Santorum: Reinforcing Negative Stereotypes and the Two-Party System

I recommend this very interesting NYT article (http://nyti.ms/wvpNLu) that was published late last week and relates how Rich Santorum has made tons of money since leaving the Senate (incl. $1m in 18 months in 2009-10) by working for the very companies that benefited from the legislation he lobbied for when in Senate… Certainly not the first one in Washington to do this but that does not make it alright!!

Two conclusions here - Santorum is the ultimate insider contrary to what he wants people to think. And, how can we expect that a story like this one won’t make Americans even more distrustful of anything government and even angrier at politicians in general?

The US is fortunate to have a two-party system. Given how mad a lot of people are right now there would be a lot of room for extremist parties. The Tea Party chose to join forces with the Republican Party to have representation in the Congress and to potentially put its candidate in the White House.

But had they remained independent they could be the biggest party in the US in a multi-party system, certainly bigger than the Republican Party and potentially than the Democratic Party if a more radical left wing had emerged from the Occupy Movement and other left-wing manifestations of rejection of capitalism gone wild.

Root Causes Behind Ever Widening Inequalities

I wrote in a previous post about how inequalities have sharply widened in the past 30 years, i.e. how the middle class has been feeling the squeeze and how a lot of poor people have remained stuck in poverty while the richest have been capturing an ever growing proportion of industrialized countries’ wealth.

I will focus in this article on the root causes that I believe explain why inequalities have been so stark in a recent past after decades of more evenly distributed economic prosperity.

1. Unjust and imbalanced allocation of value created: Basically, the allocation of profits made by companies is disproportionately skewed towards shareholders and senior executives vs. employees. Companies’ boards want to keep their shareholders happy and retain their senior talent, so from their standpoint it makes sense to channel most profits that are not reinvested in the company to those folks vs. to regular employees. Corporations have managed to make money despite the crisis. As reported by Time Magazine last June corporate profits were higher in 2011 than they were in 2006 when the economy was booming ($1.7 vs. 1.5 trillion). Meanwhile, unemployment is now between 9% and 10% while it was only at 4.5% then. So, companies are certainly “lean” as we tend to hear often and productivity is up – at the cost of employment probably.

How to convince companies that part of those profits should be redistributed to employees while uncertainty about the economy is at its highest? I am not sure but I know that corporations have done little to revive the US economy even when times were better. I bet that Americans would be angry to know that from 1990 and 2008, according to that same Time article citing Nobel laureate Michael Spence’s research, “companies that did business in global markets […] contributed almost nothing to overall American job growth”. The vast majority of jobs those firms created were located in emerging markets because of those countries’ lower labor costs. Jobs created in the US came from domestically-focused sectors like hospitality, utilities, healthcare, retail, and government.

So, Corporate America seems to be more part of the problem than of the solution.

2. Short-term focus at the expense of long-term development: Most publicly-traded corporations obsess about hitting their quarterly earnings targets to keep financial markets and institutional investors happy. When they don’t their stock prices suffer mightily… The problem is that with such a short-term focus they have little incentive to make investments that would hurt their bottom line in the near term even if those proved beneficial in a more distant future.

Financial markets apparently prefer to see companies sit on $1.7 trillion of profits rather than take calculated risks (yes, times are uncertain) and invest some of those profits in something productive. How does this make sense though??

An interesting exception to that unfortunate situation is Amazon. A recent NYT article related how Amazon has chosen to focus unrelentingly on the long term, thus posting lower profit levels and disappointing the markets. Amazon’s CEO, Jeff Bezos, is absolutely unapologetic about this, pointing out that continuing to invest in his company’s infrastructure and platform will pay off eventually. When your business is logistics, it kind of makes sense, doesn’t it? Finally!!

Ironically, Amazon’s stock price (which is a reflection of how markets see a company’s future earning potential) has done pretty well – certainly much better than the NASDAQ since in the past 5 years (between late December 06 and late December 11) Amazon’s stock price posted a 341% increase while the NASDAQ went up merely by 9%.

So, this can be done… Refusing to follow financial markets’ “dictatorship” is possible.

Ask Jack Welch actually!! He would agree. Wasn’t Jack Welch, GE’s former CEO and “Uber-Leader”, the darling of Anything Corporate? Actually, Welch in line with good governance proponents advocated - for the first time way back in a 1981 speech at the Pierre Hotel - that companies should maximize shareholder value by focusing on the long term (see same NYT article). During his tenure, GE was widely viewed as “the world’s best managed company”.

So, why should companies now cave in to this narrow-minded and unproductive “financial orthodoxy”?

3. Lack of political will around programs targeting the middle class: We are hearing more that the middle class has been neglected by public policies and has been feeling the squeeze economically as a result. It’s certainly been true since 2008 but in fact for much longer - I pointed out in an earlier post that real salaries have on average remained flat in the US for the past 30 years. A case in point is how many big cities’ municipalities just gave up on keeping their downtown areas socially mixed. Revitalization of those areas in New York, Boston, and so many other big cities in the US and abroad has sought to attract wealthy new residents and tourists for the most part. New constructions have mostly targeted the rich, which indeed makes fiscal and economic sense. Cities have made money when they sold parcels they owned in “prime areas” to developers and not only do new residents pay their taxes in those cities but also they shell much higher property taxes than were collected before for the same locations.

But how does this make social sense? Middle class and poorer folks have relocated to less attractive but more affordable areas. The best neighborhoods are left to the rich and the occasional visitors – and god forbid, when social housing projects have remained in some downtown areas (as is the case in Boston for instance), the rich walk by the poor (usually, there is a “color line” too) and everyone equally distrusts and is afraid of each other. Great!!

4. Inability to break the cycle of poverty: The majority of social programs target the poor but many stuck in poverty are still there today – not counting the “new poor” who got stranded by the 2008-09 recession. For many in the US and other industrialized nations it has been impossible to break out this cycle of poverty.

This one is complicated and there are several factors coming into play. First, I feel the “enabling context” to get folks out of poverty is often not there. I am talking about the key ingredients that make it possible for people to be “productive” actors in our society. Two of those ingredients are infrastructure and education. For example, how often do we encounter in the US in particular cheap public transit systems that offer a dense network so that people can go anywhere in their urban areas in an efficient and affordable way? The absence of a solid public transportation system is an obstacle for those seeking employment (to find and keep a job). How about public education? Public school funding is fundamentally flawed in the US as about half comes from local funding and mostly from property taxes. Thus, the higher the house prices in an area, the more money goes to that area’s public school system. How can such a funding formula not generate major inequities?

Institutional racism – or broad stereotypes to use a gentler word – is another factor that undermines the enabling context. In the business world there is still an untold and implicit hierarchy – not everywhere certainly but in most places. Up there sits the “white man”. And if the white man has broad shoulders and looks like a quarterback it is even better!! The rest of the pecking order is open to discussion but certainly people of color still suffer from stereotypes and find themselves at the bottom of the hierarchy. Are we ever surprised when we see low-level jobs (fast food restaurant employees, cleaning or security folks) held by people of color?

How is this empowering to those in poverty? Don’t those stereotypes make obstacles seem even more insurmountable?

Beyond the “enabling context”, last summer’s riots in England have shown how dangerous massive cuts in social programs can be. Given current deficit levels these cuts are certainly tempting for local, state, and national governments. Eliminating programs across the board is the last thing to do but if some cuts are necessary how to decide which programs should go? That leads me to my next point, namely there does not seem to have been a systematic evaluation of social programs’ effectiveness and impact out there. Those stuck in poverty for generations have often been receiving support for a while, for instance to acquire skills or find a job. Do agencies implementing those programs know precisely how effective those have been? If the needle has not moved much in all that time, so to speak, do the folks on the ground know why and how to do a better job?

In an encouraging development the Obama administration created the Office of Social Innovation (now grouped with Civil Participation) in 2010. The idea is to replicate programs that have worked and fund their scaling in as many areas as possible.

Only when organizations implementing social programs can show what their results have been (favorable or not) will they be able to make a compelling case to keep those that have worked and channel more money towards new and improved ones.

Finally, how to make sure that those in poverty can find the courage and build the confidence to go out there, fight for themselves, and overcome obstacles? So many Americans love their country because they think that anything is possible if one is willing to work hard. And they’ll give you examples of folks who succeeded against all odds. Well, that’s the problem I have with this system – “against all odds”… As long as we don’t have a level playing field and the enabling context I mentioned above is not there it will take an extraordinary amount of courage, determination, and persistence to make it for those who were born in poverty.

Yes, those qualities are needed no matter what. Even with the support of social programs and a favorable environment around schools, infrastructure, etc. if you are a slacker, chances are you’ll be a slacker for a very long time.

But we should not expect everyone to be bootstrappers and have incredible grit, perseverance, and resolve to be able to make it out of poverty.

In the next piece concluding this series on our system’s crisis I will try to come up with solutions addressing the root causes of the wider inequalities we’ve observed.

Nutella: People Taking Notice – Finally!!

As our world is grappling with a systemic crisis, the risk of a major economic disaster in the Eurozone, the impoverishment of the middle class, and unabated poverty in most developing countries, the question, Is Nutella good for you, is on a lot of people’s minds… My post on Nutella’s nutritional benefits (or lack thereof rather) has been the most viewed article on my blog since I started it… I’ll have to think about what that means about the quality of my other posts - oh well…

But in the meantime, I wanted to follow up with some good news since an American mother earlier this year decided to sue Ferrero, Nutella’s maker, for false advertising. Read the story related on the NPR web site below.

http://www.npr.org/blogs/health/2011/02/10/133565759/a-mom-sues-nutella-maker-for-deceptive-advertising

People are taking notice – finally!! Come to think of it, this is similar to the strong reactions we are seeing among so many folks who had never been active politically before but can’t shut up anymore because they are angry, dismayed, and often disheartened. The People is rising…

The Occupy Movement and the need for a new model

As the Occupy movements are now facing bad and cold weather and the excitement from the first couple of weeks has waned, the big question is, how much of an impact will they have and how sustained will it be

The Occupy – “Indignados” movements will only succeed if ordinary people who are not activists do get involved. The usual suspects in those demonstrations and protest movements are the pacifists, the trade unions folks, etc. They certainly know something about organizing and mobilizing but I don’t think they have a lot of credibility in the general public – especially with those who do not share their political opinions. The young people whose mobilization on campuses across the US has been impressive also lack credibility because they are mostly viewed as inexperienced and idealistic. Activists who form the core of the Occupy movement have been dissenting for a long time, proclaiming that our system was flawed (and they were probably right about that). But ironically, they do not represent change since they have been at it for so long.

They are however capturing the “zeitgeist” as their anti-globalization / anti-capitalism rhetoric and agenda resonate with people angry about the current economic situation and consequently about our system that supposedly has created that mess. Americans – usually among the most disciplined ones and those who believe in the benefits of capitalism - are upset about high unemployment that, contrary to prior recession or slow growth periods, is barely going down and about rocky stock markets that experience large swings from one day to the next.

The Occupy – “Indignados” movements will have a long-term and significant impact if they can lead or actively participate in the reflection about the changes needed in our system. Despite the growing consensus that our system needs to be fixed there hasn’t been a concerted effort so far to carry out that thinking process.

The Occupy folks will probably have a more radical view than I on the question but I don’t believe that fighting capitalism all the way and making it evil, responsible for all the injustice and the suffering in this world, is the solution. The emergence of the middle class after World War II in Western societies, which meant that millions got out of poverty over these couple of decades, took place in a mostly capitalist society – but one that was more just and balanced.

In the 80’s a shift occurred as a result of the “Reaganomics”, the conservative economic policy that Reagan and Thatcher implemented for a number of years, and the gap between the rich and the poor started widening again and the middle class increasingly felt the squeeze. Real salaries (adjusted for inflation) have been flat on average in most Western countries since that time while wealth is increasingly concentrated in fewer hands.

The average difference in salary between lowest paid workers and CEOs were 1 to 8 in 1980. Things are slightly different today – for instance, the CEO of CBS, the US media company, made an astounding 60 million last year. If folks in the CBS mailroom made say $20k, the 1 to 8 ratio skyrockets to 1 to 3000!!!

Thus, in richer nations inequalities have been on the rise while some populations have been stuck in poverty for years. In the meantime, the situation in the Global South is not tremendously better. Even in China, India, and Brazil which are rightly viewed as success stories, significant inequalities persist. And a lot of other nations are still struggling with poverty even though they have received development cooperation aid and benefited from foreign direct investment for a long time, often have a talented work force, and, in some cases, enjoy natural resources that constitute a major source of income.

I will write more on ideas to reform our system in my next post, with a focus on industrialized countries as emerging / developing countries have to contend with particular issues that make their situation even more complex.

People Waking Up - Finally...

October 15^th was a great day!! I loved the mobilization around the world aiming at making our system better… It is good to see that people are waking up finally – especially Americans who happen to have an incredible resilience in face of adversity but are just used to keeping their heads low. Ordinary Americans conform – they don’t protest. They are docile – but that may be changing.

More on a possible groundswell in America and how the Occupy / Indignados movement could effect systemic change later…

Impressions from Africa - Flaws in Development Cooperation

I was in West Africa last week for my work and I interacted with folks from the government, foreign donor agencies, and an international NGO. In that short week I saw a number of symptoms of what I consider to be flaws of development cooperation.

First symptom, there may be too much money channeled to a developing country at once. On the surface, there is no such thing as too much money for a poor country. In reality, donor agencies agree with national governments on the destination of the money beforehand. Even though there has been improved coordination among donor agencies and other development actors with respect to their cooperation with national governments, the emergence of several programs focused on the same sector at the same time is far from rare.

The problem with that is one of absorptive capacity as developing countries’ entities receiving the funds have to be in a position to use them efficiently and effectively. The realization of an insufficient capacity may lead the donor agency to agree with the recipient country to put together a sort of program management unit, in addition to the existing structure, the job of which is to make sure that the program is well executed. Setting up such a program unit costs money and thus presents a dilemma: should the program be initiated with the extra costs incurred (money that could be used elsewhere) or should nothing be done until the national capacity has improved?

I can’t help but think however that local resources, such as the donor agency’s country office if there is one or some dedicated team within the recipient entity that would be trained or short-term local consultants, would afford more economical solutions for an acceptable result.

The irony of the ill-timed convergence of funding is that donor agencies and other development actors getting involved are persuaded to do so because they see those other guys committing money. Match funding is often the magic word, donors being much more comfortable, including towards their own leadership, engaging in a program or with an organization when others do the same. This is certainly not a rule that only applies to development cooperation as in the private sector prospective investors often look for cues such as other investors getting involved to make the jump themselves.

Second symptom, some incentives can have perverse consequences. I lament the use of per-diems in the world of development cooperation. It is easy for me to say certainly, writing from my kitchen in Boston and having an easy life compared to the vast majority of the world population. What I mean by per-diem in this particular case is compensation often paid by donor agencies and other development actors to nationals of the country where they work (those can be government officials, scientists, etc.) for completing a given task, most often to attend a specific meeting or series of meetings or be part of a task force.

From the outside, the concept may seem strange as those invited to participate in these meetings do so in the context of their work, so why pay them extra? They already receive a salary or some compensation for their daily work. The reality in Africa in particular is that salaries are low, especially in some sectors such as civil service or academia, and providing that extra compensation gives those folks an incentive to show up but also represents a fair practice as it reduces the income disparity that those people often suffer relative to representatives of development cooperation actors or their own country’s private sector executives for instance.

So yes, it is totally understandable. Where I start having problem with this practice however is when those per-diems create perverse incentives. It happens when members of an ad-hoc task force formed to work with some government entity and donor agency for instance do whatever it takes to keep that working group alive, keen to continue to receive their per-diems and other benefits or perks that may come with those, and thus losing sight of the primary objective, i.e. for the task force to fulfill its initial objective before disbanding.

Of course, there will be a fair amount of jockeying and pretending about why the working group should continue to exist because no one can say openly that per-diems have become a bigger motivation than the substance of the work per se. But it is easy to see through that pretending and schmoozing.

At the systemic level the whole salary scale of under-paid jobs should be revamped so that disparities are reduced. In that particular case of per-diems the problem often arises from the fact that folks sitting in the same room, representing the national government, local universities, donor agencies, and international NGOs may have salaries that range from 1 to 5 or even more. That can only cause resentment. While some disparities are to be expected, that salary gap should be looked at seriously with a view to being cut down.

Third symptom, talent is being squandered. I can think of one guy in particular who is smart and has clear potential but seems to spend most of his time trying to figure out how to “play the system” in order to increase his level of influence and make more money. He is a government official, so again how to blame someone whose income is probably disconnected with his own abilities? Granted. But then I would say that in most African countries the civil service is far from being the only professional option for highly educated folks. Working for the government supposes an interest in serving – if it is not the case, why choose that career? And remember, I am talking about highly skilled folks whose professional outlook is not as limited as that of most of their countrymen.

When providing for one’s family is such a struggle, how can the general interest be a strong motivator for anyone? I don’t know. It is a tough one. I do know however that a lot of folks in Africa decide to serve their countries by working for their government and, also increasingly, by trying to create social value in the private sector. Maybe those are the true unsung heroes – they are never mentioned, but given the hardship they have to endure their commitment is remarkable.

Again, there is only a macro response to that problem of wasted human potential. Government agencies will never be able to attract and retain talent and tap into their people’s full potential if they don’t pay them decently (again reducing disparities with other sectors is key) and don’t get them to work on interesting and impactful initiatives.

Come to think of it, this is what development cooperation should focus on. What are the elements of Africa’s environment that inherently impede its progress and development? I hear talks about promoting an enabling environment. That is fine and well but the short week that I spent in Africa only showed that such fundamental aspects of an enabling environment as coordination of efforts among funders, a decent local capacity, fair compensation, and a dynamic governmental sector, are far from being in place.

It is difficult for me to be optimistic. Maybe this is my nature or just an immediate reaction to what I witnessed. Two non-African colleagues who have lived on the continent for 20+ years told me last week that they are optimistic about the region - because the new generation is different from the older ones and training and capacity building pay off eventually.

At any rate, it is only by addressing the fundamental flaws hampering progress in African economies and societies and plaguing the effectiveness of development aid that Africa will reach its potential.

I am Back + The Meaning of Blogging...

It is interesting to go back into writing or blogging mode after a long silence. It got me to think about how disciplined I should be about writing regularly, what regularly means (every day, once a week, every time something newsworthy happens, “newsworthy” meaning what exactly), and what topics I should focus on, if any.

I have kept my blogging routine very loose evidently, having started with the intention to focus on social sector issues (more narrowly even on social enterprise or social investing) and actually writing more often than not about politics or social justice, sometimes both. For a “non-natural” writer like myself for whom writing is enjoyable yet not exactly easy there has to be an impetus for me to want to sit down and write. The impetus is often a reaction that I have to an event and that gets my juices flowing.

In that case, the blog plays its role of outlet, giving me a voice to express my opinion. When I get to write about a topic that centers on the social sector and is thus more closely related to my work, even though what I do is a passion of mine, I have more muted reactions to whatever happens in the sector that I want to write about.

Going forward, I’d like to keep the “spontaneity of intention”, i.e. waiting for an inspiration so to speak rather than forcing myself to write on some event because I feel I should. That being said, if I believe that my voice is valuable, among millions of others who express themselves through blogs (all is relative, right?), then I should make more of a sustained effort to write, bearing in mind that not every post should be a thoughtful – or what I try to be a thoughtful – analysis of or reaction to something that I care about.

Coming up… I was in Africa last week and the trip gave me some food for thought regarding development aid. Stay tuned!!