Development, Education, Energy & the Environment,
Equal Justice, and Health—are also a testament to these authors’ engagement with the
world. In environments that can be insular, Roosevelters show a willingness to look out-
wards, to think critically about problems on a local, state, and national level.

But, to this end, these publications should only serve as a starting point of a greater
process. Roosevelters must be willing to act in the communities where these ideas can
most effect positive change. For concepts that you find inspiring, we hope that you are
motivated to leverage them for the benefit of your own campus, city or state, and that
you seek out channels and movements through which to bring these ideas to fruition.
And, in instances where you disagree, we hope that you are challenged to see how you
might improve on or adapt an idea.

Gracye Cheng
Chair of the National Editorial Board
 Strategist’s Note P
The Center for Economic Development focuses on proposing and implementing
progressive policy solutions for the domestic and global economy. While many of most
exciting proposals have been targeted national issues, such as financial regulation and
utilization of TARP funds, many of our ideas focus on local and state issues. In fact, a
recent emphasis on addressing local issues has been a highlight of Roosevelt’s work in
spring of 2009.

Specifically, Roosevelt began rolling out an exciting new initiative at the beginning of this
semester, called “Think Impact.” Essentially, the idea of this program was to get Roosevelt
chapters across the country organically involved in policy-making decisions in their own
communities. For better or for worse, college campuses have a significant impact on the
local population and Roosevelt felt that it should lead the charge in making this impact
a net positive. Thus, chapters started projects that set out to address their community’s
particular challenges. For instance, Roosevelt students at Northwestern University have
proposed a plan to fund anti-homelessness measures as well as mitigate panhandling in
Wheaton, Illinois by retrofitting parking meters into donation collection devices. Addi-
tionally, students at the University of Wisconsin have worked with their Deputy Secretary
of Commerce to come up with an effective and pragmatic tax incentive to draw venture
capital for energy technology.

Overall, I am very proud of the work that the Center for Economic Development has con-
ducted this semester. In addition, we have laid out a solid foundation for future project
and policy proposals that promises to be well utilized in the coming semesters. However,
I am most proud of the high quantity and substantive nature of our work. Of course, life
as undergraduate is full of studying for exams, writing papers, and preparing for class- not
to mention extracurricular obligations. Without a doubt, all of these factors contribute
to an unpredictable schedules and a level of busyness that makes external academic-
oriented undertakings quite difficult to undertake, much less maximize. Nevertheless,
Roosevelt students have gone above and beyond the call of duty by producing such high
quality and influential work, many times without direct academic or financial support or
incentives. I hope you will join me in saluting this work and appreciating the dedication of
Roosevelt students across the country.

Lucas Puente
Lead Strategist for Economic Development
An End to Agricultural Subsidies:
Introducing an Insurance Model
Katherine Blaisdell, Chapman University

The government should get rid of agricultural subsidies, which have failed in
their purpose and added to a global crisis of food security and failing trade rela-
tions. Rather than spending $28 billion per year on agricultural subsidies8 which
continue to support inflated prices on monocultural commodity crops,9 an insur-
ance program should be established that would provide stability to American
agricultural markets.

History
The top 7% of agricultural corporations receive 45% of US agricultural subsidies,1 subvert-
ing the goal of saving the jobs of small family farmers, many of whom receive no subsidies
at all.2 For example, wealthier
farmers in California who can
afford to switch to more market- Key Facts
able crops and healthier crop ro- • Agricultural subsidies cost $28 million a year.
tation receive more money from • The elimination of subsidies alone would in-
the market, while poor farmers crease the income for West African cotton
maintain soil-depleting and de- farmers by 5.7% per year.
pressed-price cotton and grain • The $3.3 billion spent on cotton subsidies
crops in order to continue re- alone12 could turn cotton into school uniforms
ceiving a government paycheck.3 and its profits into food for African children
In essence, subsidies counteract through the UN World Food Program.
both the lifting influence of free
markets and the leveling effect of
fair trade.

Abroad, America’s trade relations suffer as other nations refuse to negotiate with coun-
tries that refuse to remove heavy subsidies.4 Foreign countries suffer under the weight
of US products that flood the market below cost.5 The US thwarts its own international
development and trade goals as its agricultural policy has assumed that cheap food is
the way to end hunger, when in fact freer trade has made poor countries poorer as sub-
sidized US grain floods their markets and undo the critical livelihood of local farmers.6
Traditional subsistence farmers cannot continue to grow food by sustainable methods
when subsidies and agricultural policies force them to resort to the luxury crops and
environmentally risky methods promoted by US foreign aid agencies.7

Analysis
There is an alternative to the current policies which would promote the interest of US
trade as well as humanitarian goals. Rather than spending $28 billion per year on agri-
cultural subsidies8 which continue to support inflated prices on monocultural commod-
ity crops,9 an insurance program should be established that would provide stability to
American agricultural markets.
Domestically, the recovered funds could be used to promote local, small-scale, and or-
ganic produce to improve American diets and preserve American farmland.10 Abroad, the
elimination of subsidies alone would increase, for example, the income for West African
cotton farmers by 5.7% per year, enough to feed two children per family.11 The $3.3 billion
spent on cotton subsidies alone12 could turn cotton into school uniforms and its profits
into food for African children through the UN World Food Program. With the remaining
$25 billion, domestic women’s and children’s nutrition programs could be doubled, and
domestic conservation programs tripled, with $4 billion left over to refine nutrition and
sustainability programs abroad.13

Next Steps
Establishing this alternative will not be easy. Bipartisan support for such cost-cutting and
economically sound proposals often wavers under the pressure of agribusiness lobbies.
An amendment to the 2007 Farm Bill, proposing a replacement of subsidies with insur-
ance programs among other reforms, failed in the Senate in December 2007,14 primarily
because its short time on the table left misgivings about the way important Congressio-
nal districts would be affected. In addition,
the public perception that foreign aid takes
Talking Points away from resources needed for American
• Many small family farmers receive issues will be difficult to overcome, particu-
no subsidies at all. larly in a time of economic concern.
• Freer trade has made poor coun-
tries poorer as subsidized US grain However, a careful reappropriation of subsi-
floods their markets and undo the dy money would have greater success than
critical livelihood of local farmers. other reforms because it would actually put
more money into poor farming communities
through conservation and nutrition pro-
grams that make a more sustainable agriculture viable. Such a change would contribute
to meeting our still unmet foreign aid commitments, ensure healthy American farms and
families through more sound investment, and advance the goal of creating stable societ-
ies by ending world hunger.

Sources
1. Tupy, M.L. (2005, November 25). Who Pays for Farm Subsidies?. Retrieved February 1, 2008, http://www.cato.org/pub_display.php?pub_id=5233.
2. Carter, J. (2007, December 12). Subsidies’ Harvest of Misery. Washington Post. Retrieved February 1, 2008 from http://www.globalpolicy.org/
socecon/trade/subsidies/2007/1212harvest.htm.
3. Lochhead, C. (2007, December 14). Farm bill amendment to limit crop subsidies plowed under in Senate. San Francisco Chronicle. Retrieved
February 1, 2008 from http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/14/MN2STTMCE.DTL.
4. Dougherty, C. (2007, June 21). Global trade talks collapse over agricultural subsidies. International Herald Tribune. Retrieved February 1, 2008
from http://www.iht.com/articles/2007/06/21/business/wto.php.
5. Carter, J. (2007).
6. N.A. (2007, October 20). World Bank Says Agriculture Must Take Center Stage in Development. Agence France Presse. Retrieved February 1,
2008 from http://www.globalpolicy.org/socecon/trade/subsidies/2007/1020wb.htm.
7. Vargas Guerrero, José. (2007). Vice President, Asociación Familias Emprendedoras de Tabarcia, Mora, San José, Costa Rica. Personal com
munication, November 2007.
8. US Dept. of Agriculture. (2008). Budget Summary. Retrieved February 2, 2008, from http://www.obpa.usda.gov/budsum/fy08budsum.pdf.
9. Lugar, R.G. (2007, December). The FRESH Amendment. Retrieved February 2, 2008 http://lugar.senate.gov/farmbill/pdf/FRESH_amendment.pdf.
10. Lochhead, C. (2007, December 14).
11. Grunwald, M. (2007, November 2). Why Our Farm Policy Is Failing. Time. Retrieved February 2, 2008 from http://www.time.com/time/magazine/
article/0,9171,1680139,00.html.
12. Ibid.
13. Information from USDA (2008), my calculations.
14. Lochhead, C. (2007, December 14).

9
Tax Policy and Innovation:
The R&D Tax Credit
Sanjay Bhatt, Brown University

The R&D Tax Credit should be made a permanent part of the U.S. federal tax
system because it provides the best policy solution to encourage economic
growth and innovation.

The current U.S. federal tax system discourages innovation and economic growth for
both large corporations and small, local businesses because it lacks a stable tax credit
for research and development. Tax legislation and reform is therefore the best way to
make the system of taxation more favorable for expenditure on research, development,
and innovation-based rent-seeking. Legislating the R&D Tax Credit into permanence is
the best policy solution to encourage economic growth and innovation, as it is based on
sound theory, has been proven to work, simplifies the current tax system as it deals with
innovation, and most importantly, is
the most politically feasible alterna- Key Facts
tive on the table.
• President George W. Bush retroactively
extended the R&D Tax Credit through
Analysis
2009 and increased the Alternative Sim-
Research and development (R&D)
plified Credit from 12% to 14%.
tax credits can be made permanent
• President Obama supported the tax cred-
in order to increase the incentive for
it by using the permanence of the credit
reinvesting funds in future innova-
as part of his technology, innovation, and
tion and to eliminate the uncertainty
domestic job-creation platform during the
caused by expiring and ever-chang-
2008 election campaign.
ing R&D tax credit policies. R&D
credits can even work in conjunction
with other options such as reduced
capital gains taxes to multiply the effect of savings and reinvestment in economic growth-
enhancing operations. The permanence of such a measure is a complex issue, as the R&D
tax credit has never been made permanent and has been changed or extended over 11
times since it was created in 1981.

This creates a certain level of uncertainty for businesses making long-term R&D-related
decisions. An ideal, permanent, R&D tax credit should also include the existing Alterna-
tive Simplified Credit to encourage R&D in the event that a company’s earnings or finan-
cial situation changes so that it cannot claim the regular R&D credit since R&D credits are
governed by a “base period” that establishes a R&D spending-to-gross receipts ratio for
a company to qualify for the credit. An Alternative Simplified Credit therefore covers all
possible situations and encourages widespread participation in the R&D Tax Credit pro-
gram, thereby further encouraging R&D expenditures regardless of changing economic
conditions and earnings. An ideal policy would also increase the Alternative Simplified
Credit rate to allow the U.S. to better face international competition by expanding U.S.-
based R&D. It should also be set at a rate eligible for permanency (i.e. included as part of
a clause that sets a permanent floor rate but allows legislators to increase the rate).
The R&D tax credit has proven to be successful in the past and is not a new, complicated,
or risky mechanism, but rather functions as it should by altering corporate behavior by
encouraging spending on research and development. More importantly, it is politically
attainable. President George W. Bush, as part of the original $700 billion financial bailout,
retroactively extended the R&D Tax Credit through 2009 and increased the Alterna-
tive Simplified Credit from 12% to 14%. President Obama and Vice President Biden also
supported the tax credit by using the permanence of the credit as part of their technol-
ogy, innovation, and domestic job-creation platform during their 2008 election campaign.
The R&D tax credit certainly speaks to Democrats, as more than 70% of the benefits go
towards American salaries on US-based research. Pro-market conservatives and Re-
publicans consistently support the R&D tax credit as it stimulates short-term business
investment and is essentially a corporate tax cut.

Next Steps
Several policy alternatives exist to reform tax policy in a manner more conducive towards
U.S.-based innovation. Of these alternatives, the push to make a permanent R&D tax
credit (with a solid Alternative Sim-
plified Credit included) is the best
Talking Points because it is the only option that sat-
• The R&D tax credit has proven to be suc- isfies all of the aforementioned crite-
cessful in the past and is not a new, com- ria needed for an effective policy. It
plicated, or risky mechanism. is based on sound economic theory
• Past political action shows that it is a fea- and will work in practice with little to
sible policy. no unwanted externalities. It simpli-
fies a portion of the tax system by
eliminating continual changes to R&D
tax treatment policy. Most importantly, it is the most politically feasible option since it
can appeal to both Democrats and Republicans even in the midst of the current eco-
nomic crisis. Finally, there are large bills that have recently passed which have included
forms of the R&D Tax Credit, thus further illustrating the flexibility of such a policy that
can and has passed through several independent bills over the past 25+ years and in a
larger emergency legislative vehicle, as is the more recent case.

Sources
“Plan to Strengthen the Economy,” BarackObama.com, http://www.barackobama.com/issues/economy/ (ac
cessed March 16, 2009).
“Legislative History of R&D Credit Extensions,” R&D Credit Coalition, http://www.investinamericasfuture.org/
PDFs/233051.pdf (accessed February 18, 2009).
“Alternative Simplified R&D Credit,” R&D Credit Coalition, http://investinamericasfuture.net/factsheet-9-
24b-03.html (accessed March 14, 2009).
“Plan to Strengthen the Economy,” BarackObama.com, http://www.barackobama.com/issues/economy/ (ac
cessed March 16, 2009).

11
The Dangers of Fair Value Accounting
Matthew McCullough, University of Michigan
In order to encourage clarity in financial reports and stability in the financial
sector, fair value accounting must be removed from the Generally Accepted Ac-
counting Principles that guide financial accounting in the US.

Fair value accounting attempts to provide transparency by valuing assets at the price
yielded if liquidated immediately – making it quite sensitive to the market. Fair value
accounting works through mark-to-market (MTM) accounting: assets are listed at their
market price if openly traded or otherwise priced based off a model of the market of
similar or input goods or, for more complex assets, a model of theoretical predictions
(McTeer 2009). The alternative is historical-cost analysis, which uses historical data to
value assets and usually mitigates the effects of market volatility.

In 1938, President Franklin D. Roosevelt

suspended MTM accounting; Nobel Key Facts
laureate Milton Friedman has decried • MTM accounting means assets are
MTM accounting as being the “most im- listed at their market prices when
portant source of impairment of capital” openly traded. Otherwise, prices are
that caused banks to shut down in the based off a model of similar goods.
Great Depression (Berry 2008). In 1994, • Of the over $700 billion of losses in
the Financial Accounting Standards the current financial crisis, a vast ma-
Board (FASB), an agency appointed by jority have been write-downs in MTM
the SEC to determine the Generally Ac- accounting.
cepted Accounting Principles, formally
reintroduced MTM accounting with FAS
115 (McTeer 2009), and the practice be-
came widely used In the late 1990s. In 2006, the FASB issued FAS 157, which classified
assets that could be valued with MTM accounting. In a Congress-mandated report by
the SEC on December 30, 2008, it was recommended that MTM accounting should be
kept, but improved.

MTM accounting is an exceptionally dangerous technique that must be avoided in all

financial accounting. It magnifies economic and financial fluctuations: when markets are
growing, MTM accounting presents enormous unrealized gains, over-inflating the actual
success of the company. Of the over $700 billion that banks have recorded in losses in
the current financial crisis, the vast majority of it has been write-downs in MTM account-
ing, not actual cash losses (Forbes 2009).

While FAS 157 was supposed to address this concern, it was not enough to curb the cur-
rent crisis. As banks issued mortgage-backed securities, there was no real market for the
assets involved. Their value was extrapolated from housing prices, default rates, rates
of prepayment and curtailment, time to maturity, interest rates, and more. Banks were
given discretion to make their own models and assumptions to value these assets, allow-
ing them to announce enormous profits without gaining capital. Most dangerously, MTM
accounting left the financial sector’s stability subject to market fluctuations.
Now, MTM accounting is forcing banks to value assets at nearly nothing, with two sig-
nificant consequences (McTeer 2009). First, toxic bank balance sheets have severely
restricted even responsible lending—an important tool for ending the crisis. Second,
by forcing low asset valuations, MTM accounting is pressuring banks to sell assets at or
slightly above these low prices because on paper this is recorded as profit, even if it is a
huge loss from the initial purchase price. This drives prices down to artificially low levels
and prevents banks from suffering much less severe losses if they hold onto the assets
and sell later (McTeer 2009).

Stakeholders
This proposal has mixed support in and out of Congress. In late 2008, Republicans were
in favor of suspending MTM accounting in the short term and Democrats were split on
the issue. Recently though, Barney Frank (D-MA), chairman of the House Financial Ser-
vices Committee, has expressed support for re-evaluating MTM accounting, indicating
that this sort of proposal could be successfully pushed through a Democratic Congress.
The banks were very much in favor of temporarily suspending MTM accounting, but
a proposal for permanent changes
might face opposition and some
Talking Points lobbying pressure from the indus-
• MTM accounting is a dangerous technique try. Also, regulators might oppose
that magnified economic volatilities. this, arguing that it would hurt trans-
• MTM accounting allows banks to post prof- parency (Lin 2009).
its without gaining capital.
• Currently, MTM accounting has severely Next Steps
restricted even responsible lending—an im-
With the clear dangers that MTM
portant tool for ending the crisis.
accounting presents, Congress
• MTM accounting is also forcing banks to
must act. Congress should order
sell assets at low values, deepening losses.
the FASB to study and find the
best alternative to MTM account-
ing within a year. This alternative
should at least partially incorporate the principles of historical-cost accounting but could
allow for limited consideration of market factors, with specific guidance as to how. Also,
the SEC and other regulators should be allowed to privately request MTM evaluations
for regulatory purposes and confirmation that public figures are reasonable. Fortunately,
an April 3rd decision that changed MTM accounting for assets without a market, target-
ing the securities that were primarily responsible for damage to the US financial sector,
has provided temporary relief, giving lawmakers time to find the best alternative without
any further danger to the economy (Lin 2009).
Sources
Berry, John. 2008. Reverse leverage of mark-to-market wrecks banks. Bloomberg. (October 13). http://www.
bloomberg.com/apps/news?pid=20601039&refer=columnist_berry&sid=a2VMZQ7uujvw (accessed April 5,
2009).
Forbes, Steve. 2009. Steve: End mark-to-market. Forbes. (March 23). http://www.forbes.com/2009/03/20/
steve-forbes-mark-to-market-intelligent-investing-market.html (accessed April 5, 2009).
McTeer, Robert. 2009. Mark-to-market accounting: Shooting ourselves in the foot. National Center for Policy
Analysis. (March 24). http://www.ncpa.org/pdfs/ba648.pdf (accessed April 5, 2009).
Min, David. 2009. Keep marking to market. Center for American Progress. (April 1). http://www.american
progress.org/issues/2009/04/market_fasb.html (accessed April 5, 2009).

13
American Asset Management Program
Atif Ali, Shan Khan, Naakorkoi Pappoe, Kai Zhang
University of Texas at Austin

The United States should transform Troubled Asset Relief Program (TARP) into a
new sovereign wealth fund known as the American Asset Management Program
(AAMP).

In October of 2008, the U.S. Treasury established the Troubled Asset Relief Program
(TARP) in an attempt to rescue the U.S. financial sector as it suffered from toxic assets;
however, the average American taxpayer has seen little or no benefits from the pro-
gram. A new plan can be forged to transform TARP into an American Asset Management
Program (AAMP). With AAMP, equity assets currently managed under TARP would be
reserved as preferred shares or converted to common stock, while the cash portion of
the fund would be used to make effective investments in domestic asset classes. This
new model for TARP holds the potential to significantly magnify the return to American
taxpayers as outlined below.
Key Facts
Implementation • In October 2008, the U.S. Treasury established
To implement AAMP these the TARP program with $700 billion; amongst it
three measures would need $303 billion was invested in preferred stocks.1
to be sought after by Treasury • The S&P 500 rate of return over the past five
Secretary Timothy Geithner years has been 7.6%. If the $303 billion preferred
with the time remaining be- stock produces a conservative 5% nominal com-
fore the expiration of TARP: pound annual return rate, AAMP may grow to
about $661 billion by 2025.2
1. New negotiations would • Today there are 48 sovereign wealth funds world-
need to take place be- wide, managing approximately $3.59 trillion.3
tween the Treasury and
current recipients of TARP
funds. These negotiations would focus on either a timeline for the return of funds
or the approval of long-term investment in the recipients. Over the past month four
recipients have returned their borrowed funds while many more have outlined a
timeline for the return of major TARP funds before the end of the year.4

2. Current managers of TARP funds would continue their services exclusively un-
der government payrolls, while the Treasury seeks auxiliary managers with asset-
specific expertise.

3. A board of directors serving as a regulatory mechanism would need to be ap-

pointed for the purpose of monitoring and reporting to Congress the activities of
AAMP. The board of directors would be made up of nine individuals. Ideally this
board would comprise of two individuals from each of the following departments:
Treasury, Office of Management and Budget, and the U.S. Government Account-
ability Office. In addition to these six people, the board of directors will include the
chairmen of the U.S. Senate Committee on Banking, Housing, and Urban Affairs,
the U.S. House Committee on Financial Services, and the chief executive officer
 of AAMP. All of the above, except the committee chairmen, would need congres-
sional approval and could be nominated by their respective agencies or the presi-
dent’s office.

Benefits to the U.S.

• Foreign investments will counter American capital account deficits by increasing
our net income and net ownership balance.

• Creating intergenerational equity. Taxpayers are paying for much of the fund to-
day, but have in recent times already burdened future generations of Americans. To
recoup losses from already invested TARP money, we will invest the money to gain
benefits for our future generations, ex. New Mexico started a special investment
fund to “preserve the permanent endowment funds for future generations and to
provide future benefits by growing the funds at a rate at least equal to inflation.”5

• Pool of capital can be used to prevent future crises. This new fund can be used as
a permanent vehicle to stabilize the market and U.S. dollar value in the future, ex.
A similar fund run by the Hong Kong Monetary Authority effectively prevented the
collapse of the Hong Kong stock market in 1998.6

Talking Points
• Yearly profits from AAMP can finance future government programs, reduce tax
rates or increase tax returns, and stem American debt sales by providing a new
source of funding.
• AAMP will provide economic growth from investments and fulfill the objectives
outlined above.
• Publishing financial data and investment strategies makes it harder for AAMP to
be used as political gain tool.
• AAMP allows the U.S. government to invest both domestically and abroad, coun-
tering capital account deficits; helping soothe fear of foreign ownership of Ameri-
can debt and corporate institutions.

Sources
1 Paul Steiger, “Show Me the TARP Money,” ProPublica, April 3, 2009, http://www.propublica.org/special/
show-me-the-tarp-money (accessed April 6, 2009).
2 “Where Have All the Returns Gone,” Index Fund Advisors, Feb. 2008, http://www.ifa.com/quoteoftheweek/
index48.asp (accessed May 2, 2009).
3 “Largest Funds by Assets Under Management,” Sovereign Wealth Fund Institute, Mar. 2009, http://www.
swfinstitute.org/funds.php (accessed May 2, 2009).
4 Eric Dash, “Four Small Banks Are the First to Pay Back TARP Funds,” New York Times, 31 March 2009.
thestandard.com.hk/news_detail.asp?pp_cat=&art_id=48383&sid=&con_type=1&d_str=19980829&sear_year=1991
(accessed April 5, 2009).
5 “Permanent funds,” New Mexico State investment Council, 2009, http://www.sic.state.nm.us/permanent_
funds.htm (accessed April 6, 2009).
6 Bayani Cruz, “We will hold on to blue-chip shares: Tsang,” The Standard, http://www.thestandard.com.hk/
news_detail.asp?pp_cat=&art_id=48383&sid=&con_type=1&d_str=19980829&sear_year=1991 (accessed April 5,
2009).

15
Islamic Banking:
The Alternative Pillar of Prosperity
Jian Wei Ang, University of Michigan

With the increasing growth of Islamic Banking as a credible alternative to the

conventional banking system, the USA should capitalize on this phenomenon to
reaffirm itself as the global financial hub of the world.

Islamic banking is a banking system that is founded on the rejection of interest-based

financial transactions, as is consistent with Islamic law (Venardos 2006). The practice
appears set to enjoy rapid global growth at a rate of 15 to 20 percent, with Dubai and
Malaysia leading the way (Parker 2007). As of 2008, the top 100 largest Islamic banks
have outpaced conventional banks with an annual asset augmentation of 26.7 percent
(Zawya 2008). The United Kingdom, sensing this huge opportunity, has taken bold steps
in encouraging the proliferation of Islamic Banking within its borders, making it the Euro-
pean leader in this arena.
Key Facts
Despite global interest, the growth • There are more than 300 Islamic Banks
of Islamic Banking within the USA and investment firms globally. This figure
has been relatively lackluster (Zaidi excludes traditional banks with Islamic
2008). With a Muslim population of Banking operations.
3.5 percent presenting an untapped • In 2005-2006, the global Islamic financial
market, the USA stands to lose its institutions manage more than $800 bil-
global financial leadership as other lion dollars worth in assets.
global financial centers such as Lon- • Islamic investments in European property
don, Dubai and Singapore continue reached a formidable $2.5 billion in 2005.
nurturing the growth of Islamic Bank-
ing in tandem with the conventional
banking system.

The latest debacle of the credit-crunch crisis in the USA has prompted several sugges-
tions that Islamic Banking might prove to be a credible financial alternative. Though such
claims are still debatable, they should not be brushed aside without due consideration.

Competition
As of now, the UK already offers Sharia-compliant car insurances, mortgages and credit
cards, which are unheard of in the USA. In the 2008 Global Financial Centers rankings,
New York and Chicago were the only two North American cities that ranked in the top
10; the rest were Asian and European cities (Reuters UK 2008). In light of the financial
crisis, the United States must adopt necessary measures to innovatively reinvigorate its
financial system to avoid being outperformed.

Economic Opportunities
With 1.82 billion Muslims in the world as of 2009, the market opportunities of encouraging
Islamic banking are enormous. Some Muslims shun the conventional banking system due
to its use of interest rates, which is prohibited in Islam. Furthermore, despite the recent
financial crisis, Islamic banks have been less affected, as they are prohibited from invest-
ing in activities that have contributed to the credit crunch (Opalesque 2009). Besides
catering to an untapped market, Islamic banking also provides risk-averse Americans an
alternative source of investment.

Foreign and Domestic Policy

Islamaphobia is cited as one of the reasons contributing towards the lackluster recep-
tion of Islamic Banking in America. Encouragement of this banking system would send
a message to the Muslim world that the USA is willing to embrace an Islamic concept.
Domestically, the acceptance of Islamic banking as a legitimate option might help ease
fears that link Islam to terrorism.

Talking Points
• Its fast growth means that the U.S. needs
to implement Islamic banking to stay com-
petitive globally.
• Islamic banks are prohibited from invest-
ing in activities that have contributed to
the current credit crunch (Opalesque
2009).
• Supporting Islamic banking will show that
the U.S. is willing to embrace a key Islamic
concept.
Next Steps
The Treasury Department should first
set up a committee comprised of ex-
perts on sharia law to advise the gov-
ernment regarding implementation.
Financial incentives such as tax cred-
its should be offered to international
banks such as HSBC, Standard Char-
tered and Citigroup that invest in es-
tablishing Islamic banking services in
the USA. These international banks
with Islamic assets worth billions of
dollars already have experience with
running Sharia-compliant operations.

The growth of Islamic Banking cannot be the responsibility of the executive branch alone.
The executive government should publicly support the growth of Islamic banking, while
legislators should be prepared to hammer out banking legislation that might be different
from conventional laws.

Sources
Opalesque. Islamic banks less affected in global recession. February 10, 2009. http://www.opalesque.com/
IslamicFinance_Briefing/?p=1137 (accessed April 5, 2009).
Parker, Mushtak. Islamic Banking in 2007 Set for Massive Growth. January 1, 2007. http://www.arabnews.com/
?page=6&section=0&article=90559&d=1&m=1&y=2007 (accessed April 5, 20089).
Reuters. FACTBOX: Key facts about Islamic finance. March 21, 2007. http://www.reuters.com/article/summit
News2/idUSL214795420070321?pageNumber=1&virtualBrandChannel=0 (accessed April 3, 2009).
Reuters UK. London tops list of global financial centres. June 10, 2008. http://uk.reuters.com/article/domestic
News/idUKN0930207120080610 (accessed March 26, 2009).
Venardos, Angelo M. Islamic Banking & Finance in South East Asia. Singapore: World Scientific Publishing Co.
Pte. Ltd, 2006.
Zaidi, Supna. U.S. Government Embraces Islamic Banking. November 24, 2008. http://pajamasmedia.com/
blog/us-government-embraces-islamic-banking/ (accessed March 28, 2009).
Zawya. Islamic banks post 26.7% growth rate. March 25, 2008. http://www.zawya.com/story.cfm/sidZAW
YA20080325033525 (accessed March 30, 2009).

17
Promoting Community Banks
in Under-Banked Markets
Eric Jones, Joseph Geylin, Tsuki Hoshijima, Ryan Beauchamp, Nathaniel Schwalb
Yale University
Policy-makers should aim to provide loans, grants, tax cuts and other forms of fi-
nancial assistance towards the opening and expansion of community banks and
credit unions in low-income communities which lack access to the mainstream
banking sector.

In 1994, 20% of all assets were held in community banks or credit unions; as of 2005,
that share had fallen to 12%. Similarly, the number of community banks dropped in that
time from more than 10,000 to 7,200. As larger firms sought to become more competi-
tive, consolidation through acquisition of smaller community banks became a common
practice.
Key Facts
As lending policies liberalized,
• 35% percent of Ecuadorians, 64 percent of
these consolidated national
Salvadorans and 75 percent of Mexican immi-
firms were better able to secure
grants are unbanked.
financing for risky loans, thus ac-
• In 2006, the United States issued $42.2 billion
quiring an even larger portion of
worth of remittances, the majority of which
the market share. These lenient
were sent through non-mainstream financial
lending policies helped lead to
services at significant cost to the customer.
the current financial recession,
• Some of the reasons why community members
the effects of which include
had not participated in the mainstream bank-
stricter lending policies for the
ing system include: lack of personal attention,
low income population, many
inadequate knowledge of financial services,
of whom have never been part
and high cost fees, all of which can be solved
of the mainstream financial sys-
through the establishment of more community
tem.
banks.
Community banks are now bet-
ter positioned than ever to fill
this need and serve the under-banked community, a vast portion of which are legalized
immigrants. Through personalized, attentive banking, community banks mitigate the risk
involved with servicing low-income customers. Unlike larger, national banks, which may
take deposits in one area and make loans in another – transferring the wealth to a differ-
ent area – community banks keep the wealth in the community.

Basic banking services like checking accounts, savings accounts, and debit cards need
to be more accessible. Legacy Bank in Milwaukee offers free checking accounts that can
be opened with a $25 balance. This low balance was extremely successful in attracting
previously unbanked customers to the bank. Over-drafting fees were lowered, while
the risk to the bank from continual over-drafting was mitigated by personalized banking
(employees would look at an account, observing over-drafting tendencies and contact
the customer) as well as remedial financial literacy classes. Incorporating financial lit-
eracy classes as a mandatory component of opening a checking account or replacing
over-drafting fees with financial literacy classes are two great strategies for educating
bank customers. The bank also offered accounts to people who had been previously
rejected by the financial system due to a poor history of check-bouncing. Additionally,
in offering alternative payday loans, banks can win customers away from the oft-used,
non-mainstream, predatory payday lenders. For example, North Side Bank in Chicago
has gained over 1,000 new members through its PAL loan. In comparison to the average
payday loan, which has a 14 day payment fee, and high rollover fees, the PAL loan has a
six month term and will cost the customer at most $54 for a $500 loan; a similar loan from
a predatory lender could cost over $540.

Another even more profitable venture for these banks is remittances. Through a third par-
ty company such as Vigo, community banks can operate as agents and retain a significant
amount of profit. Bethex Federal Credit Union in the Bronx offers remittance services
for $40, for orders up to $1000, with up to 80% of the $40 taken as profit. In addition to
being more reliable, this 4% charge is actually less expensive than with non-mainstream
remittance senders who
often charge up to 20%
Talking Points for their services.
• Increasing the number and capacity of community
banks in the United States provides both an oppor- Next Steps
tunity to take advantage of an untapped market sec- One example on effec-
tor while also providing financial safe haven for those tive policy already in
subject to predatory lenders, unscrupulous check- existence is “Individual
cashers, and high-cost remittance senders. Development Accounts
• Community banks can serve a vital role in increasing (IDA)” offered by the
community involvement, spreading financial knowl- state of Connecticut. In
edge, and cutting down on illegal and unregulated this program, the state
banking systems. matches deposits in sav-
ings accounts for first-
time, low-income, account
holders. Another, less expensive option is to offer shared-liability for community banks
that accept first-time and delinquent account holders. In this case, the state or federal
government would insure loans and cover over-drafting costs for community banks which
provided services to low-income customers and small businesses. On a larger scale, fed-
eral and state governments could provide low-interest loans as start-up capital solely for
those wishing to open community banks. Alternatively, they could withhold taxation on
community banks with small amounts of assets up until a certain asset level.
Sources
Federal Deposit Insurance Company: “Linking International Remittance Flows to Financial Services: Tapping the Latino Immigrant Market,” 2004.
<http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin04/latino_mkt.html>
Ibid.
World Bank: “Migration and Remittance Factbook 2008,” 2008. <http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECT
S/0,,contentMDK:21352016~pagePK:64165401~piPK:64165026~theSitePK:476883,00.html>
Wuennemann, Lt. Tom. Stamford Police Department. 24 Apr. 2009 <http://74.125.93.132/search?q=cache:KtI9odlaF0wJ:www.popcenter.org/library/
awards/goldstein/2000/00-30.pdf+immigrants+%22walking+cash+machines%22&cd=4&hl=en&ct=clnk&gl=us&client=firefox-a>.
Check-Bouncing: When a customer writes a check for funds not currently present in their account.
National Community Investment Fund: “A guide to Building Products and Strategies for Underbanked Markets,” 2004. <http://www.dfi.wa.gov/cu/
unbanked_files/guide_underbanked_markets.pdf>
Ibid.
“PO-1045: Assistant Secretary Bair - Remarks on Remittances as a Development Tool.” United States - Department of The Treasury - Homepage. 24
Apr. 2009 <http://www.treas.gov/press/releases/po1045.htm>.
Citation added: “Office of Connecticut State Treasurer Denise L. Nappier.” CT.gov Portal. 24 Apr. 2009 <http://www.state.ct.us/ott/idatask.htm>.

19
A Volunteer-Based Solution
to Homelessness in Small Cities
Daniel Hornung, Catherine Osborn, Samuel Gamer, Lepi Jha, and Steven Winter
Yale University – Center on Economic Policy
By assigning trained volunteers to municipal caseworkers, necessary services
can go to a greater sector of the homeless population more quickly.

As national budget cuts threaten to close facilities such as homeless shelters and sup-
portive housing, preventative measures against homelessness become even more impor-
tant. What makes a person homeless is not only the absence of a shelter but also the
lack of good health, a steady job and stable relationships.

Government social workers, specifically caseworkers, help the homeless population im-
prove on all three of these issues. But with overworked and overwhelmed casework-
ers along with state and municipal budget cuts, there is need for volunteers. Given
the national spirit of volunteerism
most recently supported by Presi-
dent Obama’s $5.7 billion allocation Homelessness in New Haven, CT
to AmeriCorps in the Edward Ken- • Population: 120,000. Estimated homeless:
nedy Serve America Act, we believe 5,000.
a program like this to be politically • Reasons for homelessness: 50% lack of
feasible. job; 34% substance abuse; 16% family is-
sues.
Analysis • Over 50% list all of the following service
Caseworkers provide homeless cli- needs: income, insurance, mental health,
ents with specialized services that basics, medical, substance, vocational.
volunteers cannot. The goal of as- • State and local budget cuts threaten many
signing volunteers to caseworkers is of these programs.
not to convert the caseworkers into
volunteer managers, but rather to
lighten the load of simple follow-up work after the specialized services have been pro-
vided. This follow-up work might include assistance with resume writing, job applications,
or keeping track of mail and appointments. Each caseworker should be matched with
certain volunteers depending on the caseworker’s specialty and the volunteers’ interests.
The caseworker will still be responsible for the same number of clients, but will have
frequent assistance.

Volunteers will familiarize themselves with local non-profit services and thus strengthen
the relationships between the city office of social work and the non-profit communi-
ty. From these relationships, volunteers will grow to be valuable sources of knowledge
about low-cost housing and insurance requirements to whom homeless clients can direct
questions. Each volunteer must be carefully trained before he or she begins work. The
cost of having one caseworker in charge of training is alleviated by the increased ef-
ficiency of a program aided by volunteers. This program not only takes important steps
in the short-term fight against homelessness but expands the base of people who can be
advocates for these issues.
Stakeholders
This program will benefit the homeless population, those threatened by homelessness,
caseworkers, and local governments. If executed correctly, more homeless citizens and
others threatened by homelessness will be given increased services and proper guid-
ance. Caseworkers will see an increase in efficiency from volunteers providing needed
assistance both in specific tasks and in general office duties. Local governments will face
lower costs because they will provide fewer costly services to the homeless population.

Talking Points
• As national funding for homeless shelters is
cut, municipalities must find ways to manage
homelessness without budget increases.
• Many self-reported primary causes of home-
lessness can be aided by the right specialized
information and basic, coachable life skills.
• Currently municipal caseworkers provide both
the information and the skills training to home-
less clients.
• By covering skills and follow-up work, volun-
teers can help strained caseworkers and pro-
vide the next generation of progressive policy
activists.
Next Steps
Before implementation, a mu-
nicipality or non-profit should
evaluate the program’s legal
prospects in the particular state.
Non-profit workers looking for
a new service project, or volun-
teers who work closely with the
city government, are perfect ini-
tiators of a program like this. In
addition, volunteers should only
be assigned to work according
to their reliability as demonstrat-
ed by consistent performance in
entry-level volunteer work, such
as office tasks. These are the
preliminary steps that should be
taken:

1. Reach out to caseworkers and the homeless population to evaluate their

specific needs and determine where implementation of the program would
be most beneficial.
2. Design and implement a volunteer training program that is tailored to the
social and economic realities of the municipality.
3. Recruit volunteers through local businesses, schools, and community and
religious organizations. All volunteers must sign a legally binding contract,
taking full responsibility for anything that may happen to them while volun-
teer for the program.
4. Design and implement a campaign to educate the homeless population
and non-profit organizations about the goals and methods of the program.
5. Begin volunteer follow-up work and other activities, and carefully track
areas in which further improvements should be made.

Sources
New Haven (Connecticut). “The New Haven Ten Year Plan to End Chronic Homelessness.” John Huettner et
al, Community Services Director, City of New Haven. September, 2004. Revised March, 2007.
The United States Conference of Mayors. “Hunger and Homelessness, A Status Report on Hunger and Home
lessness in America’s Cities.” A 25-City Survey. December, 2008.“For Your Family Archives.”
“Youth Update Archives.” Braun, James A. et al. “Youth In Need, St. Louis, MO. www.youthinneed.org
“Helpful Homeless Links for San Diego.” McElroy, Robert et al. Alpha Project, Vista, CA. www.alphaproject.org

21
Saving the MTA
and Reducing Urban Congestion
Michael Spitzer-Rubenstein, Columbia University

Create a system of congestion pricing for the Central Business District of New
York and a commuter tax to cover the Metropolitan Transportation Agency’s
operating deficit and halve mass transit fares.

In 2008, Mayor Michael Bloomberg proposed a system of congestion pricing, charging

cars entering Manhattan south of 60th Street a fee of $8 if they arrived between 6:00 a.m
and 6:00 p.m. This drew on successful plans implemented in London, Milan, and Stock-
holm, where congestion pricing has dramatically reduced traffic. The proposal gained the
support of numerous leaders including then-Senator Barack Obama, the federal Depart-
ment of Transportation, and the state’s political leadership at the time, including Gover-
nor Eliot Spitzer, Senate Majority Leader Joseph Bruno, Manhattan Borough President
Scott Stringer and the New York
City Council, which approved it Key Facts
in a 30-20 vote. Unfortunately, • Under the status quo, most mass transit fares
the Bill was later blocked in the will rise by 20%.
state legislature. • 35 bus routes and 2 subway lines will be elimi-
nated if the state government does nothing.
A sliding scale of tolls would • Each additional car entering Manhattan’s Cen-
be imposed on cars driving into tral Business District adds $30 worth of grid-
Manhattan’s Central Business lock and $10 worth of pollution.
District, from $2 at night and • The metropolitan area loses $13 billion and
for most of the weekend to a 52,000 jobs annually because of those traffic
maximum of $10 during morning delays.
rush hour (from 6:00-9:00 a.m.), • Car speeds would increase as much as 28%.
when the most cars are entering
the city (Nurture New York’s Na-
ture Foundation Balanced Transportation Analyzer). The average congestion price would
be $6, a fee that would not seriously inhibit visitors but would still be enough to address
many of the negative externalities of traffic. Car speeds would increase by as much as 28
percent, saving drivers more than $1.1 billion as people begin using mass transit or curtail-
ing unnecessary trips. These congestion tolls would generate almost $1.4 billion, which
would cover the operating deficit of the Metropolitan Transportation Authority, allowing
the system to run and build up capital, without depending external funds.

This revenue would be available to the MTA to make mass transit a more viable alterna-
tive to driving. The MTA would not only have no need to cut services or fares, but could
gradually reduce fares, making it more affordable to take the subway or bus. That would
in turn stimulate the economy as consumers visited more as well as open up potential
jobs for commuters.

By staggering the fare reduction, the MTA could also pay off its debt, gradually freeing
it from the $1.5 billion burden of servicing already-issued bonds and opening up more
opportunities to reduce fares. Within a year of this plan being implemented the base
fare for the subway and bus could be halved from its current $2 a trip to just $1, making
it inestimably more affordable for the millions of New Yorkers who ride MTA buses and
subways.

Stakeholders
Everyone would benefit in some way or another from congestion pricing: mass transit
would be much more affordable and accessible for New Yorkers, spurring economic
growth. Traffic reduction would reap huge benefits: drivers would spend less time stuck
in traffic; police could respond to incidents faster; shipping costs would decline, since
trucks would spend less time and fuel in traffic. There would be less potential for ac-
cidents between motorists and pedestrians. In addition, this policy would mitigate pollu-
tion from cars, a result of shorter driving times as well as lesser idling costs while stuck in
traffic or looking for a parking space.

Next Steps
Congestion pricing has gained the
Talking Points
support of Governor Paterson,
• The brunt of the burden of the proposed
Mayor Bloomberg, and the New
MTA fare hikes would fall on poor, working
York City Council. In order to be
class, and even middle class workers who
implemented, however, it would
need to get to Manhattan to earn a living. In
require the approval of the New
addition, there is no suggestion that those
York state legislature. This is not
hikes will reduce either transit pollution or
likely to pass in the current ses-
gridlock
sion, as it faces opponents in the
• Congestion pricing would pay for many of the
State Assembly and State Sen-
negative externalities of car driving, including
ate. However, after the 2010 elec-
pollution and traffic.
tions, congestion pricing may gain
enough support in the legislature
to be enacted.

Sources
Kormanoff, Charles. “Free Buses, Cheaper Subways -- and a Solution to New York’s Traffic, Gotham Gazette
(February 6, 2009), http://www.gothamgazette.com/article//20090209/255/2821. (accessed March 21, 2009).
Neuman, William. “How Will You Cope With Higher Fares?” New York Times City Room (March 23, 2009),
http://cityroom.blogs.nytimes.com/2009/03/23/how-will-you-cope-with-higher-fares/ (accessed March 24,
2009).
Nurture New York’s Nature Foundation, “Balanced Transportation Analyzer.” http://www.nnyn.org/kheelplan/
BTA_1.1.xls (accessed March 20, 2009).
Nurture New York’s Nature Foundation, “Kheel-Komanoff — A Transition to Free Transit.” http://www.nnyn.org/
kheelplan/kheel_plan_rationale.html (accessed March 25, 2009).
Partnership for New York City, “Growth or Gridlock? The Economic Case for Traffic Relief and Transit Im
provement for a Greater New York.” December 2006.http://www.nycp.org/publications/Growth%20or%20
Gridlock.pdf (accessed March 23, 2009).
Smith, Malcolm. “Senate MTA Proposal.” March 17, 2009. http://www.nymtasolutions.org/proposal/ (accessed
March 26, 2009).

23
Combating Demographic Imbalance:
A Sustainable Model for Vermont
Hallie Fox, Claire Williams, Mai Ann Healy, Maggie O’Hara, and Scott Klenet
Middlebury College
Vermont can stimulate job growth and sustainable economic development in
the state through a yearlong employment and civic engagement fellowship for
recent college graduates.

Vermont has the second highest median age in the country, and is losing its young people
to outward migration at a rate three times the national average. If allowed to continue,
these trends will have serious detrimental implications for Vermont’s tax base and its over-
all economic viability. College students tend to focus their post-graduate job searches on
larger metropolitan areas, which are home to many established entry-level programs with
streamlined application processes and expectations for career advancement.

Governor Jim Douglas has implemented some programs designed to remedy this demo-
graphic imbalance. However, while these programs have been positive steps in mitigating
this issue, more needs to be done to attract and retain young, highly skilled workers in
the state.

Analysis
We propose a collaboratively
funded post-graduate fellowship
for young people to learn about
the professional, social, and civic
opportunities in Vermont. The
fellowship will target students of
Vermont colleges and universities,
as well as graduates of Vermont
high schools who pursued higher
education elsewhere, in hopes of
persuading some to become em-
ployees in the state.
Key Facts
• Vermont’s per decade population growth
rate has been on the decline, and by 2020-
2030 is expected to be 3%, down from 10%
during 1960-1990.
• Over the next 25 years, the total number of
Vermonters over the age of 65 is projected
to double, while the number of tax-paying
adults will remain approximately the same.
• 70% of Vermont employers cannot expand
their businesses due to the lack of available
highly-skilled workers.

The fellowship will be composed

of a year-long job, working four days a week with a fifth day dedicated to civic engage-
ment and an applied learning project related to their field of interest, networking events
and opportunities, and personal advising from a community mentor. We will look to in-
dustries of strength in Vermont, such as sustainable alternative energy and agriculture, as
well as industries of projected growth. The four-day workweek model has been applied
in such companies as Google, whose employees are given “20 Percent time,” to work on
a project of their interest. Community immersion projects will encourage participants to
be engaged and involved citizens of the state of Vermont.

Young workers are less likely to look to Vermont for job opportunities because they see
less opportunity for career advancement, worry about a lack of social networks, and
often are simply put off by the difficulty of searching and applying for jobs in Vermont.
However, the application process will be a competitive one, and status as a fellow will be
prestigious, making fellows competitive in the labor market.

Participating employers would contribute a portion of the fellow’s living stipend; the re-
mainder would be funded through the state and private sponsors. The long-term benefits
of continually attracting young talent to the state will outweigh the initial costs of invest-
ment.

Next Steps
Talking Points
The current financial crisis
• Enabling firms to provide competitive employment
provides a window of op-
packages to young talent would allow Vermont em-
portunity; jobs are scarce,
ployers to expand their businesses and strengthen
recent graduates as well
the state’s productive capacity.
as soon-to-be graduates
• The state government cannot combat this problem
are having difficulties find-
without making a financial investment; utilizing exist-
ing jobs in big cities and
ing state resources and creating networks between
will be more likely to con-
the government, the education system, and the busi-
sider a wider pool of job
ness community, it will be able to reach its goal in a
opportunities. Governor
more efficient and sustainable fashion.
Douglas’ “Next Genera-
• Similar programs, such as the Yale National Intern-
tion” initiative falls under
ship Program, have successfully attracted an increas-
the umbrella of progres-
ing amount of young talent to developing cities and
sive economic develop-
states, counteracting the problems associated with
ment and could be used
demographic imbalance.
as a funding pool to get
the program started. The
next steps would be to se-
cure private sponsors and host employers. It will also be important to gain support from
state colleges and universities, in order to advertise to students.

Once the fellowship is up and running, the model could be implemented in other areas
across the country suffering from similar issues and modified to take advantage of their
regional benefits.

Sources
Vermont Community Foundation, “Understanding Vermont,” p32
The Vermont Innovation Challenge, http://www.jimdouglas.com/press-releases/231-the-vermont-innovation-
challenge
Bulldogs Across America. http://www.bulldogsacrossamerica.com/baa/Default.aspx
The Ehtan Allen Institute, “Off the Rails: Changing Demographics,
Changing Economics, Accumulating Obligations: How will VT Cope with a Challenging Future?”
The Next Generation Commission, VT LEG 21085.v3
Bulldogs in the Bluegrass, http://www.bulldogsacrossamerica.com/cities/default.aspx?C=1
Life at Google, http://www.google.com/intl/en/jobs/lifeatgoogle

25
Commodity Tracking
to Reduce Violence in the DRC
Kelly Steffen, Michigan State University

An efficient commodity tracking system, linked with a supply chain certification,

should be established in the Democratic Republic of the Congo.

Mineral resources, such as cassiterite (commonly referred to as tin), have played a signifi-
cant role in fueling political violence in the DRC. First, at the mining sites run by govern-
ment soldiers and other armed combatants, soldiers and combatants kill, rape, torture,
falsely arrest, intimidate, mutilate and steal the earned resources from the community
based at the extraction site and throughout its shipment route. From tin alone, rebel
groups gain up to $ 80 million a year in the Eastern part of the DRC. This income has
fueled the decade long conflict that has killed over 4.0 million people, displaced another
16 million, and resulted in the rapes of tens of thousands of woman and girls. Secondly,
this ineffective, informal, and danger-
ous resource extraction prevents the Key Facts
Congolese government from formal-
• From tin alone, rebel groups gain up to
ly directing the money for productive
$80 million a year in the Eastern part of
purposes, as most of the money is
the DRC that fuels national conflict.
channeled to combatants. Without
• A similar single commodity tracking sys-
an improved system, rebel groups
tem of timber was proven successful in a
will continue to exploit and exacer-
conflict zone in Cameroon.
bate this situation.

No legislation for a tin commod-

ity tracking system, working in conjunction with a chain of commodity certification, has
ever been introduced in the Congolese legislature. However, many groups such as the
United States, various NGOs and UN Security Council have all created legislation that
condemns the illicit trade of mineral resources in the DC. None of the resolutions have
focused on an effective one system commodity tracking system or a chain of commod-
ity certification that addresses the long chain of extraction to production in high-tech
materials for specifically cassiterite. Additionally, none have simultaneously tried to shift
demand and change the illicit supply. Moreover, the DRC signed the Extractive Industries
Transparency Initiative (EITI), requiring the government to fully disclose information on
commodities throughout the country; as of 2009, it has not been implemented. A com-
modity tracking system would greatly supplement the recommendations of EITI.

A tin commodity tracking system and concurrent certification process would analyze
and measure trading data supplied by national authorities and industries. This system
will identify anomalies and gaps that indirectly indicate points of illicit commodity flow.
Essentially, this will prevent illegal trade with neighboring Rwanda, as well as highlight the
illicit trade amongst rebel groups inside the country and with middle traders. This system
would also publicize its findings to the public to raise international awareness and shift
international demand to only legitimately obtained goods. A similar single commodity
tracking system of timber was proven successful in a conflict zone in Cameroon.
The current ineffective and dangerous mining sector has caused a great loss in GDP
growth for the DRC. The DRC holds approximately 57% of the world’s cassiterite. How-
ever, the country only produces approximately 3% of the world’s total cassiterite produc-
tion. The ineffective resource extraction allows for much of the material profit to transfer
to neighboring Rwanda, causing a further loss of revenue for the country. Global Witness
reported that in 2003, Rwanda produced only 283 tonnes of cassiterite but exported
1,458 tons. This means that much of the Congo’s wealth is being illegally transferred to
Rwanda. The exports were valued at US$ 4.49 million, which could also add a significant
contribution to Congo’s GDP. An effective system would increase revenue from the
resource, channel it away from illicit rebel groups and to productive government chan-
nels and keep the money gains within the country. Finally, a large portion of the economy
would better be able to gain revenue and avoid severe human rights abuses. Also, rebel
groups would lose a large share of their financing, further improving the human rights
situation in the DRC.

Next Steps
Talking Points There has been proven success with
• This system would also publicize its find- a similar commodity tracking system
ings to the public to raise international of diamonds, known as the Kimberly
awareness and shift international demand Process. The Kimberly Process core
to only legitimately obtained goods. provision for shipping diamonds is
• The United States, various NGOs and UN based on shipment in a sealed con-
Security Council have all created legisla- tainer that must contain a certificate
tion that condemns the illicit trade of min- of origin. The most dangerous point
eral resources in the DC. for shipment of diamonds, as well as
tin in the DRC, is from the mines to
the first focal shipping point. How-
ever, this can be overcome with strict regulation and recommendation controls at the
first known shipment point, Bisie. A key component is that all actors must work together
to monitor, enforce and publicize the tracking system. However, a tin commodity tracking
system in the DRC would be led primarily by the government, the largest stakeholder.

Sources
Collier, Paul, and Ian Bannon. Natural Resources and Violent Conflict: Options and Actions. Washington DC:
World Bank, 2003.
“Democratic Republic of the Congo.” Extractive Industries Transparency Initiative. 2009. 7 Apr. 2009.
Ndikumana, Leonce and Emizet, Kisangani, The Economics of Civil War: The Case of the Democratic Republic
of Congo(July 1, 2003). Peri Working Paper No. 63. Available at SSRN: http://ssrn.com/abstract=443580 or
DOI: 10.2139/ssrn.443580
Polgreen, Lydia. “The Spoils- Congo’s Riches, Looted by Renegade Troops.” New York Times 15 Nov. 2008.
Under-Mining Peace: Tin- The Explosive Trade in Cassiterite in Eastern DRC. Rep.No. Global Witness. 2005.
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