THE BLOG
10/04/2009 11:07 am ET Updated Dec 06, 2017

World Evolution

Thomas Friedman wrote his best selling book The World is Flat in 2006. The New York Times columnist observed the part of globalization fundamentally positive, particularly to the West, but neglected to underline the collateral damage of globalization, the lack of labor standards in many countries, the bargaining power of multinational companies that seek to minimize through their asymmetric bargaining power the labor and environmental standards of the locations where they establish their headquarters. Friedman's vision stresses the positives and minimizes the negatives, transmitting a reality that does not hold.

In his recent book Africa Rising, the former Dean of the Indian School of Business and Professor of Business at the University of Texas at Austin Vijay Mahajan, reminds the importance of Africa as a market. Africa, in the eyes of Mahajan, is a market of 900 million consumers that in per capita income terms earn more than the Indians. If Africa was a unique economy, it would be the world's tenth largest. Mahajan is an optimist that emphasizes the business appeal of areas that include healthcare and education. The market will not fill the gap left by nation states that fail to deliver basic healthcare and education to their extreme poor. The market is not the solution to market failures or externalities that condemn the poor to live in a poverty trap that perpetuates over time. Market-advocates learned the lesson during the current economic crisis.

We need strong institutions able to deliver global public goods. We need new institutions that sign a manifesto with developing countries that accept the direct delivery and provision of a basic welfare state to their extreme poor. We need long-term investors that are ethical, sustainable and responsible. We need a compromise between the business sector and developing countries. It is easy to understand the appeal of Africa according to Mahajan. The conflict of interest and hard-fought debate is whether or not profit maximizing enterprises should exploit the extreme poor, commercially speaking.

There is a window of opportunity that is opening up and will not last long. The social business paradigm proposed by Nobel Peace Prize winner Muhammad Yunus should dominate the profit-maximizing model so long as the poor remain poor. It is time to align the incentives of corporations, their shareholders and corporate managers, with those of the poor. Corporations should be required to embrace a modus operandi that fulfills the social business paradigm in the Yunus sense. Corporations would only transition to a profit-maximizing model when two triggers are hit: (i) a minimum per capita income of $5,000; and (ii) a maximum Gini coefficient of 0.45.

We cannot continue to operate under the previous economic paradigm, a unidimensional capitalism that prioritized the interest of shareholders and emphasized the shorter horizon over the longer horizon. We need ways to discriminate between short term and long term investors. We need to be aware of the cons and pros of globalization. Better times lie ahead of us if we put the global priorities on the agenda of Europe and North America. If we do not dare, we risk losing a unique opportunity. History will judge the ability of our men and women of political stature to defeat the great evils of our time.

John F. Kennedy screamed twice in 1963 "Ich bin ein Berliner". It is time for President Barack Obama or his counterparties in Europe to scream the urgency of our time, to fight the pirates of heartless capitalism that wish to perpetuate an economic model that prioritizes the interest of a few. The global agency problem stems from the fact that the political and economic elites on both sides of the Atlantic do not propose reform in the direction that benefits all in this world of ours. The United States emphasizes the war on terror and continues to maintain a foreign policy too focused on Israel and the Middle East. The European Union is a monster with 27 heads unable to become a credible superpower. Europeans continue to hide behind the American friend, who rescues and bails out according to its user's manual that is not representative of the interest of the globe.

The opportunity cost of not undertaking reform during this window of opportunity could be huge. We cannot afford to spoil this opportunity. The elites, lobbies, think tanks and orthodox academia are what Cominform was during the late 1940s, an instrument of propaganda of the pirates of heartless capitalism that seeks to perpetuate an evil economic system that has created wealth in the North in expense of those in the South, and has allocated the wealth with tremendous unequal patterns. The American middle class is not richer today in purchasing power parity that it was thirty years ago. We need more middle class, more economic growth, sustainable and better allocated, and less inequality.

Where are thou men and women of political stature? Let's displace the elites that are not ready to undertake reform. It is time to move one step forward, acknowledge the blame and dare. I dream therefore I am.

Find more about Jaime Pozuelo-Monfort at http://Monfort.ORG