According to a recent Credit
Suisse report the richest 1% now owns 50.1% of the world’s wealth. Given this
absurd concentration of wealth, we need this 1% to be self-convinced (like Mr.
Warren Buffett) that they are just temporary custodians of their wealth. When a
big chunk of their billions remains wastefully invested in unproductive and
ostentatious wealth like $50M yacht and $300M in multiple mansions, it hardly
benefits the human race.
The income inequality has been
growing by leaps and bounds. The only way we can break out of this cycle is by
establishing a whole new outlook: Exploring and inventing forward-looking
growth and income opportunities for the so-called 99%. In order to maximize the
exploration and harnessing of such growth opportunities, every country should
start at the national level, gradually drilling down to the state, local and
individual (yes, individual) level. The onus is on all of us.
So, what should we do about it?
1. Develop Basic
Infrastructure with Private Cooperation – A country with
well-developed infrastructure can attract more high quality foreign and
domestic investments than their counterparts who are struggling to ramp up
their infrastructure. Therefore, instead of selling out their natural
resources, the poorer third world and developing countries should
intensify the development and expansion of the basic infrastructure by enticing
private companies (well-known local and foreign) to provide the leadership in
that sector. For example, those companies could be encouraged to build new toll
highways and bridges, railroads, metro and light rail, ports, airports, rural
electrification, tele-communications, etc. shouldering all costs in return for
all revenues (at pre-negotiated resell rates) from those projects for the first
15 to 20 years. It will be win-win. With the rapid growth of infrastructure,
the credit ratings of those governments will improve. On the other hand,
companies investing in infrastructure will get a steady and predictable revenue
stream (revenue for, say 12 to 18 years, post completion).
2. Let the Revenue Cycle Continue –
When the ownership returns to the government, they can once again auction off
those projects (revenue rights and maintenance obligations) generating
significant upfront revenue to reinvest in derivative infrastructure, e.g.,
schools, hospitals, national/state parks, etc. In order to maintain the tempo
of growth, governments must not get into the business of “running” any basic
infrastructural services. Of course, they should be in the front-end (deciding
on the location, type, extent, etc.) and back-end (project audit, collection and
oversight), but not in the mid-end (actual “running” of the services). At that
point, the toll, utility and transportation rates would be much lower
(considering they would be paid for) benefiting all consumers, including the
new arrival of businesses needing better and faster transportation and
communication services.
3. Avoid Bridges to Nowhere –
The participation of the private sector will help avoid the building of unproductive
bridges to nowhere as they will conduct their own feasibility studies with
rigorous cost-benefit projections. With the expansion and renewal of the basic
infrastructure, those countries will become more attractive for foreign
investments. Since they are inherently foreign exchange poor, enticing foreign
investments with more competitive infrastructure will be the path forward. As
the multi-national companies find out the growth of investment-friendly infrastructure
in those countries vis-à-vis their surrounding peers, they will be more eager
to explore direct and joint venture investments there. Needless to say, those
companies are also constantly looking for new markets to explore and penetrate!
4. Entice Neighbors to Follow the Successful Example – Of
course, with the rising prosperity comes the border issue. A good leader sets
examples that others are spontaneously enticed to follow. Today, we live in a
world of economic cooperation and free trade so building a Chinese wall around
the country’s border does not lead to lasting economic prosperity; rather, the
prosperous countries must encourage the poorer neighbors to follow the
successful example and shore up their own basic infrastructure, thus paving the
way for a concerted regional revitalization and growth. This is how the refugee
problem (from the neighboring countries) will be best avoided.
5. Develop Regional Economic Zones –
As the regional renewal gains momentum, countries must work together on
creating their own economic zones, letting goods and services flow freely
across borders without the costly and unnecessary taxes, tariffs and other
economic barriers. With economic zones in place, it would be easier to convince
corporations to build toll-ways, bridges, waterways, etc. across borders,
offering better scalability and enhanced economy of scale. Countries must
experiment with and use (macro economic) growth models that are sustainable. In
fact, G-7s down to BRICS must aid and cooperate with the countries that become
signatories to an international economic model emphasizing regional growth,
renewal, cooperation and development of economic zones.
6. Create
Tax-free Enterprise Zones – With the rapid growth and expansion of the
basic infrastructure, countries will need to set up tax-free or, at least, tax-abated
enterprise zones around the country. It does not make sense to build all
infrastructures around a handful of big cities, making them even more
overcrowded. It must be a distributed and decentralized economic model, with
the emphasis on enterprise zones, including affordable housing. 10-15 year tax
abatement is a good incentive to attract an array of big and diverse group of
companies from around the world, vertically integrated with the growing
infrastructures. A decentralized model would help people live close to their
roots – an ideal way to keep employee turnover and absenteeism low, with morale
always high. New payroll taxes along with the derivative revenue taxes would
initially compensate for the lost corporate income taxes. Upon expiration of
the tax abatement period, the corporate income tax revenue would start to kick
in, enriching the exchequer by leaps and bounds.
7. Invite Private for-profit to Build
Institutes of Higher Technical Education – As those countries start to
develop the service sector (atop the manufacturing sector), a steady flow of
qualified employees with higher technical education would be needed. Again,
instead of the local governments getting involved and controlling this layer of
education, the private for-profit companies could be invited to build and run
the institutes, with initial concentrations in enterprise zones, as an added
enticement. While the acceptance must always be merit-based, governments must
significantly subsidize all economically disadvantaged students, to avoid
having to implement a quota system down the road. Furthermore, the interested
students must have equal access to all competing schools across the economic
zone. Again, a steady flow of technically qualified local employees is critical
in enticing companies to invest in the service sector.
8. Manage Natural Resources Properly –
While the local governments should stay away from running all non-essential
services, they must be involved in properly managing their natural resources
along with all essential services like military, law and order, taxes, basic
education, healthcare, clean water, etc. Countries that are built on moral (not
religious) high grounds are more attractive to investors. For example, in many third world
countries in Africa, Asia and Latin America, young women do not have equal
access to education (which is a crime against humanity!). “Equal access to
education” is a primary metric all foreign companies must use in evaluating the
investment climate of a country, thus forcing those evil regimes to return to
the basic decency and morality we must all follow and promote. While evaluating
direct foreign aids, foreign governments must also use this as one of the
primary “humane” metrics.
9. Negotiating Trade Deals –
When a rich country borders with poorer countries, it is prudent to consider
the collective economic interest of the region while negotiating trade deals.
Case in point: Whether we build a wall on the southern border or not, while
re-negotiating trade deals with Canada, Europe, Japan, China and the rest of
BRICS, etc., the US must wrap around the economic interests of the Central
American countries. Their growth and prosperity is in our best interest. For
example, many successful companies from around the world would be interested in
the US market but they might not be able to initially meet our wage levels. If
a common trade deal is in place, those companies would set up their initial
shops – manufacturing, processing, assembly, IT, research, etc. – in one of the
Central American countries with lower wage levels, with unrestricted access to
the US market. No doubt, given time, they would be setting up shops here,
hiring locally and paying our prevailing wages. Meanwhile, we have to consider
Central America as our enterprise zone, enticing and redirecting vast amounts
of second-tier economic activities from around the world to them (we
are losing those businesses, anyway!). Let Central
America be our nurturing ground. It will be win-win. Once we have a level
playing field, they will be our full world partners, not just our enterprise
zone. In not too distant future, we will have fast-track lanes at the border
for them. No human crisis is ever solved by building walls; they are
solved by creating meaningful and cooperative economic opportunities. And, it’s
never too late!
- Sid Som, MBA, MIM
President, Homequant, Inc.
homequant@gmail.com
No comments:
Post a Comment