12 April 2004	Monday	21 Safar 1425

After the demise of the socialist mode of production in the Soviet Union, capitalism emerged as the only global alternative. Socialism was also supposed to be a new paradigm of wealth distribution in society. Here it shares a state of failure with capitalism. Neither system was able to effectively address the issue of global poverty.

Today, the United States of America is generally regarded as the most developed capitalist society in the world. While it has clearly made progress, it has not been able to eradicate poverty from its midst.

Any society where children die of starvation cannot claim to be just or fair. "In the US, every 50 minutes a child dies of starvation", according to news reports.

In other words, while the capitalist system may be an ideal system of production, it cannot be regarded as a 'solution' to the problem of equitable distribution of wealth across the globe. The extreme poverty of Africa is in sharp contrast to the extreme prosperity of Western Europe and America.

Never in the history of wealth creation has so much been pocketed by so many so quickly. 'The US now boasts of 300 billionaires and five million millionaires.

Nine million Americans have household incomes of $100,000 a year or more, up from just two million in 1982. If Great Britain was the first country to produce a mass middle class, the US is the first country to produce a mass upper class. In America today wealth is distributed more unequally than in any industrial country.

The top one per cent of the population owns half the country's wealth. As for income, the bottom 20 per cent takes home a decreasing share while the top 20 per cent takes home an ever increasing portion of the total.

The 500 largest industrial corporations control 25 per cent of the worlds economic output while employing only one twentieth of one per cent of the world's population. Sales of the 10 largest corporations exceed the combined GDP of the 100 smallest countries.

In contrast to the apparently un-ending process of accumulation of wealth in the US, there appears to be unending process of the pauperization of the peoples of Africa and to some extent, of South Asia.

It should not, therefore, come as a surprise for someone to ask if there is a connection between the two! Is the misery of people in one part of the globe a direct result of prosperity in another part of the world? One can be reasonably certain that the increased poverty in the vast majority of the world's population is not a result of deliberate 'western' policies of making the poor poorer. It is believed to be an inevitable consequence of the capitalist mode of production which 'accepts' uneven distribution of wealth and is generally taken to be unavoidable.

Can the state of abject poverty of some be a source of wealth creation for a few? On a very small scale, we can see this phenomenon at work in our country. In large urban areas of developing countries where social benefits are unknown, there is a whole class of 'entrepreneurs' who live on the misery and misfortune of others.

A large number of unfortunate human beings who suffer either from inborn infirmity or man-made misfortunes survive to provide opportunities to others to "create wealth" for themselves. For example, one can find victims of polio virtually crawling on their fours like crabs on the streets of large urban cities like Karachi, Mumbai or Kolkata.

One also encounters human beings having lost both hands in an accident, standing at important cross roads of Karachi begging for alms. How do such people survive? Who looks after them? Who feeds them? Who provides them with accommodation to sleep and live? Who looks after their daily needs? Well, some "entrepreneurs" look at the misfortune of others as an opportunity to make money.

They take them into their care and arrange to look after their needs so that they act as beggars and collect charity from the well-to-do citizens. The charity thus earned is collected by the faceless "entrepreneurs" as their return on investment.

Is it a crime to help the helpless to survive? An infirm person has only two alternatives - either to wither away and succumb to his misfortunes or live and let others use his physical disability as an opportunity, to create wealth. If an unfortunate individual wants to live, than those who use his/her disability as an opportunity, should not be condemned.

What is the difference between a transnational corporation which creates poverty, unknowingly of course, and an "entrepreneur" who enables an unfortunate poverty-stricken person, destined to die otherwise, survive for a price? Both live and prosper 'despite poverty'.

For multinational corporations, poverty is often regarded as a consequence of their entrepreneurship, but for the faceless "entrepreneur" poverty is an opportunity.

The question therefore is; can poverty be considered an opportunity by a multinational corporation to make profitable investments? In hard times, according to John Maynard Keynes, "it can make sense to pay to people to dig and fill holes if there is no more productive use of money to be found".

That there is too much money floating around is reaffirmed by Robert Hormats of the Goldman Sachs. He calls it "the biggest flood of liquidity since the times of Noah. All the central banks in America, Europe and Japan have cut interest rates to historic lows, unleashing waves of cheap money that have yet to spark enough investment to restart the economy, the danger is that too much of that capital will go up in smoke".

From the foregoing, one can see that on the one hand there is "too much money floating around" on the other hand, there are not enough new investment opportunities to "restart the economy".

However, is this not true only if the search for new investment is confined to the already developed countries of the world? We have often heard the cliche that the world has become a, global village. Yet America, Europe and Japan, have failed to consider the world village' an opportunity for profitable investments.

It is rather unfortunate that a man of the stature of John Maynard Keynes could not find a better use for surplus capital than for people "to dig and fill holes". If the world is considered a village then it makes sense to invest in the development of the village as a whole.

Almost every part of the developing world is in dire need for investment and almost all countries of the underdeveloped world need money. It therefore, follows that if the terms of the investment can be worked out, than surely a better return on investment than 'digging and filling holes' can be found.

Increasingly, rich nations and multinationals are becoming aware of the curse of poverty in the world. They seem to be concerned and wish to do something about it. The proceedings of the recent World Economic Forum, (WEF) in Davos, Switzerland, provide evidence of this.

There were seven key topics that were debated at Davos namely: "global security, promoting global growth, managing new risks, building corporate resilience, spurring innovation, harnessing the diversity of values, and reducing inequity.

While the consequences of the talk about reducing inequity, remain debatable, what deserves appreciation is the appearance of this key item on the Davos Forum's agenda - as issue identification is the first step towards its eventual resolution.

It is now clear that the growing disparity between the rich and the poor in the world is considered a problem that should be resolved. What are some of the ways of alleviating and eventually eliminating poverty?

While there are many reasons for people to be poverty-stricken, this scourge manifests itself in different ways. Its effects include malnutrition and the widespread prevalence of diseases like malaria, tuberculosis and AIDS.

There are many voluntary workers and organizations working to help poverty-stricken people with food aid, money and medicines of all kinds. But unfortunately the prevalence of poverty continues.

Efforts so far have had limited impact on the quality of life of the very poor people. Why? Unless the causes of poverty are addressed, there will be no change in the level of poverty in a society.

What causes poverty? the root cause of poverty is unemployment. The moment an unemployed person is provided with a job, with reasonable wages, his poverty comes to an end. "The International Labour Organization (ILO) has come up with a report saying that 185.9 million people were unemployed in the world.

Therefore, it is not surprising that nearly 6.2 per cent of the world's population is poverty-stricken. The number of those who are officially classified as poor is even larger.

A poverty-stricken person is one who earns less than one US dollar a day. Using this definition, nearly l.2 billion out of a total population of 6 billion in this "Global Village" are poverty-stricken. It is most unfortunate that this number is increasing.

How long can this process of pauperization continue? Just like the blood pressure of a sick person can only go down to a certain level (after which point, the person expires), the sick person is our society. What will happen to our world as a village if present trends of wealth distribution are allowed to continue? Is the Village - not going to implode? What is the alternative)?

Man is a strange animal. He refuses to surrender. If faced with a catastrophe he makes a determined effort to overcome the danger. The greater the danger the more are the chances of success. It depends on the effort made. The effort depends on the desire to win, the will to jump over hurdles and remove the obstacles.

Success is assured provided each problem is regarded as a challenge. It has to be considered an "opportunity" not a "hurdle". Human history is full of examples which prove this point - from discoveries that have been 'accidental', e.g., the discovery of penicillin to others, the effort to develop a flying machine heavier than air, that were the result of deep thought.

Solving the problem of poverty comes under the second category. It is a huge global challenge and the best minds in the world, have to work together to achieve this objective - the eradication of global poverty.

While there has been spread of poverty and its impact on developed societies, traditional methods to attack the problem seem to have failed. The Asian Development Bank (ADB) and the World Bank (WB) have been providing generous funds to developing countries to combat the curse of poverty.

However, results achieved so far have not been satisfactory. The reason has been that most efforts have attacked the manifestations of poverty rather than its causes. Unless we focus on the creation jobs in the developing world, spending on other essentials like schools, hospitals and child care centres etc. will go waste.

Job creation demands funds. If investment opportunities are not found for the huge global surplus of money, "it may go up in smoke". If the world is truly a "village", then one part of the "village" is dying for investment while the other part is dying to find investment opportunities. Can a marriage of convenience not be organized between the two?

The problem of poverty can be an opportunity for investment if the world is considered as one unit. To achieve this objective, the initiative has to come from transnational corporation which have been successfully doing business in poverty-stricken countries for very long.

In fact, the surplus funds are with them. As quoted earlier, the "sales of the 10 largest corporations exceeded the combined GDP of the 100 smallest countries. The top 300 transnationals own some 25 per cent of the world's productive assets". Why cannot a few of these companies, make a decision to invest some of their surplus capital, on an experimental basis, expressly to combat poverty?

The author believes that the sum of money required for such an 'experiment' will be minuscule compared to the resources of these giant companies. Moreover, if three components come together, the chances of success of such an experiment are virtually assured. These are: a) a willing multinational, b) a developing country and c) a project to be agreed between the host country and the corporation.

The MNC will have to agree to provide the funds and source the technical expertize while the host country will have to identify a specific employment generating poverty-related project (as well as incentives for the MNC to make the investment).

Perhaps an example will illustrate this better. Let us consider, for example, Pakistan as the host country, and the project, "The effective storage of wheat crop". At present, the storage of wheat is carried out in a most primitive way resulting in losses of about 30-40 per cent.

If Pakistan's annual crop is 18 million tons, and the losses due to poor storage and handling are even just 20 per cent, then the financial cost of these losses, is colossal. In short, the government of Pakistan is effectively writing off more than $600 million every year. (The actual price of wheat in 2003 was over $220 per metric ton). Here is clearly an "opportunity" that is a result of "poverty".

Surely, a financial expert can turn this into an attractive investment for the appropriate MNC which can turn the 'accepted and on-going' loss of the wheat crop in Pakistan into a profitable opportunity which should be a 'win' for the MNC, a 'win' for the government of Pakistan and a 'win' for poverty!

While the savings of more than half a billion dollars on the wheat project, will not be achieved in one year, this example does show how a problem of poverty can be converted into an opportunity for those with surplus capital.

There are many other opportunities that poverty can provide for countries like the American that have 'floods of money' that may otherwise be 'burnt and go up in smoke'. Transnational corporations routinely invest, in different parts of the developing world, on their own initiative.

Such companies usually invest in a developing country, in a field not different from its own. For example, a multinational in the pharmaceutical industry normally invests in the same industry while an oil company invests in the oil business.

It is highly unlikely that a car manufacturer would invest in the manufacture of pesticides or a computer manufacturer would invest in grain storage facilities. For poverty eradication, the MNCs will have to think 'out of the box' and make investments which would be considered different from routine investments. How different and in what way?

Normally, before any investment anywhere is made, it is preceded by a feasibility report. Any project which leads to a rate of return of more than the internal hurdle rate of return for a MNC, is usually considered acceptable.

Under the capitalist system, 'maximization of profit' is a legitimate objective. In fact it is considered as the basic objective of any industry. Though there are some who distinguish between "maximum profit" and "reasonable profit". Some liberal thinkers consider "reasonable profit" as enough as long as it exceeds the MNC's internal benchmark/hurdle rate of return.

Investments made by a MNC with the express intention of addressing the problem of poverty in the host country, should have an agreed internal rate of return. Excess over the agreed rate of return should be re-invested in the host country.

To encourage the multinational corporation to reinvest the surplus within the country, the host government should provide incentives in the form of tax rebates for the MNC's core activity or even for investment in new fields.

For example, if any MNC decides to invest in Pakistan, in the field of wheat crop storage, at an agreed rate of return on invested capital of say 1.5 per cent per annum and ends up making a higher return in a particular year, the MNC should invest the extra return within the host country in whatever activity chosen by it.

It will of course be incumbent upon the government of the host country, to liberalize the terms on the reinvestment of the surplus so that the MNC has the added incentives for making investments in the host country.

Again taking Pakistan as an example, the government of Pakistan can identify investment projects specifically addressing "Poverty" that maybe too capital intensive for local entrepreneurs. Examples of such projects include desalination plants, medium sized hydro-electric projects and sewage treatment plants in large cities.

It is interesting to ponder why such ideas have not been developed effectively. The answer may be because these have not been evaluated seriously as investment opportunities.

If the MNCs subscribe to the view that the world is a "village" then it is incumbent upon them to devote resources to study incidence of "poverty" in every part of the "village". A sustained and systematic attempt should be made by the corporation to address this huge global challenge.

Poverty is by far the greatest threat to the global village. As an issue, it deserves to be formally represented on the board of directors of a transnational corporation.

If Bill Gates can find money for the treatment of various diseases in Africa through the establishment of multi-million dollar benevolent funds with zero rate of return on investment, then there is hope that other investors in the western world may invest. If this challenge is not overcome, the implosion of our global village is an increasingly real possibility.