16
Jan

A trend that must be accelerated

Written on January 16, 2008 by Max Oliva in Development

J.Pozuelo-Monfort, MPA candidate at Columbia University
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Today’s world is a world of increasing inequality, poverty and despair, a world in which the current players are incapable of coping with a reality that is too rough to admit, too uncomfortable to deal with, and too disproportionately harsh to face. Thirty plus years of development aid have proven ineffective. The major international players in the financial arena are incapable of providing solutions. The Bretton Woods era is gone, the so-called Washington Consensus is a mere reflection of what it once was, in a new world, a new reality where the Cold War and Reagonomics no longer exist, where globalization and unilateralism have gained relevance as drivers of these first years in the twenty-first century.
The private equity shops and hedge funds of the world acquire major relevance in a financial landscape that is more and more sophisticated and hard to understand and to cope with for a majority of individuals in the first and developing worlds who no longer control their financial stability, subject to international traders, hedgers, brokers and speculators.
Microfinance is claimed to be the most important tool devised by the human being to fight against poverty over the last thirty years, but only covers 4% of the extreme poor. New services for the poor do not arise because the poor have no collateral, because the poor lack the ability to earn, save and pay back, as Hernando de Soto would probably point out. Financial institutions from the West timidly enter emerging markets to offer financial tools, and more often invest and deinvest to speculate on the short-term and earn positive returns above the benchmark that beat the market with positive alpha and a hopeful uncorrelated structure. In the meantime the price of basic food skyrockets because of the turmoil in the oil markets, because the West needs to satisfy its hunger for energy with alterative energy sources that have discovered the wonder of biofuel.


A world based on the maximization of economic profit in an extreme derive of capitalism led by the wealthiest is leaving equity and global justice behind, is not incorporating redistribution to the global agenda, forsaking the poor, leaving those with no safety nets to the mercy of the charity of the better off and the corporations, that with their philanthropic activity claim to have become corporate sustainable and responsible, reaching a point of equilibrium where they shall stand for the years to come.
It is however time to turn the course of this journey and admit capitalism is not heading off the right direction. We need more regulation. We need Institutions to be above Markets, we need to protect the more vulnerable with global redistribution schemes and welfare systems that allow for the incorporation of the poor to the benefits of the lifestyle we enjoy in the West. We need to provide with the basic infrastructure to those who lack it, so that the poor get on the ladder of development once and for all and become economically self-reliant.
Investors have to start looking at the social return of their investments. Investors have to start computing the collateral damage of some of their actions, that are sound economically speaking on the short run, but bring about calamity and turmoil on the long run. Consumers have to start discriminating among products, to penalize those manufacturers that are not ethical and sustainable, and reward those who strictly comply with a set of internationally established standards, that must define an ambitious agenda to make sure the environment and the human being are respected.
There is a trend that needs to be accelerated. Muhammad Yunus won the Nobel Peace Prize in 2006 for his contributions to fighting poverty through microfinance. Albert Gore won the Nobel Peace Prize in 2007 for his activism against Global Warming. The society acknowledges the efforts of key individuals that have decided to fight the world’s most serious threats. But the trend has to be accelerated. We need our politicians and corporate leaders to become aware of the challenges of an unequal world. We need our politicians and corporate leaders to turn sustainable.
I believe I belong to a generation that has to step forward and lead the change of approach to politics, corporate strategy and finance. An approach that has to come from the very roots of the society, from the very own constituents of the society, from society’s very own citizens, that must stand up and turn sustainable, that must stand up and denounce unethical behavior among politicians, among corporate leaders, among financiers and money managers, because the pressure of those who vote, the pressure of those who buy and invest is a Trojan horse with the potential of boosting and accelerating the trend some have timidly started to adopt.

Comments

Gibran Armijo January 21, 2008 - 11:36 am

Once again… bravo! Reading that the current “market penetration” for micro-credits is only at 4% is an eye opener (the expression of “market penetration” is based on seeing the 4 billion poorest at the Bottom of the Pyramid from a market perspective).
Still, it is clear to me that this approach of micro-credits and micro-lending is truly a more reliable way to redistribute wealth, but I would take it a step further: have ordinary people be the ones lending to those in need, instead of relying on the banks or financial institutions, who as you mention, are still more focused on maximizing profits and returns, and who see this segment as unfit and too risky for credit.
There are currently several organizations doing this, such as Kiva.org, Prosper.com, Zopa.com and Smava.de
You also mention that more regulation is needed, I see this as a “top-down” approach that should be complimented with a “bottom-up” counterpart like this personal micro-lending, along with more social entrepreneurship and less corporations that maximize profits first (and extending the poverty gap) and create Foundations later (which tend to be more focused on tax cuts) or create Corporate Responsibility policies (which tend to be more focused on marketing and image). It should be inherit in all business practices, business models, even ordinary activities from regular people.
By the way… all the hype surrounding the biofule should be sending off alarms, it should be “no, no”, we really need to do a couple of things:
1. focus on other alternative sources of renewable energy that don’t imply using food for fueling cars instead of feeding the world
2. focus on reducing our energy consumption, a very interesting read is “objective decroissance”, although some suggestions I find a bit extreme, the underlying reasoning is solid and there are several very practical suggestions. Also an interesting compliment is http://www.storyofstuff.com
Finally, as you also mention, we have to push the politics into this mind-frame, and now is the time since both Spain and the US are in full gear for elections, to really get involved and get the candidates involved. On a personal note, for the US, Brack Obama has my unofficial support 😉
Until next time Jaime 🙂
GA

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