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The Most Important Debates Ever!

Hyperbole in politics is not new. Every presidential campaign is billed as the “most important of our lifetime,” and our politics seem to operate on a kind of reverse euphemism treadmill, where instead of trying to tone down language, we collectively ramp it up. In recent memory there was handwringing over this dynamic, and the seeming inability to dial up descriptions of the Trump era. After all, the political dial was already permanently set to 11.

And yet! There are reasons to think this fall’s presidential debates could be of particular consequence and interest beyond those of the past. There are three dynamics that point in this direction, and one big one that points the opposite way:

The pandemic and a lack of “campaigning.” While politics certainly occupies the center of our culture at the moment, it is being dominated by real world consequences and choices in the here and now. The pandemic, the associated economic crash, and the focus on racial justice are all real current political events, not theory batted back and forth through policy proposals. This dynamic focuses more attention naturally on the sitting president. The question is not: “How would a Biden Administration incrementally impact my life?” The question is: “What is the current President doing (or not doing) to dowse the burning platform I am standing on at this moment?” This dynamic, coupled with a general lack of a traditional campaign due to pandemic restrictions, means that attention has been going in different directions. This debate season will create a moment where public attention is going to snap back to the election.

Preparation changes. Behind the scenes in debate prep, there are briefing books, rehearsals, and coaching. One trick of debate preparation is to bake the prep into the ongoing campaign. Most of the messages and arguments in a debate should not be brand new to that moment. The speeches, rallies, and everyday talking points provide the practice and the ability for candidates to fine tune the case they ultimately will make on the big stage. But if none of that regular campaigning is really happening due to the pandemic, it takes away a big part of the organic preparation and increases the possibility of an unscripted moment of consequence.

Stagecraft changes. President Trump is known for his attention to stagecraft, but these debates will not have an audience to perform for. Social distancing guidelines will presumably prohibit some of the “lurking” moments of the past. Canned one-liners that work in an audience setting could come off as just plain awkward, and the campaigns will have to calibrate for this dynamic.

On the other side of why these debates just might not be a game changer is one big dynamic that has been true all year:

Fundamental stability of the race. The reality is that Vice President Biden has had a pretty stable lead of between four and eight points throughout this year. Throughout all the tumult of 2020, this fundamental dynamic has not changed. As we saw in 2016, anything can happen, but in retrospect, this presidential race may end up looking like a much more predictable affair than it feels like at the moment.

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An Education on Hard Realities Facing Higher Ed

By Stacy Kerr, Matt McDonald, Elliot Owensby

A long-simmering disruption in higher education is boiling over as coronavirus upends campuses and budgets across the United States. For over a decade, the public has seen debates and discussions around a number of trends: more people pursuing degrees, increased tuition, increased debt, as well as on-campus debates that have occasionally spilled over to the public consciousness, including free speech controversies and social movements like Black Lives Matter and #MeToo.

As these issues have dominated public conversations around higher education, there are a set of underlying trends less familiar to the public, and even to policymakers, that have been driving real disruption at universities. These include reduced state funding on a per-pupil basis, increased prevalence of online education, changing demand for courses of study, long-term demographic shifts, and —perhaps most important—significant increases in financial aid and scholarship budgets.

The result of these competing forces are universities that are perceived by the public as institutions of strength, but in reality, face massive budget challenges and find themselves poorly positioned to weather the crisis brought on by the coronavirus pandemic. This dynamic is further complicated by a small group of elite institutions with large endowments that may be relatively more financially stable, but despite their hold on the public imagination are not actually representative of the higher education sector as a whole.

Rising tuition, rising aid

Everybody has seen the headlines of tuition increases over time. This is the sticker price, the published tuition and fees and room and board (TFRB), that regularly shocks generations of parents figuring out how to pay for college.

Less well understood are the aid and scholarship incentives that have become a regular part of the college shopping experience. For institutions themselves, this raises the question of “net price,” the average cost after the financial aid or scholarship discount is applied. As tuition has climbed, so too has the demand for discounts, and the reality has become such that an incremental dollar in tuition only raises a little over 50 cents in revenue for private four-year institutions.

When we look at this trend over the past 20 years, the average annual increase in net price at these institutions has been just one percent, in terms of a compound annual growth rate (CAGR)—lower than the rate of inflation over that same period. Behind this trend has been a more aggressive approach to figuring out how much a given family can and will pay. In practice, this means each student gets their own quote. So while the net price isn’t going up overall, families will experience this dynamic differently and may, or may not, be happy about it.

Endowment entanglements

When the public isn’t getting sticker shock from tuition prices, they’re seeing eye-popping valuations for university endowments. Harvard’s endowment clocks in as the largest in the country at some $40 billion (undoubtedly smaller post-COVID crisis). But these headline-grabbing figures aren’t representative of the financial reality afflicting most campuses.

The 40 schools with the largest endowments account for 57 percent of all endowment assets but educate only 8 percent of all students pursuing four-year degrees. And for the universities fortunate enough to have these resources, endowments aren’t structured as rainy-day funds. Most were created from small gifts over time, with rules and stipulations tying them up in perpetuity. Some of these gifts fund areas of study that are declining in demand, which, given the tradition of tenure, make it even more difficult for universities to adapt to student demands.

Universities fortunate to have large endowments often face another wrinkle. As long as the university exists, the resources in the endowment, the same gifts stipulated for specific uses, must also serve as a type of rolling annuity with a consistent return that funds a significant portion of the annual budget to offset costs for students and families. Institutions with fewer resources utilize their endowment differently, and are often less dependent on the endowment itself for operating expenses. One 2016 analysis from the Commonwealth Fund found that the median university with an endowment under $25 million funded 1.8 percent of the operating budget with endowment resources; counterparts with endowments over $1 billion relied on endowments for nearly ten times that amount, or 17.8 percent of operating budgets.

Often the endowments serve to underwrite the cost of education, since the costs to the university are usually above even the tuition sticker price families are seeing. As the endowments lose value, their subsidy to university budgets naturally takes a hit. Even the portions of endowments with more financial flexibility face the challenge now of unwinding and selling investments at discounted rates.

Public challenges

Public universities are facing similar pressures for aid and scholarship, with the added complication of educating many more students at lower tuition rates. State budget pressures add an extra dimension of difficultly for public universities. For many public institutions, the decline in state and federal funding over past two decades means public support is a small share of the overall budget. Even in cases where budgets have been increased, the reality of larger numbers of students pursuing higher education means that budgets have been reliably declining on a per-student basis. Economic turmoil from the COVID-19 crisis will almost certainly mean declining tax receipts for state and local governments, exacerbating these downward trends in higher education funding and forcing difficult decisions on education priorities.

Many public universities have worked to supplement this decline in revenue with other sources, but those are similarly coming under pressure in the current environment. Foreign students who often pay full tuition to study in the United States may not have the ability to travel here for studies. Out of state students paying higher tuition rates may not be interested in paying top dollar if the university is conducting classes remotely.

Universities that run a hospital or rely on hospital revenues as a part of their operational budgets —a common model across research universities—similarly face budget pressures in the current environment. A bitter irony of this health crisis is that the decline in elective procedures and everyday medical care has gutted typical health services and sources of revenue.

Conclusion

No university wants to project an image of weakness. They want to be seen among their peers as building the best campus, attracting the best students, and hiring the best professors. Individually, this is the right strategy. But collectively they are a contributing to a broad misunderstanding of the underlying economics of higher education. The result is a sector that is poorly positioned to seek public support or family understanding at this time of urgent need.

An effort to improve understanding of the collective economic reality of universities is urgently needed to educate policymakers on the challenges ahead and to demystify the sector for the parents and students paying for what is still the best higher education system in the world.

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A Conversation With Jim Tankersley: The Middle Class Economy

From the 1950-70’s the American economy boomed and lifted millions of people into the middle class because we tore down the barriers that kept many women and people of color out of the U.S. economy, according to a new book by The New York Times reporter Jim Tankersley. He argues that the expansion of the economy to include the skills and knowledge of Black people, women, and immigrants not only helped create the strongest middle class in history, it catapulted the U.S. to become the preeminent world power and economic envy of the world. This inclusive economy also subsequently expanded opportunities for white Americans. The growth was halted in the 1980’s as new federal and corporate policies began to erode the middle class. In the words of Jim, this was the beginning of an American economy that “over the past few decades has left behind huge swaths of people.”

HPS recently had the opportunity to sit down (virtually) with Jim Tankersley, author of the new book, The Riches Of This Land, and tax and economics reporter for The New York Times. Jim has spent more than a decade covering politics and economics in Washington, and is an expert on the economics of the middle class.

During our conversation, which has been published as an episode of HPS Insights, Jim discussed his new book, detailing how the American economy flourished during the 1950-70’s, creating the strongest middle class in history because we removed discriminatory barriers that kept many people of color and women out of the U.S. economy. The growth was halted in the 1980’s due to new government and corporate policies and has since led to a steady decline in the American middle class.

Unfortunately, the economic fallout of the COVID-19 pandemic is only adding to the decline. As Jim told us on the podcast, those in the middle class were just barely starting to reach a full recovery from the damage suffered during the 2001 recession and 2008 financial crisis when the pandemic hit. The pandemic has caused — and will continue to cause — another period of devastating economic hardship, specifically amongst minority communities. As we begin to turn our eyes to recovery, Jim thinks it is critical that the economy is rebuilt with a focus on inclusive growth that will create not only a resurgent economy, but an empowered middle class.

In addition to the moral imperative, there is also an economic motivation for inclusive growth. As Jim noted, “The economy does best when everyone gets ahead. It is not a zero-sum game.” By empowering people to fully make use of their talents — unencumbered by discrimination — economic growth can be unlocked as individuals achieve their true potential. This starts with reassessing corporate hiring practices and instituting aggressive anti-discrimination efforts. Jim talked about the need to affirmatively ensure hiring pipelines are not exclusionary while simultaneously supporting employees once they have a foot in the door. He noted that many companies made big efforts in the 1960s as part of the Civil Rights Movement to diversify who they hired and it paid dividends.

Alongside anti-discrimination efforts, empowering women in the workplace, massively improving the access and quality of education, and reducing unnecessary regulations will be crucial to unlocking the next wave of economic growth. Specifically, taking a supply-and-demand approach to child care and quality could yield better results for working mothers, and eliminating anti-competitive occupational licensing requirements could make certain jobs more accessible to those who are qualified.

As Jim noted, these policies are not ideologically driven, and no matter where you come from on the political spectrum, there is an appealing route to solving these issues. As we look to the future, it is only through reexamining how the economy can be more inclusive that we can truly deliver socially just outcomes and economic growth for all.

To learn more, follow Jim on Twitter at @jimtankersley, listen to the podcast here, or go buy his fascinating new book.

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Q&A With HPS Associates And Analysts

Q: What’s your favorite thing about HPS?

A: “Definitely the people! Being surrounded by such an intellectually curious group of individuals, who also know how to not take themselves too seriously, has been a real highlight during my time here at HPS. Even during this remote period, everyone finds time to connect virtually and help one another out, which is the type of collaborative working environment that I’ve found particularly beneficial as a new employee.”

-Carolyn Backus, Analyst, Class of 2019

A: “We have an incredible amount of input into the kind of work that we do. From little tasks, like who takes on what deliverable, to client staffing, to independent projects, there’s a lot of ability to explore the topics and skill sets you’re interested in.”

-JinAh Kim, Associate, Class of 2018

Q: What does a regular workday look like for you?

A: “A typical workday for me includes scanning the news and reading relevant tipsheets each morning, drafting our two daily associate tweets, checking a list of action items I’ve written on a sticky note in front of my computer, and identifying times for me to complete these items between various internal team meetings, coffee chats, and client calls. These deliverables can include anything from doing analysis in excel to writing a draft press release or pitch, as well as preparing and curating media lists and strategy documents.”

-Cole Kline, Associate, Class of 2019

A: “One of my favorite things about working at HPS is that there really is no ‘regular workday.’ The nature of our structure, which allows us to work on several different clients and different types of projects at the same time, means that my schedule can change day-to-day. Some tasks happen routinely (getting organized at the start of the day, working on internal team tasks), but otherwise, it’s quite dependent on client needs. It’s nice to never fully know what the day will bring, especially with work from home!”

-Matisse Rogers, Associate, Class of 2019

Q: What is the favorite policy area/issue you work on?

A: “My favorite policy area is financial services and financial technology. One of my favorite issues within that realm is small-dollar lending and credit for non-prime customers. It’s such a niche space within the fintech scene and it has taught me so much about an industry I never knew existed before HPS.”

-Adeline Sandridge, Associate, Class of 2019

A: “I’ve worked on a few clients related to economic development and the future of work, and these have been extremely fascinating issue areas to explore. Particularly with the onset of the pandemic, thinking through access to financial capital and job security has taken on a particular level of importance, which has made my experiences on these teams very meaningful and exciting.”

-Carolyn Backus, Analyst, Class of 2019

Q: How has it been working remotely?

A: “I was really nervous about starting a new job remotely, but HPS did a great job of training us virtually and making us feel very supported. From day 1, I was inundated (in a good way!) with welcome messages and Zoom coffee dates.”

-Catherine Benedict, Associate, Class of 2020

A: “Remote work has actually worked pretty well for me. As a firm, we’re well suited to do everything online and I find that I can be more productive at home. However, I do miss in-person collaboration and the many fun events that make the HPS experience so special.”

-Koby Gordon, Analyst, Class of 2019

Q: What has been the hardest thing about your time at HPS?

A: “Getting up to speed on all of the different skills, tactics, and ways of doing things at HPS. It’s definitely a steep learning curve, but once you get the hang of things you can really start to focus on perfecting the quality of your work and pushing it to the next level.”

-Claire Radler, Associate, Class of 2019

A: “The hardest part about first joining HPS was keeping up with the fast pace of work and having a pulse on so many different policy issues all at once. Thanks to a combination of supportive teammates and learning much faster than I imagined possible, I was able to get up to speed and now know much more about niche issues that I was barely aware of before coming to HPS.”

-Mariel Messier, Associate, Class of 2018

Q: What is one thing that has surprised you about HPS?

A: “The firm’s commitment to the professional growth and development of its analysts and associates has really surprised and impressed me. I knew that HPS would train us to do our jobs well, but I’ve been pleasantly surprised how everyone wants to set us up for success in our long-term careers, whether those be at HPS or other opportunities. Training at HPS is more than just one week on a schedule; everyone has made it clear through their actions that it’s an ongoing process.”

-Catherine Benedict, Associate, Class of 2020

A: “I’ve been pleasantly surprised and impressed by how quickly people pick up the skills of the job, both hard and soft. When I first started, the older associates seemed so competent and knowledgeable; it’s been great watching my own class and the younger classes of associates grow into a similar role.”

-JinAh Kim, Associate, Class of 2018

Q: What is your favorite HPS memory?

A: “One of my teams got to travel to Chicago for a meeting with a client. We don’t often get to sit in the same office as our clients, so it was an insightful experience to see how they worked. But best of all, it was great to get to know my colleagues better and explore the city before we started the workday!”

-Mariel Messier, Associate, Class of 2018

A: “My favorite HPS memories are time spent getting to know coworkers, both at and outside of work. I really miss sitting on the deck with others for lunch and enjoying the nice weather!”

-Claire Radler, Associate, Class of 2019

Q: If you could go back to your first day at HPS, what advice would you give yourself? What advice would you give folks just starting their careers?

A: “Be patient with yourself as you learn the ropes of your first job! HPS can teach you so much and the learning curve can be steep, but take the time your role requires to master your skills and know it won’t be perfect the first few times you try. There is an incredible support system at HPS—from older associates all the way up to partners—willing to impart their wisdom to make your experience the best it can be.”

-Adeline Sandridge, Associate, Class of 2019

A: “To first-year analysts and associates, I would suggest being open to opportunities and topics that once might have been outside of your comfort zone. I have come across very interesting and rewarding projects at HPS that I did not expect would be possible on my first day, which has allowed me to tap into strengths of which I would not have been aware otherwise.”

-Tala Anchassi, Analyst, Class of 2019

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Economic Sentiment Closes Out The Summer With Massive Uptick

After several months of fluctuations, economic sentiment saw a significant improvement over the past two weeks, climbing back to early March levels when the economy began to shut down due to the COVID-19 pandemic. The HPS-CivicScience Economic Sentiment Index (ESI) jumped by 3.4 points to reach 50.0, driven by an even larger increase in confidence in the broader U.S. economy and labor market.

All five of the ESI’s indicators improved over the past two weeks. Confidence in the broader U.S. economy led the way with a 6.6-point jump to 52.8. Consumer sentiment towards the labor market followed closely behind, with an increase of 4.8 points to 40.4. Confidence in making a major purchase neared its late-March 2020 level, climbing 3.3 points to hit 46.4. With smaller improvements, confidence in personal finances and the housing market rose by 1.6 and 1.1. points, respectively. Unlike the other indicators, however, confidence in personal finances and the labor market have yet to reach their pre-pandemic levels.

The upturn in sentiment comes after a busy month and some shifts in economic indicators. While Americans are seeing an overall decline in new COVID-19 cases nationwide and businesses begin to reopen, many Midwestern states are seeing a large spike in cases. August also brought an incredibly strong stock market, with the S&P 500 scoring its best August since 1986. Despite many Americans’ attention shifting this month toward the future due to presidential conventions and the upcoming election, experts remain worried about the uneven economic recovery occurring in the U.S. due to varied state responses and setbacks with the pandemic.

The ESI’s three-day moving average remained relatively flat throughout the reading period, beginning the two-week stretch at 49.7, falling to its low of 49.1 on August 28, and closing out the reading at 50.1.

About the Index

The HPS-CivicScience Economic Sentiment Index (“ESI”) is a “living” index that measures U.S. adults’ expectations for the economy going forward, as well as their feelings about current conditions for major purchases. The primary goal of the Index is to accurately measure movements in overall national economic sentiment and to provide a more sophisticated alternative to existing economic sentiment indices. Unlike other prominent indices that release consumer sentiment estimates infrequently, the HPS-CivicScience Index is updated in real time as responses are collected continuously every hour, every day. Large-scale cross-tabulation of survey responses and consumer attributes enable more granular analyses than are currently possible through prevailing measures. For a more detailed overview of the Index and the underlying methodology, please request a white paper.

About CivicScience

CivicScience, Inc. provides the leading intelligent polling and real-time consumer insights platform, the InsightStore™. Its proprietary platform powers the world’s opinions and quickly gets that data to the decision makers who care. Every day, CivicScience polls ask millions of people questions related to thousands of topics, while its powerful data science and big data technology analyzes current consumer opinions, discovers trends as they start, and accurately predicts future behaviors and market outcomes. CivicScience polls run on hundreds of premier websites, in addition to its own public polling site at www.civicscience.com. CivicScience’s InsightStore™ is used by leading enterprises in marketing research, advertising, media, financial services, and political polling. For more information, visit CivicScience by clicking here and follow them on Twitter – @CivicScience.

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The Future Of Food: How Will The Delivery Revolution Impact Our Health And Pocketbooks?

The U.S. Department of Agriculture recently released new data showing the share of spending on food at restaurants and other venues outside the home is at an all-time high. After dipping slightly during the Great Recession, the share of outside-the-home food spending has climbed to 54% (Exhibit 1).

Although spending doesn’t automatically equal consumption, the new data raises two interesting questions: 1) How are food delivery startups influencing spending behavior; and 2) If our diets are increasingly delivery-heavy, what could it mean for our health?

The Golden Age Of Delivery

The increased convenience and optionality of food delivery has ushered in a new era of at-home prepared food consumption. In fact, investment firm Cowen and Company predicts more than 50% of restaurant spending will be “off premise” (i.e. not in a restaurant) in 2020. Demographics likely play a role in this trend. Over the past several decades, the number of one- and two-person households in the U.S. has skyrocketed. The economic advantage of cooking at home changes when ordering takeout for one vs. four. Another aspect is generational, with Millennials being “three times more likely to ‘order in’ than their parents.”

And, it looks like we’re just at the tip of the iceberg. Investment firm UBS predicts robotics, AI, and delivery drones could all cut the cost of prepared food to the point where it’s possible “by 2030 most meals now cooked at home will instead be ordered online and delivered from restaurants or central kitchens.”

Here in 2019, both Uber Eats and Postmates boast coverage of 70 percent of the U.S. population and are adding smaller markets, such as Cedar Rapids, IA and Youngstown, OH.

If the current trends hold, it’s likely spending on food away from home will continue its upward climb. Although this future sounds convenient and delicious, is it coming at a cost to our health?

Sacrificing Health For Convenience

Research backs up the common-sense notion that eating food cooked at home is better for you than eating out. A 2014 Johns Hopkins study found people who cook at home “eat healthier and consume fewer calories.” The Food Network breaks it down for those who favor anecdotes: an at-home version of P.F. Chang’s broccoli beef cuts approximately half the calories; for Panera Bread’s Tomato & Mozzarella on Ciabatta sandwich, making it at home reduces the calories by 88%.

The upshot is, if we’re dedicating a growing share of our food budget to food prepared outside the home, our diets are also probably including a growing share of calories, carbohydrates, sugar, and more—all things linked to obesity, heart disease, and other health issues.

Some may ask: What about healthier delivered at-home meal kit companies like Blue Apron? Well, they aren’t coming to the rescue—at least not yet. Polling shows less than 20% of Americans have ever tried these kits, and those who do, don’t maintain long-term subscriptions. Further, the companies themselves are struggling: Blue Apron hasn’t made a profit since its IPO, and former competitor Chef’d closed up shop suddenly in 2018.

That being said, market research predicts the meal kit industry will continue growing (albeit more modestly than previously anticipated), and grocery stores are upping their game in delivery and prepared food. Albertson’s acquired Blue Apron look-alike Plated in 2017, and Kroger bought meal-kit company Home Chef in 2018. This, plus a surge in curb-side pickup and grocery delivery options, could help grocery stores keep up with the competition. According to Business Insider Intelligence, although just 10% of U.S. consumers regularly buy groceries online, it is “on a rapid rise.” Further, we are beginning to see takeout companies like Doordash and Postmates add supermarkets and convenience stores to their menu of options.

Conclusion

It’s fair to say the delivery revolution is here to stay, and the anticipated downward pressure on costs will almost certainly see a continued consumer shift to food prepared away from home. However, questions remain about the future nutritional substance of the food to be delivered. Today’s delivery norms, which conjure visions of pizza and Thai food (for me, anyway), certainly raise concerns over how our food spending is impacting our health.  But it also seems possible that grocery stores and central kitchens could lead the way toward more healthful prepared food. Time will tell.

Andrea Christianson is a managing director at Hamilton Place Strategies.

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FedNow or Later? Congress Can Speed Up The Federal Reserve’s Payment Plans

As Americans, we like to think of our country as a global leader, especially when it comes to our economy, businesses, and financial system. But many Americans would be surprised to learn that our country lags far behind its peers when it comes to a critical component of our financial system: real-time payments.

The Need For Real-Time Payments

The U.S. is alone among major economies in its lack of an around-the-clock–24x7x365–real-time payment settlement system, which would provide Americans immediate access to money moving through their accounts. Under the current system, most Americans have to wait days for their deposits and bills to clear their accounts, causing many to incur overdraft fees or turn to check cashers and payday lenders. A real-time payment system is estimated to save lower-income Americans at least $3.4 billion each year in overdraft and other fees.

Advances in online banking technology have introduced Americans to apps and platforms, such as Venmo and PayPal, which allow you to reimburse a friend or make a purchase online in what seems like real time. But the infrastructure those transactions are processed on still create delays before the funds may clear or settle in your bank account. 

The good news is Congress, the Federal Reserve, economists, and the financial services industry all agree on the need and benefits of real-time payments. In fact, the Fed has been interested in modernizing our payment infrastructure for years, challenging the private sector in 2015 to develop a new system. 

The Clearing House Payments Company responded, and in 2017, launched RTP, a real-time payment system that met all of the Fed’s criteria. RTP sought to connect all retail banking institutions–large and small–with a goal of achieving universal coverage in 2020. A little more than two years after its launch, RTP is fully operational, designed to serve the customers of all financial institutions, and now covers more than half of all financial transaction accounts in the U.S. 

With The Clearing House’s RTP well on its way to achieving its goal of universal access by 2020, it came as a surprise to many when the Fed announced last August that it would launch its own real-time payment system–FedNow–by 2023 or 2024. This was a reversal of the Fed’s previous position to guide and govern private-sector development of real-time payment systems. 

Advantages of Real-Time Payments

Is FedNow The Answer?

While some members of Congress welcomed the Fed’s announcement of its own real-time payment solution, the Fed’s decision may ultimately delay progress on real-time payments in the U.S. FedNow is at least three or four years away from being operational and, in the meantime, could restrain adoption of The Clearing House’s RTP as financial institutions wait to see if FedNow is a better option. 

Economists from both political parties argue that Congress should not wait for FedNow and instead focus on what the Fed can do now to offer real-time payments to Americans. 

Brookings economist Aaron Klein supports The Payment Modernization Act of 2019, introduced last year by Senators Chris Van Hollen (D-MD) and Elizabeth Warren (D-MA), along with Representatives Ayana Pressley (D-MA) and Jesús “Chuy” García (D-IL), because it “requires immediate real-time funds availability. It doesn’t matter when the Fed builds FedNow.”

George Selgin, Director of the Center for Monetary and Financial Alternatives at the Cato Institute agrees and recently testified in front of the Senate Banking Committee that Congress should not allow the Fed to “delay a badly-needed enhancement of its settlement services any longer.” 

Selgin advocated for a congressionally mandated deadline to expand the operating hours of Fedwire–the Federal Reserve’s current electronic funds-transfer service–and the National Settlement Service (NSS), which would allow for faster funds transfers between financial instructions and better support the private sector solutions for real-time payments:  

“Instead, it should give the Fed two years within which to either place its Fedwire and NSS services on a 24x7x365 operating basis, or establish an alternative 24x7x365 Liquidity Management Tool. If Congress does not do this, I fear that Congress will overlook the most important of all steps it might take to dramatically and rapidly enhance the speed of U.S. retail payments.”

The need and benefits of a real-time payment system in the United States are clear and overdue. The Fed’s plan to develop its own real-time payment infrastructure may be well-intentioned but could ultimately stifle the ability to encourage adoption. Congress must continue to exercise its oversight authority and legislative powers to compel the Federal Reserve to quickly and efficiently bring real-time payments to the U.S. 

Bryan DeAngelis is a managing director at Hamilton Place Strategies.

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The Governing Agenda Of A Potential Biden Administration

As the 2020 presidential campaign enters the final months, HPS will offer a forthcoming series of papers that analyze the candidates’ policy platforms, campaign statements, advisors, and likely appointees. This paper, the first in the series, lays out a framework for a potential Biden administration’s governing agenda and summarizes the approach a Biden administration may take in implementing it. This paper is based on perspectives and insights of HPS leadership and drawn from research and analysis into Biden’s public announcements, news coverage, and conversations with policy

The political landscape and the policy priorities for both Trump and Biden’s campaigns have been significantly altered by current events—the COVID-19 pandemic and related economic crisis and the acute focus on racial inequality and injustice in the wake of the killings of George Floyd, Breonna Taylor, Ahmaud Arbery, and other Black citizens. While this analysis of Biden’s agenda assumes the country will be grappling with both of these dynamics in January 2021 and beyond, a number of other ongoing factors will also affect the next administration’s agenda:

– Responding to COVID-19 could overwhelm a new administration, including the growing potential for additional economic stimulus, sharpened oversight of stimulus programs, and, most notably, the status of schools across the country.

– The outcome of the House and Senate elections will have a significant impact on the president’s agenda, regardless of who wins the top of the ticket. That’s especially true if Democrats have the opportunity to use the Congressional Review Act to quickly undo late-term Trump administration actions.

– Following the murders of Black Americans and protests against police brutality and injustice, racial justice issues will likely remain at the forefront of the cultural conversation. Either administration will be pressured to enact policies that address racial injustice and to commit to meaningful and lasting change. The Biden-Sanders Unity Task Force recommendations call for “a comprehensive agenda for communities of color with ambition that matches the scale of the challenge and with recognition that race-neutral policies are not a sufficient response to race-based disparities.” This lens is likely to be applied not only to any stand-alone policies addressing racial injustice, but also to all domestic policy proposals.

– While this analysis focuses on market-driving issues, a Biden administration will likely seek meaningful reforms to the systems that govern civil society. Given the campaign’s messaging—that “We are in a battle for the soul of America. We choose hope over fear. Science over fiction. Truth over lies. And unity over division. We treat each other with dignity, we leave nobody behind, and we give hate no safe harbor”—we can expect fierce battles on election reform, LGBTQ equality, gun control, and other social issues. Actions can be concurrent with economic recovery priorities.

– Biden’s recent selection of Sen. Kamala Harris (D-CA) as his running mate will add her experience as a United States Senator, former Attorney General, prosecutor, and the potential to be the first female or Black Vice President in U.S. history, to the Democratic ticket. Sen. Harris’ work in the Senate, specifically on the Judiciary and Intelligence Committees, and the themes of her own presidential campaign suggest she will help reinforce Biden’s commitment to addressing racial inequities, criminal justice reform, and consumer protection issues.

A potential Biden administration can implement the framework previewed in this report in a number of ways. First and foremost is the administration’s legislative agenda, which would drive new policy especially through its economic recovery, health care, tax reform, and criminal justice reform policies. That said, based on the actions of the past two presidents, we anticipate a Biden administration relying heavily on executive orders, personnel appointments, international cooperation, and potentially, sufficient political capital to reverse most of President Trump’s executive policies—particularly with respect to antitrust enforcement, trade, financial services, and some environmental regulations.

Economic Recovery
A potential Biden administration will inherit an extremely troubled economy; unemployment is currently at record highs, and is likely to remain in double digits for a significant time, Congress and the Federal Reserve have authorized staggering figures—nearly $10T—in new emergency lending and fiscal support, and deficits have grown exponentially. Biden’s platform during the campaign has centered on building a system that is better than before COVID-19, but significant resources may be required simply to keep the system afloat. Given the urgency of the economic situation, action on his economic agenda is likely to be the top priority, including a legislative stimulus package that is rooted in a climate-focused infrastructure plan.

Additionally, paralleling the popular elements of President Trump’s economic platform, Biden has said he will implement a “Buy American” push for the repatriation of U.S. jobs and supply chains, particularly in manufacturing and medical industries. Due to increased attention on supply chains and U.S.-China relations during the pandemic, any economic plan would likely contain an emphasis on increasing U.S. manufacturing, enhancing U.S. supply chains with domestic production, and continuing “tough on China” strategy and rhetoric. Overall, middle-class workers are at the core of the Biden administration’s economic policy, and all of his plans thus far are designed to increase equitable growth and promote racial economic parity in the wake of the pandemic. This includes executive actions such as a proposed “Equity Screen” on all federally funded projects.

What to expect:

– Proposal of large ($2T) green-focused infrastructure package intended to spur economic recovery with a special focus on low-income and marginalized communities, climate resiliency, and energy efficiency, potentially funded by a gas tax hike

– Allocation of $50B to repairing existing roads and bridges in the short-term, along with new proposed regulations to modernize the electric grid

– New investments/grants to help cities install light rail and improve existing transit and bus infrastructure as part of an overall expansion of “smart city” mobility modernization and promotion of electrified high-speed rail and improved freight infrastructure in the medium- to long-term

– A focus on government-sponsored R&D, including spending $400B over 4 years for clean energy and carbon capture technology research in transportation and energy, and an administrative push to expand regional electric markets, integrate more renewable energy, and reach nationwide net-zero emissions by 2050

– A combination of “Buy American,” “Buy Clean,” and “hire local” policies as conditions for federal investments in infrastructure and clean energy, incentives to lure companies into bringing jobs and manufacturing back, and potential punishments for companies who continue offshore production

– Immediate pandemic-related stimulus measures for businesses and individuals, including extending PPP, enhancing unemployment and Social Security payments, canceling debt, and a combination of new federal programs and conditioned assistance to states to help make up the difference in employee wages, such as work-sharing and short-time compensation

– Additionally, greater oversight, means testing, and need determinations in any new relief, including small business relief and appointment of regulators who would continue strict focus on corporate accountability

– Enhancement of existing economic development programs, such as the Economic Development Administration and State Small Business Credit Initiative, and pushes for the creation of new projects to fund distressed communities such as a Cities Revitalization Fund and an “Equity Screen” on all major federal spending

Health Care:

Throughout the campaign, Vice President Biden has positioned himself as the candidate for building on and strengthening Obama-era policies, especially those related to health care. Biden resisted Medicare-for-All pressures and has instead touted a public option that would not require Americans to give up their private or employer-provided insurance and would be paired with the expansion and restoration of key measures in the Affordable Care Act (ACA). As the ACA continues to weather attacks, reinstating these provisions would be an immediate priority of a Biden administration.

Additionally, Biden is likely to seize on bipartisan momentum on prescription drug pricing reform. This action is likely to include many of the policies included in H.R.3 and some agency-directed action on negotiating prices of medicines and supply chain reform. This would be a key area of focus for Biden, just as it was for the Trump campaign in 2016 and early days of the administration.

An immediate priority of a Biden administration would include rejoining, and restating the U.S.’ commitment to, the World Health Organization and a coordinated global response to COVID-19.

What to expect:

– Reintroduction and strengthening of ACA provisions including the individual mandate, expanded eligibility, relaxation of Medicaid requirements, and stabilization measures for state health exchanges such as cost-sharing dollars to insurers

– A push for public option legislation coupled with COVID-related expansions to safety-net health care policies, including covering COBRA costs and automatically enrolling individuals in the public option when coverage expires, increasing Medicaid expansion incentives, and increasing subsidies and free premium eligibility for ACA plans

– Revival of drug pricing legislation modeled on H.R.3 that allows Medicare to negotiate prices

– Executive action directing HHS and the FDA to create pathways to allow for the importation of prescription drugs and supporting legislation, such as the bills proposed by Sens. Warren and Rubio, which examine medical supply chains and work to onshore the manufacturing of drugs, reducing dependence on raw ingredients from China

– Inclusion of a lower Medicare enrollment age (60 years old rather than 65) in the first budget of a Biden administration

Climate and Environment:

As a top priority of the Biden-Sanders task force, a focal point for the campaign, and an area of broad public support, a Biden administration would look to undo President Trump’s sweeping efforts to remove the environmental protection measures he believes have hamstrung the American economy. Biden’s environmental policies, which have become significantly more ambitious throughout the campaign, have been directly tied to his economic recovery and job creation proposals, cementing climate policy as one of his top political priorities. He has also recognized the role of racial justice in his environment-related proposals, positioning many policies as targeting both climate and social justice reforms. A Biden presidency would stake its efforts on the view that we can pursue a strong economy while also strengthening federal regulations aimed at protecting and preserving the Earth’s atmosphere from the effects of climate change.

What to expect:

– Immediate action to rejoin the Paris Climate Accord along with the announcement of a more ambitious 2030 Nationally Determined Contribution

– Reinstatement of the Clean Power Plan, the Obama-era regulation aimed at reducing carbon emissions that was halted by the Trump administration

– Efforts to work in concert with the legislative branch (depending on the makeup of the House and Senate) on climate change legislation to determine a national clean energy standard and a carbon tax

– Significant investments in clean energy with the goal of making the United States net-zero by 2050, and the establishment of a new Advanced Research Projects Agency on Climate (ARPA-C) that would fund RD&D in innovative technologies such as battery storage, negative emissions technologies, sustainable building materials, renewable hydrogen, and advanced nuclear

– Use of federal procurement and investment to spur demand for electric vehicles, encourage manufacturers and companies to begin producing and using EVs, and install 500,000 charging stations across the country while also strengthening fuel economy standards to reduce pollution and emissions

– Efforts to reimpose “Waters of the United States” regulations, the Obama-era protections of streams, wetlands, and groundwater, which were halted by Trump and broadly opposed by agriculture businesses

– Additionally, interest in highlighting clean water issues will likely be ripe for attention in efforts to address systemic racism in federal regulations

– Recalculation of the costs and benefits of curbing mercury pollution, opening the door to tighter restrictions on not only mercury emissions but also other heavy metals

– A push for additional resources to enforce bipartisan toxic chemical reforms and evaluate the backlog of priority chemicals under review by the EPA

Global Standing, China, And Trade:

Though domestic policy is expected to take priority amid continuing pandemic conditions, Biden’s presidency would use the Executive Office and State Department to quickly advance an image of new stability and leadership in America, focusing on transatlantic allies and using global defense and climate agreements to strengthen those relationships. Biden’s approach to China would also rely on strengthening transatlantic and other trade agreements, focusing on creating alliances between like-minded democratic countries. This alliance building has been a centerpiece of Biden’s campaign strategy, hinging on his foreign policy experience and, more specifically, his relationships with allies and international trading partners.

A Biden administration would take a “damage control” approach to global standing by making rejoining international climate and health agreements early priorities alongside increased foreign aid funding. His diplomacy agenda would focus on personnel appointments, bolstering the diplomatic corps to increase American presence on the global stage. Overall, Biden’s efforts to claw back America’s global standing would likely focus more on defense, climate change, and diplomacy efforts than on trade, which would be used primarily to build strength against China, both through multilateral vehicles like TPP and the WTO and through negotiating a U.S.-UK trade deal.

China and the U.S. will continue to have a tense and uncertain relationship, as Biden is likely to continue his “tough on China” rhetoric amid increased scrutiny of supply chains during the COVID-19 pandemic. In trade negotiations, Biden has indicated he would prioritize U.S. competitiveness, workers, democracy, political leadership, and strategic alliances and partnerships. He is increasingly taking a tougher stance on China’s human rights violations, citizen surveillance repression, and competition with the U.S., and as a result, economic pressure and tariffs are unlikely to disappear.

What to expect:

– Use of the World Trade Organization to engender support from other countries and confront China’s trade abuses as a bloc, especially with regards to intellectual property theft and limited access to Chinese markets

– A prioritization of efforts to strengthen the U.S.’ position relative to China and negotiate a side deal entrance to the Trans-Pacific Partnership (TPP) as part of a broader push to curb China’s potential to further “write the rules of the road”

– Continued negotiation of a U.S.-U.K. trade deal as part of a broader diplomatic effort to regain the “special relationship” between the two countries, though not as high priority as TPP and Transatlantic Trade and Investment Partnership

– Removal of some tariffs on U.S.-EU trade, such as steel and aluminum, and continuation of others, such as agriculture and food

– A demonstrated recommitment to NATO as well as a move to rejoin or renegotiate the Iran nuclear deal, extend the START Treaty with Russia, and work to denuclearize North Korea

– Immediate reentry into the Paris Climate Accord and refunding of the World Health Organization

– Execution of a global summit, hosted by the U.S., bringing together democratic countries to work on fighting corruption, defending against authoritarianism, and advancing human rights

Antitrust Enforcement:

While antitrust under President Trump has been characterized by unpredictability and driven by personal interest from the President (in the case of large tech companies), the Biden administration would be more predictable, made evident through his appointments to the Department of Justice (DOJ) and Federal Trade Commission (FTC). While Biden would be expected to take the position of most past presidents and scale back direct comment on most antitrust cases, his overall attitude—especially towards Big Tech—could be pulled left by former opponents Sen. Warren and Sen. Klobuchar, known for their populist stances on antitrust. Biden’s administration would likely be stricter on M&A efforts by large corporations, with a particular scrutiny for those involving consumer-facing products and services.

What to expect:

– Personnel changes in and increased funding for the DOJ and FTC, including the appointment of career litigators and return of several Obama-era personnel who will drive competition policy in the potential Biden era

– Increased focus on agriculture and protecting family farms, namely through stronger enforcement of the Sherman and Clayton Antitrust Acts and the Packers and Stockyards Act

– A thorough review of all M&A activity since Trump took office intended to hold companies accountable if they harmed workers, raised prices, or reduced competition, with increased scrutiny on mergers during the pandemic

– Introduction of new criteria in M&A antitrust considerations including the impact of corporate consolidation on labor, underserved communities, and racial equity

– Additional efforts to shift the burden under the Clayton Antitrust Act of proving M&A would not lessen competition from the government to the involved parties

– Potential lowering of thresholds for review of acquisitions involving nascent competitors

– Stricter and more public Committee on Foreign Investment in the United States (CFIUS) reviews where applicable

Financial Reform:

Given the current economic crisis originated outside of financial markets, and that both the Federal Reserve and U.S. banks were well-positioned to support the federal economic response, it is unlikely that the Biden administration would seek sweeping reforms to the U.S. financial system along the lines of the Dodd-Frank Act during the Obama administration’s first term. Biden is more likely to focus on addressing inequality and discrimination in consumer banking and housing, as well as ensuring greater oversight and regulatory scrutiny on the financial industry. This would largely be accomplished through personnel appointments at the Departments of Justice and Treasury, the FTC, OCC, and CFPB.

Elizabeth Warren’s influence on the administration has been the subject of wide speculation. However, there are likely to be several progressive politicians in positions of influence. A Biden administration would face pressure to nominate appointees who align with the policies of these congressional leaders, including: Senate Banking Committee Ranking Member Sherrod Brown, House Financial Service Committee Chairwoman Maxine Waters, Senator Bernie Sanders, and Representatives Katie Porter and Alexandria Ocasio-Cortez.

What to expect:

– Stronger oversight and regulatory scrutiny through the appointment of progressive regulators at Treasury, Justice, CFPB, OCC, FTC, and other regulatory agencies

– Expanded banking and lending services, including instituting postal banking, creating a new Public Credit Reporting Agency within CFPB, and supporting administration plans to implement a real-time payments system

– Enforcement of anti-discrimination in lending and housing beginning with reversing Trump administration policies on fair lending and fair housing protections, as well as directing additional resources to identify discrimination and enforcing settlements against discriminatory practices

– Expansion of the Community Reinvestment Act (CRA) to include mortgage and insurance companies and efforts to grow the availability of affordable housing through new investments in the Housing Trust

– Stability at the Federal Reserve, including the continued service of Jerome Powell as Fed Chairman

– Depending on the state of the economy, including whether or not the country is well into a recovery period, no major changes at the Federal Reserve until Randy Quarles’ term as Vice Chair for Supervision expires in October 2021

– Continued support for Dodd-Frank, but minimal efforts to reverse changes to the law passed by Congress in May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA)

Tax Reform:

The Biden administration’s tax reform agenda would focus on increasing taxes on corporations and the wealthiest Americans, which would appeal to the progressive wing of the Democratic party and help provide revenue for many of Biden’s large, costly proposals, such as public option health care and green infrastructure.

Biden would start with a repeal of many of the policies introduced in the Tax Cuts and Jobs Act (TCJA). While he has campaigned on a 28% corporate tax rate, in practice this will likely be more of the ceiling than the floor amid contentious legislative negotiations. The other major part of Biden’s business tax agenda would focus on restoring and expanding redevelopment and energy-based tax credits, stimulating green investments, and spurring economic growth in struggling communities.

Progressive influence is likely to push Biden toward some form of a wealth tax on those with $50M+ in wealth. Though current tax reform proposals include other forms of tax increases on the rich, such as doubling the capital gains tax, he has not yet included a straight wealth tax. On the opposite side of the income spectrum, Biden’s policies for anyone making under $400K would focus on expanding existing tax credits, such as the Earned Income Tax Credit (EITC), introducing new credits, such as a renters tax credit and a childcare reimbursement credit, and avoiding tax increases.

What to expect:

– Efforts to reverse TCJA policies, including raising the corporate tax rate to 28% from 21%, doubling the tax on global intangible low-taxed income (GILTI), and reverting the top individual income tax rate for taxable incomes above $400,000 to the pre-TCJA level of 39.6%

– Additional taxes on corporations, including a 15% minimum tax on booked income for large corporations ($100M+ in net income) and repeal of the CARES Act net operating loss provisions

– Increased taxes on the wealthy by doubling the capital gains tax to the ordinary income tax rate for taxpayers reporting more than $1M in income, eliminating the step-up in basis provision, raising the estate tax, applying Social Security payroll taxes to earnings above $400K, and capping itemized deductions for high-income individuals

– Additionally, no moves to renew TCJA income tax provisions which are currently set to expire in 2025, leading to another tax increase for high-earning individuals

– Stimulation of clean energy investment through reinstatement of the Solar Investment Tax Credit (ITC) and the Production Tax Credit (PTC), expansion of business tax deductions for energy retrofits, smart metering systems, and other emissions-reducing investments in commercial buildings, and restoration of EV tax credits for individuals and businesses

– Promotion of redevelopment through tax credits, such as the existing New Markets Tax Credit and a new Manufacturing Communities Tax Credit for projects that boost local economic growth in communities that experienced mass layoffs

– Additionally, efforts to build on and reform the bipartisan Opportunity Zones incentive to increase stakeholder collaboration and transparency

– Creation of “more generous refundable tax credits” for low- and medium-income individuals by extending EITC to low-income individuals above age 65, expanding the child & dependent care tax credit including with a child care reimbursement, developing more accessible tax breaks for homeownership, and introducing a renters tax credit for low-income individuals

Immigration Reform:

Biden has struggled with immigration and deportation policy legacies from the Obama years and would likely seek a two-pronged strategy on immigration: shore up popular, compassionate Obama-era policies and reverse Trump-era actions, particularly on workforce visas and hardline geographic bans. A Biden administration is likely to face pressure from activist and business groups to codify immigration laws and push a comprehensive reform package through Congress. However, if these legislative efforts fail, his administration can still enact other substantive administrative actions.

What to expect:

– Efforts to build on the Supreme Court decision to grant citizenship to all DREAMers and spur legislative action that would be more resistant to a second attack in the courts

– Reversal of many of the most controversial Trump immigration policies, including using a state of emergency to marshal border wall funding, the so-called “Muslim Ban,” separation of families at the border (“Zero-Tolerance” policy), and restrictions on asylum seekers

– Protection and enhancement of visa programs restricted by the Trump administration, including ending the H1-B suspension and implementation of a new visa category that would allow counties to apply for higher levels of immigrants

– A return to some alternatives to long-term, pre-trial detention (i.e. house arrest), and deportation only for violent criminals, stopping short of decriminalizing border crossing

– An increase in the number of refugees allowed from and resumption of aid to South American countries like El Salvador, Guatemala, and Honduras

– Appointment of reform-minded personnel to head DHS and ICE, following pressure by immigration activists and former Democratic candidates including former United States Secretary of Housing and Urban Development Julián Castro

Criminal Justice Reform:

As a result of the recent societal unrest and calls for action on racial injustice and police misconduct, criminal justice reform could be one of the first elements pushed by a Biden administration and a Democratic House/Senate, especially if reforms aren’t acted on during the current Congress—which appears increasingly unlikely with each passing day. Biden’s potential Attorney General would take the first steps on criminal justice reform by undoing many of the relevant Trump-era directives and consent decrees in the DOJ and by increasing enforcement of civil rights & hate crimes issues.

What to expect:

– A push for funding to create a civilian corps of social workers, including trained mental health professionals, to help respond to nonviolent emergencies

– Additional grants for body cameras and other community policing efforts

– The reinstitution of an executive order preventing the transfer of surplus military equipment to local law enforcement and the creation of a national use of force standard

– Conditioning of federal aid alongside new incentivizes for states to eliminate mandatory minimums, end cash bail, and restore former felon voting rights

– Executive action directing DOJ to end the federal use of private prisons

– Repeal of current DOJ guidance around cannabis enforcement and decriminalizing the use of cannabis and expunging previous cannabis records

Conclusion

The next few months will almost certainly offer surprises that upend any number of the scenarios we’ve set forth in this paper. This paper endeavors to look at the landscape as it exists today, anticipate how it might change for tomorrow, and inform thinking on how to plan accordingly.

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Insights

Zoom: Managing Sudden Public Scrutiny And Lessons Learned For Future Zooms

Findings:

  • With its unprecedented and fast-paced rise, Zoom is experiencing challenges familiar to large tech companies but doing so over the course of months rather than years. Rapid growth invites scrutiny, putting a reputational and regulatory target on the video conferencing company.
  • Zoom has encountered issues like privacy and security, harassment, and relations with China. Zoom will need to navigate these issues, and others, successfully or it will face more pointed criticism.
  • For future startups, including the “next” Zoom, using the roadmap of other tech firms can inform strategy, drive growth, and ensure long-term success. Zoom has the potential to become the next great tech example.

2020 may very well be the year of Zoom. The COVID-19 pandemic and resulting shutdown forced businesses online, many for the first time, and Zoom was ready to capitalize. The video conferencing service has become so ubiquitous its name is now a genericization for online meetings, just as Kleenex, Q-Tip, and Google went from upstarts to synonyms for tissues, cotton swabs, and search engines.

Some may think of tech companies as growth machines, doubling values year-over-year as they move fast and break things. But even the fastest growing startups take years, and often decades, to rise to the top.
With a great rise comes the attention, scrutiny, and problems often reserved for only the largest firms. Microsoft, Google, and Facebook have had decades of experience handling privacy, harassment, and censorship issues with social and geopolitical dynamics. Zoom, on the other hand, is experiencing these challenges over the course of weeks and months rather than years. This rapid growth invites considerable scrutiny, putting a reputational target on the company.

Zoom’s Rapid Rise Into Big Tech

The rise of Zoom is unprecedented. When Zoom IPO’d in 2019, few could have predicted experts would be floating the idea of a $59 billion market cap a year later. Putting its growth into context, Zoom priced its IPO at $36 per share on April 17, 2019, and has grown more than 7x since, to $264.88 as of August 4, 2020. No other major tech firm accomplished that feat in under ten years, and Facebook has never seen that level of growth.

Zoom Has Made The Most Of The Moment

“Among remote employees, Zoom users are most likely to report liking or loving their video conferencing software.”

— Owl Labs State of Video Conferencing 2019

Zoom was founded by a former Cisco Webex engineer who believed he could build a better video conferencing product—and by most accounts, he did. An Owl Labs report from last October on the “State of Video Conferencing” found Zoom to have one of the fastest setup times and user satisfaction rates of any video conferencing software, perfectly positioning it to capitalize on the moment.
In the age of remote work, lockdowns, and social distancing, Zoom has become an indispensable tool for everything from government hearings to weddings.

Media Scrutiny Leads To Washington Curiosity

When tech firms blossom into established players, they often have to deal with three core issues: privacy, harassment, and China. For example, in 2006, Microsoft was pushed to amend its privacy policy for shutting down blogs, largely due to censorship demands stemming from the Chinese government. In 2009, Google fell under widespread net privacy scrutiny after releasing “broadly phrased” guidelines. And “Facebook stalking,” the newfound and branded version of cyberstalking, became a buzzword in 2012.

Zoom is now experiencing many of the same kinds of controversies and regulatory scrutiny as established tech companies. This enhanced scrutiny is in part because of its accelerated growth over the last year. With growth comes attention and scrutiny, and soon, regulatory curiosity.

Not long after Zoom went public in 2019, the Electronic Privacy Information Center (EPIC) asked the FTC to look into Zoom over security and privacy concerns. However, there is no evidence that regulators took any action last year. A year later, as Zoom rocketed into the consciousness of every remote worker, legislators and regulators started paying more attention to Zoom.

Following a series of reports over Zoom’s privacy and security shortcomings—issues that may have been ignored if not for Zoom’s growth during the shutdown—several state Attorneys General began investigating Zoom. Senator Sherrod Brown (D-OH) asked the FTC to investigate Zoom, and while the FTC did not confirm any such investigation, they acknowledged that media scrutiny leads to investigations.

Addressing Regulatory Scrutiny

It’s fair to say the enhanced scrutiny of Zoom is connected to its rapid growth and consumer demand for the product. However, we must note the company has made missteps it has had to acknowledge and correct to reassure its users of the platform’s security and reliability. These missteps and others have led the FBI and the UK Ministry of Defense to issue public warnings concerning Zoom.

“Any time you see a press report of a significant privacy issue, a potential privacy violation of our authority, it is safe to assume that we either are investigating it already or shortly after that media release, we will investigate it.”

— FTC spokesperson when asked if the regulators were looking into Zoom

Privacy Concerns Require More Than A Policy Change

Privacy concerns are nothing new for tech firms, and a traditional response includes announcing a change in the privacy policy itself. After declaring in 2009 that “if you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place,” Eric Schmidt predicted in 2010 that the internet needs to take a path of “true transparency and no anonymity.” Google revised its privacy policy in 2012, enabling data to be shared across services, including third-party websites. The policy was met with additional backlash.

Following Zoom’s quick rise to prominence this spring, privacy advocates’ complaints were given more attention, many of which claimed that “Zoom’s default settings aren’t secure enough. Zoom now risks becoming a victim of its own success.”

Zoom responded to complaints by offering a premium service (end-to-end encryption) to all users, rewriting portions of its privacy policy to limit what content could be used for advertising, and launching a 90-day plan to bolster key privacy and security initiatives on April 8, with a regular cadence of updates on the Zoom blog. Upon conclusion of the 90-day plan, Zoom outlined the progress it had made on key “trust, safety, and privacy issues,” describing the plans’ successes and the company’s privacy-related endeavors moving forward.

Stopping Harassment Is A Multifront Battle

A problem common to platforms that allow people to virtually connect is platform abusers seeking to harass other users. When Facebook realized its platform could be used to harass users, it instituted user controls and then launched a Facebook Help center to address issues of user bullying, harassment, or attacks, ensuring that anyone who searches for help can get it.

Not long after the lockdowns began, a new phrase in video conference harassment was born: “Zoombombing.” This was made possible in part by Zoom’s default settings, which now drive people toward passwords and other security measures, but initially did not encourage a password to be set and allowed any participant to share their screen.

Zoom first published a guide on their blog addressing the issue, “How to Keep Uninvited Guests Out of Your Zoom Event.” It then adjusted settings for accounts used by schools and universities to be made “more private by default,” and froze all work on new features in April to prioritize privacy improvements, like making passwords for meetings enabled by default.

Acquiescing To China Is A Domestic Political Issue

It’s not easy to balance the freedom of speech enjoyed in the U.S. with the demands of an authoritarian regime like China. In 2006, Microsoft found itself in this situation when it shut down a blog run by a popular Beijing blogger. Microsoft chose transparency, implementing a user notification system for blogs that were shut down, and committed to only blocking content when served with “legally binding notice from the government indicating that the material violates local laws” or if the content violates its terms of service. When Facebook encountered a similar controversy a decade later, Mark Zuckerberg explained the platform’s involvement by asserting that “it’s better for Facebook to be a part of enabling conversation, even if it’s not yet the full conversation.” Facebook is still banned in mainland China.

In early June, Zoom suspended one account in Hong Kong and two in the United States after they tried to hold events related to the anniversary of China’s Tiananmen Square crackdown. This action drew immediate attention from U.S. lawmakers demanding Zoom explain itself and its relationship with China.

Zoom chose to clearly state its policy, even if it did not satisfy everyone, that it would not allow requests from China to impact anyone outside “mainland” China. Zoom also said it would outline much more robust and detailed policy in its transparency report, to be released later this year.

What’s Next For Zoom

Tech firms facing intense scrutiny while providing a medium for communication often face many more controversies than Zoom has encountered. We could expect Zoom to have to deal with issues like servicing disfavored government agencies, controversial individuals using or even promoting their platform, questions over diversity and inclusion both in their products and business, employee and labor strife, or other problems well known amongst big tech. With great power comes great responsibility—and accountability.

Zoom will almost certainly be called to testify before Congress at some point in the next year. Congressional testimony by executives can lead to deepening, rather than remediated, reputational concerns. The difference between the two outcomes is usually found in preparation. Executives must understand the uniqueness of the environment that is Washington, take it seriously, appreciate the level of media attention these moments can generate, and use hearings as opportunities to tell the company’s story.
Zoom can become a shining example of a business that seized the moment during a global pandemic by offering just what people needed, when they needed it. Or it can let its competitors, media reports, and lawmakers control the narrative, leading to massive and costly investigations. We’re betting on the former—but Zoom doesn’t have the luxury of time that Microsoft, Google, and Facebook had, placing it in the unprecedented position in which it finds itself today.

What About The Next Zoom?

It’s impossible to foresee all of the dynamics a future tech startup will deal with, especially given all that’s changing in the world around us. But we can glean the following things based on the rise and fall of others.
Given the U.S. relationship with China and its trajectory, figure out how you’re going to engage in China—and if and when you are—be prepared for major scrutiny about how you’re doing it.

  • The demand for protecting consumer’s privacy is high and growing. Place a premium on consumer privacy right from the start.
  • There are people out there who spend 24 hours a day, 7 days a week trying to hack your program. Invest in good, thoughtful security protocols early. You can always relax them later if that creates a more favorable consumer experience but it’s harder to build in additional layers of security in the midst of criticism and breaches.
  • Technology is a gateway to accessibility. Zoom makes employment and education attainable in unprecedented ways. Diversity and inclusion are intertwined with innovation — keep this top-of-mind as your company and products grow and consider jobs that can be done somewhere other than at headquarters.
  • As with your predecessors, mistakes will be made. What’s critical is how you handle them. If you’re quick to acknowledge, transparent in what you know, and genuine in your commitment to resolve it, that will go a long way in securing your business’ future.
  • Assume future success and engage with policymakers, regulators, consumer groups, and others who can cripple your business as if its future depends on it. If you haven’t done the work to establish those relationships, hear their feedback, and heed their counsel and you quickly find yourself the new kid on the block, you will have a lot of catching up to do in a very short amount of time.
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Insights

The COVID Effect On House Campaign Fundraising

By: Lloyd Miller, lmiller@hamiltonps.com, 202-822-1205

After several strong months of fundraising for House candidates in both political parties the novel coronavirus cratered fundraising in March. During the first month of our national quarantine, individual contributions to House candidates dropped 35% compared to 2018.

Impeachment was, in fact, very good for fundraising. The U.S. House of Representatives spent last October debating impeachment before voting to open an impeachment inquiry on October 31. After a long November of hearings, the House voted on December 18 to impeach President Trump. Many candidates, both incumbents and challengers, used the House vote to boost their fundraising, in what Politico described as “a gold mine — turning even some rank-and-file lawmakers into fundraising juggernauts.”

House campaigns this cycle drew big hauls when the House was in the heart of their impeachment debate and hearings, raising considerably more in October (+30%) and November (+33%) from itemized individual donors as compared to the same months in 2017.

On February 5, 2020 the president was acquitted by the U.S. Senate, leading to another blockbuster fundraising month for candidates in both parties. In February 2018, House candidates raised $36 million from individuals, but in 2020 that jumped by 29% to $46 million (candidates also had one extra day in February to raise money, netting an extra $2 million on leap day). The party committees charged with electing members to the House, the Democratic Congressional Campaign Committee and the National Republican Campaign Committee, also raked in individual contributions in February, when the DCCC and NRCC saw a combined 63% increase in contributions over January.

Then came March. March 2020 will be remembered as the month that never ended. Almost every day felt like a new earth-shaking event, from the stock market crash to Tom Hanks getting coronavirus to a national emergency declaration and nationwide shutdown orders. There was no avoiding this impact for House candidates either as in-person fundraising ceased, donors started holding onto their cash, and attention was focused elsewhere. The result was a spectacular drop-off in fundraising. In March 2018, House candidates raised $80 million from individuals, but in 2020, they raised just $53 million, a 35% dropoff.

But it got even worse as the month continued. The end of a quarter is always a huge moment for fundraising, as anyone who ever signed up (or got signed up) for a campaign email list is all too aware. From March 16 through 31, 2018, House candidates raised $53 million, 38% of all itemized contributions to House campaigns for the entire first quarter. This year, however, there was no surge. House candidates could have expected to raise over $60 million  from individuals in the final two weeks of March based on donor patterns over the previous two cycles, and yet they raised just $27 million.

Fundraising has started to adapt to the new normal. Campaigns are not that different from startups, nimble and willing to experiment to find an edge. Joe Biden hosted an online fundraiser, joined by California Gov. Gavin Newsom, that netted $2.7 million. President Trump’s campaign is selling campaign puzzles, a popular stay-at-home purchase, to raise money online. From guided meditation with a Congressman to Zoom calls with celebrities to Cinco de Mayo happy hours, candidates are adapting to the new normal, while acknowledging that many donors are keeping their wallets closed, at least for now.