Daily Archives: May 10, 2019

Globalisation, Ecosystem, Holistic……

In today’s world economy, most nations have suffered the impact of global instability. The current trade talks between the US and China are having negative ripple effects on the rest of the world. Embargoes on some countries and social instability in others have triggered a sense of vulnerability amongst multinationals as their revenue model is being threatened.  When the global players get sick, the world suffers from the potential loss of jobs and tax revenues limiting economic growth in different parts of the world.

The World has come to realise that most nations are interdependent on each other. The survival of one country depends, to a large extent, on the “Rest of the World”, including those nations that they may not trust or with which they have no strategic interest…. To put it simply: as growth slows down in the developed markets such as China, US, EU, they will buy less from those export driven economies which make up most middle income and low income countries.

Globalisation has also shattered one main economic concept: economic development is measured essentially by an increase in GDP. An increase in income does not always translate into better living standards. Health, measured mainly by life expectancy and infant mortality, is also an important determinant of the living standards of a nation.

Maslow’s hierarchy of needs explains that no one can grow and fulfil their potential if they are not well fed, do not have proper accommodation and have no sense of belonging to the community where they live. Alienation, low self esteem, loneliness all contribute to encouraging someone resorting to violence as a means to express their frustration against society as a whole.

To achieve sustainable economic success on a national level requires that the basic needs of the population is met. Only then can the country aspire to long term social and political stability. In other words, both high levels of employment and limited inequality are the prerequisites of the long term continued economic development of a country.

One of the most important resource of any nation is its people and if a large proportion of its population do not live up to their potential – the country will not live up to its potential. High levels of inequality, especially as a result of unemployment, can result in social unrest; crime is likely to increase, creating a climate that is unattractive to businesses.

The whole purpose of creating economic development has always been about transforming the lives of people, not just transforming economies. Policies for education or employment need to promote growth. It is also critical to understand how they affect individuals directly. Education is meant to open up the mind to the notion that change is possible. Great education teaches the basic elements of analytic reasoning and enhances the capability to learn. Education is important but if there are no jobs for those who are educated, there will not be development.

It is the role of any government to create a climate that allows businesses to thrive and create jobs. The economic, legal, social and political environment of a country is to be constantly revisited as society evolves and technology continues to make advances into improving our capability to handle the complexity of today’s economy. Information is always imperfect and markets are always incomplete. A mix of government intervention and “laissez faire” is fundamental for any country to thrive economically.

According to Ruchir Sharma, a long term observer of a nation’s economic success, a good understanding of economic reforms is a necessary ingredient for those who are at the helm of the economy.  No nation can ever hope again to grow as a free rider on the waves of a global economic boom as so many had been able to in the 1980’s and 1990’s. They will have to learn to row vigorously well if there is no wind….

Many nations often hope that their alliance with other countries will boost foreign investments and create jobs. Foreign investors are not only a source of additional tax revenue or the credible proof of a nation’s competitive advantage. They can become the vehicles for the transfer of technology or know how to train the local workforce.

Petronas, Malaysia’s oil and gas company, became one of the nation’s flagship thanks to the pro active stand that the government took in ensuring that the proper training was given to the local management team. If a nation was left to grow organically with no clear directives from its government, there will be too much of some things such as pollution and too little of others such as research and a well educated workforce.

Another example of great economic vision is Bengalore – India’s capital of information technology. The Indian government founded the Indian Institute of Science in 1909 and has since then continued to invest heavily in education and research which eventually paid off today.  Such long-term vision and determination from governments are rarely observed, unfortunately for us….

But multinationals have now become savvier in assessing potential investments overseas. They look at many factors including how well money is channelled into productive investment. A commitment to build and strengthen the productive investment of a country directly encourages the emergence of a strong entrepreneurial spirit generating stronger SME’s leading to more domestic jobs creation. Relatively high levels of corruption and government favouritism, if not seriously addressed, can cause social unrest as it has been the case for those nations involved in the Arab spring in late 2010. The aftermath of the Arab Spring is still painful and not fully resolved.

Development is a process that involves every aspect of society: engaging the efforts of everyone: markets, governments, NGO’s, cooperatives, not for profit institutions. Various World Bank studies have highlighted the importance of community involvement, finding that local participation in the choice and design of projects leads to a higher likelihood of success. Community involvement ensures that money is spent in creating the projects rather than in corruption.

Changing a nation’s economic pillars of growth is always tricky. Managing change becomes even more complicated with the existence of special interest groups. Those special interests often lose sight of the big picture, confusing their interests with the national interests of the country. Restructuring the economy inevitably implies loss of jobs. Most of the time, those who lose their jobs do not move on to better alternatives. They end up onto the unemployment roll and increased insecurity is the direct result.

This is why the role of trade unions is as important as a thriving business community. One cannot survive without the other. However, finding the right balance (as always!) is critical. Strong wage growth is as important as jobs creation for the whole workforce. The high level of unemployment in South Africa has been partly the result of the South African union movement (COSATU) focusing solely on strong wage growth for its own members whilst neglecting the fate of the rest of the South African working force.

To conclude, past economic history suggests that economic development is like a game of snakes and ladders, according to Ruchir Sharma. There are fewer ladders than snakes, which means that it’s much easier to fall than to climb. So, once at the top, a nation has to continuously strive hard to maintain its top ranking by investing heavily in research and development and working painstakingly to contain the kind of income inequality that can produce popular resistance to rapid growth.