Lucas Juan Manuel, Author at Think Research Expose

Posts by LucasManuel:

Economic growth, human development and global socio economic imbalances

October 3rd, 2015

By Lucas Juan Manuel Alonso Alonso.

Abstract

This article gives an overview about GDP as a measure of a country’s economic activity, components that lead to economic growth and may harm human health and/or the natural environment, distribution of economic growth and its contribution to human development… If we consider a country’s progress as a balance between economic and human development, perhaps we should shift the focus to the issue: “Economic growth does not seem to be the problem or the solution, but a fairer distribution of wealth… isn’t it a logical conclusion?” Because resources are limited on a global scale, to what extent is an economic model based on continuous growth really useful? “Cheap labour markets in which to produce, and markets where to sell at high prices” are fundamental axioms of a global economic model that leads to impoverished societies, in which it is necessary to adjust production downwards in response to lower domestic consumer spending, thus generating a vicious circle of economic growth based on exports, precarious jobs, social inequalities and poverty. Measuring a country’s progress beyond GDP taking indexes that measure the extent to which countries contribute to the socio-economic progress of their citizens, such as Human Development Index, Legatum Prosperity Index, Social Progress Index…Global socio-economic imbalances: while a model of equalising welfare opportunities’ downwards remains predominant, socio-economic inequalities will be exacerbated by generating a greater consumption of the world’s population classified as extreme-consumerist. Barriers to global progress: lack of transparency, unequal opportunities, socio-economic measures that depend on the exploitation of disadvantaged groups, unproductive economic structures and state governmental organizations undertaking speculative operations, impunity in corruption…

GDP is not everything

GDP (Gross Domestic Product) is a measure of a country’s economic activity, and therefore it should not be considered a measure of a country’s well-being. Besides, it is necessary to be aware about which GDP components lead to economic growth, because a same amount of GDP does not mean identical situations.

GDP takes into account all income no matter how it is generated, and some GDP components may harm human health and/or the natural environment. For instance, think about a country in which its government is forced to set lower environmental standards to maintain the country competitiveness. Consequently, factories freely pollute several zones or inclusive part of the country, but this way of manufacturing generates high economic growth and employment and the country competitiveness is based on this way to produce. From an economic point of view, economic growth improves the living standards of citizens but at the same time pollution makes its inverse contribution to the life quality of citizens.

Nor does GDP give any indication of how a country’s wealth is distributed. In some LDCs (Least Developed Countries), many of these resource-rich countries, we have a high rate of economic growth and, at the same time, abject poverty. The way wealth is being distributed is the most important factor for a country’s well-being, because large social inequalities destroy a country’s progress.

“Progress of a country must be a balance between economic and human development”

“If economic growth is being distributed on just a few people, it will never contribute to the progress of the countries that generate it”

An increase of social inequality indicates a setback in the progress of a country’s people. Such a situation is indicative of a reduction in the Human Development Index (HDI). Therefore, a country can be progressing economically at the expense of a decline in human development. Obviously, this situation cannot be understood as progress of a country because economic growth has to be a vehicle that supports human development. It has no sense to talk about economic growth without to take into account its contribution to human development.

Additionally, industrialized countries need to promote sustainable economic development and for that purpose they need to create and/or strengthen core productive sectors, fostering new start-ups and innovative projects rather than competitiveness based only on traditional sectors, such as tourism/construction.

“Economic growth is not the goal itself, but rather a means to reaching the goal: the progress of a country on all fronts”

“Economic growth does not seem to be the problem or the solution, but a fairer distribution of wealth… isn’t it a logical conclusion?”

Because resources are limited on a global scale, it could further be asked: Is an economic model based on continuous growth really useful? Why the model does not act on a fairer distribution of resources and wealth which is a main cause of global economic crisis?

Additionally, if economic growth is based on a global economic system that essentially is looking for:

Cheap labour countries/markets in which to produce
Countries/markets in which to sell at high prices

Therefore, the success of the global economic system is basically based on socio-economic inequalities among countries, and due to that, it is not possible to reduce large social inequalities meanwhile it doesn’t change at least some essential rules. We need to achieve sustainable and competitive economies rather than inequalities-based economies. I am not making explicit reference to interchange-ability between different kind of products and services among countries (for example, if a country needs goods and services that cannot be produced domestically, or importing them from other country is to be recommended, so then both countries trade and gain), but about huge social inequalities in the global economy. The world economy cannot be based on a search for cheap labour countries in which to produce and countries in which to sell luxury goods, such a system into practice is very basic and it is our current system.

“Unemployment is worse than create low wage jobs in places in which these are so desperately needed” This is a constantly-repeated mantra in many advanced economies. But, in my view, such a situation can be an option in a few very specific cases, only for short periods of time, and in economies in transition and can never, therefore, be a variable to formulate long-term economic policy. Wages must be worthy to improving living conditions of people because this fact leads to the creation of middle classes, which will strengthen purchasing power and domestic business structures. Advanced economies should compete through the quality and added value in differentiated products rather than trying to gain competitiveness through a strategy of low wages. Labour productivity is the key. Countries with high labour productivity have lower unemployment rates, fewer work hours, higher wages, greater investments, higher degree of competitiveness, and strengthening of social solidarity.

When we hear so insistently talk about GDP growth, we must be aware of its limitations. So, does it make sense to consider GDP as a country’s progress indicator? Obviously, it doesn’t.

Global Socio Economic Imbalances

High Production Rate: Cheap Labour Markets

A vast cheap labour market leads to an increase in production rate. However, as a result of precarious employment, there is a weak purchasing power of majority of the country’s population and goods manufactured and/or services provided are bought by a small group of domestic consumers, the rest for export. In this kind of economies there is a huge concentration of income and therefore a strong socio-economic imbalance, as well as an environmental decay. This economic scenario can be attractive to foreign investors because, besides being places where to hire cheap labour in a highly flexible way, sometimes governments are forced to set lower environmental standards to maintain the country competitiveness.

High Consumption Rate: Over-Consumption Markets

A large proportion of the goods and services produced in cheap labour countries are exported to over-consumption countries, thus generating a vicious circle in which worldwide consumption is concentrated around a few markets or countries. The buying power of wages in these consumer countries (or markets segments of a population) will continue to rise (whereas, the buying power of wages in cheap labour countries will continue to fall or, at best, remain unchanged) at the expense of manufacturer countries.

Low Consumption Rate: Under-Consumption Markets

It is clear that the under-consumption into large sections of the world’s population is a direct result of economic policies aimed to encouraging cheap labour markets where to manufacture and greater concentration of consumption around a few markets or countries. Around 20% of the world’s population consumes most of 78% of the world’s resources, leaving almost 80% of the people living on the remaining 20%.

Global Socio Economic Imbalances: Global Consumption Imbalance

Such chain reactions of events show that there is a notorious imbalance in income and global consumption. A huge percentage of the world’s resources are consumed by a small portion of the world’s population, meanwhile, a high percentage of the world’s population is under a minimum level of consumption.

Therefore, on the one hand we have over-consumption and at the same time under-consumption. Obviously, because resources are limited on a global scale, we cannot reduce poverty in a sustainable manner by engaging everyone into an over-consumption lifestyle, but by a model that best combines the creation and distribution of wealth; this is the only way in which we can reduce the gap between over and under-consumption. It is necessary a socio-economic model capable of equalising <welfare> opportunities’ upwards by achieving that a majority of the world’s population tends towards a sustainable economy. In other words, stop the over-consumption concentrated in a small part of the world’s population, and increase the under-consumption predominantly in much of the world’s population.

While a model of equalising <welfare> opportunities’ downwards remains predominant, socio-economic inequalities will be exacerbated by generating a greater consumption of the world’s population classified as extreme-consumerist. “Places where to hire cheap labour force and to sell luxury goods to elite” are fundamental axioms of this latter model, that leads to impoverished societies in which it is necessary to adjust production downwards in response to lower domestic consumer spending, thus generating a vicious circle of economic growth based on exports, precarious jobs, social inequalities and poverty.

It is necessary to reduce the socio-economic gap between developing and developed countries; in other words, in order to achieve a sustainable economy, we have to equalise socio-economic opportunities among countries. It is a socio-economic model capable of equalising welfare opportunities’ upwards, that runs counter to the current global line: An intended “single” model of equalising welfare opportunities’ downwards.

China has gone from being the world’s factory to become a major consumer, both in the domestic and international markets. In the last 15 years, the performance of the China economy has been characterised by a policy of high labour productivity combined with higher wages. This fact led to the creation of powerful middle classes, increased people’s purchasing power and strengthened domestic business structures; as a result, the social differences have been reduced, as well as the growing middle class is making China more competitive. The Chinese middle class is around half a billion people with a higher buying power per household than that of the Eurozone’s middle class. Obviously, there are still large regional and socioeconomic disparities; there are three hundred millions of super rich and farmers are the poorest social sectors. A strong point would reside in the fact that the growth of modern cities was capable of including more people within the middle class, as well as encourage a model based on clean, renewable energies. Here we have a sample of how the reduction of huge social inequalities has a direct impact on purchasing power, consumption and competitiveness of the country in the international markets. We have an opposite example in the Eurozone’s Mediterranean countries where a policy of poorly paid jobs is generating enormous social inequalities and making these countries uncompetitive in global markets when it comes to labour costs.

Measuring a country’s progress beyond GDP

There are several indexes that measure the extent to which countries contribute to the socio-economic progress of their citizens, such as Human Development Index, Legatum Prosperity Index, Social Progress Index…These indicators are tools that measure the extent to which countries contribute to social, economic and environmental progress of their citizens within a society. Consequently, they take into account factors such as basic human needs, level of income, cost of goods and services, working conditions, quality and availability of employment, access to quality healthcare, life expectancy, poverty level, incidence of disease, quality and availability of education, cultural, political and religious freedom, economic and political stability, infrastructures quality, environmental quality…

All of them aim to develop a more meaningful measure, separating economic growth from social and environmental wellbeing. Thus, some developed countries perform well in terms of GDP and poorly on some other measures and therefore, the findings of these indexes illustrate that economic growth does not always lead to social and environmental progress.

Perhaps, the underlying fascinating question to be asked could be: To what extent a developed country with a very low social progress score can be categorized as a true developed country?

Pressing issues to be tackled:

First of all, for the correct determination of the indexes mentioned, it is essential that the governments of the different countries permit information to flow freely in order to ensure that the implementation of such important tools be able to properly asses the different issues outlined herein. With regard to these indexes and progress, I would like to express my opinion, focusing more in particular on social progress made by the advanced economies.

In the past few years, we have experienced a huge setback in the indexes related to social progress in many developed countries. Take, for instance, the issue of basic human needs and we might well ask: How many people in developed countries are below a minimum nutrition and basic medical care? How many people in developed countries are below the poverty line? Particularly the more vulnerable groups, such as:

Child poverty (it is on the rise in several developed countries, some countries within the Eurozone -mainly Mediterranean countries- are a good case in point)
Abject poverty (the same as that described in the preceding point)
Growing number of food banks in many advanced economies…

About issues like satisfaction with housing, access to electricity, personal safety…etc. It raises questions, for instance: How many people in developed countries are satisfied with the availability of good affordable housing? How many people in developed countries, as a result of higher energy prices, are suffering energy poverty?

And obviously as a consequence of this global deep crisis, triggered by an economic system based mainly on financial speculation jointly with inappropriate economic measures and structural reforms, the income gap between a country’s richest and poorest people is enlarging, and thus personal safety and rights are under serious threat in some developed countries, as well as the real entrepreneurial spirit (genuine enterprises) strongly discouraged. Why am I saying “genuine enterprises”? The answer is very simple: There are many “enterprises and entrepreneurs” arising from political clientelism (cronyism and patronage), and that kind of enterprises and entrepreneurs do not generate wealth and prosperity in our societies because they are not competitive.

As a result of the current and future economic situation in several developed countries (European Mediterranean countries are a good example of this), the solution lies in drastic spending cuts in education, research & development, health and other public necessary services, whilst, paradoxically, at the same time, unnecessary public spending increases, for example, unproductive public infrastructure development and bureaucratic wastage. We might well ask: How many people in developed countries don’t have (and likely they will not have it) access to competitive education, information, communication, internet, freedom of speech and press, health, wellness…? Reducing unproductive public structures rather than cutting key government functions (education, public health, social security, unemployment support…) may signify one step towards progress and equity.

When a government invests its resources in non-development projects such as unnecessary governmental bodies, unproductive public expenditures…, rather than to invest in education, public health, job creation…, it is creating an unnecessary charge on the government budget and encouraging patronage networks. It is important to bear in mind…

“An over-dimensioned state structure does not lead to a competitive and prosperous society”

There are fundamental issues related to democracy, political and social stability that are addressed and weighted by these indexes in order to reflect more appropriately a country’s social progress, such as:

Opposition parties play an important role and enjoy real power
Minority groups have reasonable self-government and/or can participate in the government through informal consensus
Political corruption
Factors that undermine freedom
Government censorship laws about freedom of speech and press, democracy quality
Independence of the judiciary
Country’s laws protect private property rights
Religious freedoms
Equal opportunities in the economic and social spheres.

…etc.

“The quality of these kinds of issues leads a country to stable governments and economies, whilst simultaneously creating a social justice environment which directly implies unity between people”

“A true unity between the people of a country has a direct effect on the progress as a country”

Let’s take Euro area as an example. The EU implemented painful austerity measures in order to reduce the high level of government debt in many country members. But it was, and still is, a wrongly-conceived austerity. In fact, in various European countries the debt to GDP ratio is going onto a firm upward trajectory, thereby creating a possible risk of default. Government debt is not a problem in itself but the amount of debt (debt to GDP) and the interest rate of the government debt (debt interest payments/GDP). Additionally, in some cases, in both emerging and advanced economies within and outside the Euro area, a large share of government debt is composed of non-development expenditures (for example tremendous public structures which are intended to place people related to political, economic groups…., wasteful of public funds brought about by opaque contracts…and others unproductive public structures) while, at the same time, expenditure on development aid is being cut back (for example education, research & development, healthcare…)

“Thus, as the result of policy implications, the budget cuts are not being carried out on the necessary items and there is a huge level of government debt that is useless for the productive economy”

How a government invests its resources (government revenues) is a central feature that remains open. The government revenues can be invested in development or non-development projects. Development projects are productive and, therefore, they are the ones who boost a country’s socio-economic progress. On the contrary, non-development projects are a charge on a government budget.

Global society revitalization (socio-economic progress) should come from, among many other things, a combination of fiscal consolidation (for example, improving equity in tax policy, so that those that have more pay more…) and structural reforms (for example, strengthening or creation of productive sectors rather than indiscriminate austerity plans…). A wide range of different global recipes, of course very different from the current ones, are needed to find a path to a sustainable socio-economic progress. Tax burden in many developed countries (some European countries are a case in point) started to increase substantially. Paradoxically, greater tax burden is placed on households, meanwhile, multinational companies listed on the stock market and great fortunes have less fiscal pressure. And therefore, a transfer of greater tax burden on consumer prices in combination with lower wages and high unemployment rates are eroding consumer spending in many advanced economies.

In my view, in order to measure a country’s progress, it would be also necessary to take into account other factors such as:

Governments ruled by one-party for enormously long periods of time, laws encouraging the establishment of strong bi-partisanship in policy, religious hierarchies exercising their power in the political, university sphere and public life… In fact, these kinds of actions increase corruption risks and endangering a country’s long-term democratic transparency, because politicians can favour their family, relatives and friends in public or private jobs and, thus, in this way be able to create lobbies that ensure them a large number of unconditional voters, as well as to legislate appropriate laws in order to protect themselves and their clique of collaborators.

Because some important questions arise in relation to these issues, we could well ask ourselves:

“Is a leadership without meritocracy a true leadership?”
“Is a country with a low democratic quality a true democracy?”

Concerning these topics a question arises: Is there a global vicious circle? For example, international organizations and best companies in the world have a clear preference to recruit people who have studied at the best universities of the world. At first glance, it seems an entirely logical selection criterion, but:

Who has more opportunities to study at the top universities of the world (mainly in the business schools, universities of economics, law and politics universities… and similar fields), people with merit, or those who are related to political, economic or religious power? I think, unfortunately, the answer is obvious. Of course, you can say that there are scholarships and financial support. And this is truth, although these will depend on the country we are talking about. On this particular point, among many other things, mention should also be made about: What are the selection criteria for scholarships and how much is awarded? It is also fully clear, at least to me, that there is a clear link between meritocracy and a country’s democracy quality. And, therefore, the higher the level of democratic quality, the greater is the magnitude of meritocracy and vice versa.

The best universities and business schools in the world are going to prefer people related to power, because they are always going to undertake prominent roles in different parts of the world (governments, world organizations, top world companies…) and, therefore, these universities get prestige because their graduates get the best jobs in the world. But many of these people who have studied in such prestigious study centres and next, as a consequence of this, they get top positions, it is not for grounds based on merit, but by their relationship with some kind of economic, religious, or political power.

It is in fact apparent that in most, or at least many, cases, the access to the best education and subsequently prestigious positions is a matter of wallet size and relationship with the political, economic or religious establishment rather than merit, then: Talent crisis is not a logical global consequence? How to recruit talented people without a real meritocracy? What is the sense, not to mention exhausting to talk about justice, transparency, equal opportunities, eradication of corruption, democratic values, global poverty…and so on, if we are not choosing people under a merit criterion?

“A lack of meritocracy will generate a huge level of injustice in the social and economic spheres, which would then result in imbalances societies, where prizes/ achievements are not a consequence of merit but a matter of patronage”

Boosting investments in human development:

Some countries may have a similar per capita GDP and marked differences in their social progress indicators. Therefore, a good question to ask is: To what extent is GDP contributing to improve a country’s social progress? A key issue for policymakers should be to carry out necessary investments to promote human development with greater equity. As it says on page 20 of the 2013 Human Development Report: “…Investments in human development are justified not only on moral grounds, but also because improvements in health, education and social welfare are key to success in a more competitive and dynamic world economy…” In the light of this sentence, I think some important questions need to be considered: What kinds of investments in human development are being carried out in some developed countries (for example, with particular reference to the Eurozone)? Isn’t it a short-sighted policy? Isn’t it necessary a shift in attitudes? Can we say that we are on the path of progress?

Deep barriers to global progress:

Lack of transparency, unequal opportunities that cause high unemployment rates among highly skilled professionals and brain drain, socio-economic measures that depend on the exploitation of disadvantaged groups, unproductive economic structures and state governmental organizations undertaking speculative operations, impunity in corruption and illicit gain cases are, among others, factors that erode the faith of citizens in democratic institutions.

“The higher the degree of corruption in a country, the lower the level of progress”

A crucial step forward to genuine social progress:

Can we talk about a country’s progress if we do not link it with better living conditions of all inhabitants? I think, no social progress will be achievable if the governments of each country and international community do not prioritise people and encourage the real economy rather than speculative stock market profits.

Conclusions:

Economic growth can coexist with high levels of poverty and unemployment. An economic growth figure per se does not say much, but must take into account which GDP components lead to economic growth and that it is not being generated in speculative sectors or prone to bubbles, but in expanding economic sectors that allow developing a sustainable economy. GDP is a measure of a country’s economic activity, and therefore it should not be considered a measure of a country’s well-being.

Wages must be worthy to improving living conditions of people because this fact leads to the creation of middle classes, which will strengthen purchasing power and domestic business structures. “Unemployment is worse than create low wage jobs in places in which these are so desperately needed”…this constantly-repeated mantra usually leads to precarious, poorly-paid jobs, large socio-economic inequalities and high levels of poverty.

A vast cheap labour market leads to an increase in production rate. However, as a result of precarious employment, there is a weak purchasing power of majority of the country’s population. A large proportion of the goods and services produced in cheap labour countries are exported to over-consumption countries, thus generating a vicious circle in which worldwide consumption is concentrated around a few markets or countries. Therefore, on the one hand, we have over-consumption and, on the other hand, under-consumption. It is necessary a socio-economic model capable of equalising welfare opportunities’ upwards by achieving that a majority of the world’s population tends towards a sustainable economy.

There are several indexes to measure a country’s progress. These take into account factors such as basic human needs, level of income, cost of goods and services, working conditions, quality and availability of employment, access to quality healthcare, life expectancy, poverty level, incidence of disease, quality and availability of education, cultural, political and religious freedom, economic and political stability, infrastructures quality, environmental quality…

Progress of a country must be a balance between economic and human development. If economic growth is being distributed on just a few people, it will never contribute to the progress of the countries that generate it, thus creating socio-economic imbalances.

References:

Social Progress Index

http://www.socialprogressimperative.org/es/data/spi

Legatum Prosperity Index

http://www.prosperity.com/#!/

Human Development Index

http://hdr.undp.org/en/content/human-development-index-hdi

Comments Off on Economic growth, human development and global socio economic imbalances

Do global socioeconomic inequalities really matter?

September 29th, 2015

By Lucas Juan Manuel Alonso Alonso.

“Image: Colin Harris at www.flickr.com. (Image: Jared

Rodriguez / Truthout): Tackling Inequality”

A wide social and economic disparity would lead countries to:

weak business structure,
low democracy quality,
high level of corruption,
unproductive and/or over-dimensioned state structures,
lack of equal opportunities in the economic and social spheres…

If that situation lasts too long, will not only lead to exploitation but also prevent the creation of middle classes, thus making any credible attempt to develop the social-economic environment of these countries is doomed to failure.
An increase of social inequality indicates a setback in the progress of a country’s people. Such a situation is indicative of a reduction in the Human Development Index. Therefore, a country can be progressing economically at the expense of a decline in human development.
Obviously, this situation cannot be understood as progress of a country because economic growth has to be a vehicle that supports human development. It has no sense to talk about economic growth without to take into account its contribution to human development.

In the past few years, we have experienced a huge setback in the indexes related to social progress in many developed countries. Take, for instance, the issue of basic human needs and we might well ask: How many people in developed countries are below a minimum nutrition and basic medical care?How many people in developed countries are below the poverty line?Particularly the more vulnerable groups, such as:

Child poverty (it is on the rise in several developed countries, some countries within the euro-zone are a good case in point)
Abject poverty (the same as that described in the preceding point)
Growing number of food banks in many advanced economies…

About issues like satisfaction with housing, access to electricity, personal safety…etc. It raises questions such as:
How many people in developed countries are satisfied with the availability of good affordable housing?
How many people in developed countries, as a result of higher energy prices, are suffering energy poverty?

And obviously as a consequence of the global deep crisis triggered by an economic system based mainly on financial speculation jointly with inappropriate economic measures and structural reforms, the income gap between a country’s richest and poorest people is enlarging and thus, access to basic social and economic rights is under serious threat in some developed countries.

B) Economic Growth & Human Development:

Some countries may have a similar per capita GDP and marked differences in their social progress indicators. Therefore, a good question to ask is: To what extent is GDP contributing to improve a country’s social progress? A key issue for policymakers should be to carry out necessary investments to promote human development with greater equity. As it says on page 20 of the 2013 Human Development Report:

…Investments in human development are justified not only on moral grounds, but also because improvements in health, education and social welfare are key to success in a more competitive and dynamic world economy…

In the light of this sentence, I think some important questions need to be considered: What kinds of investments in human development are being carried out in some developed countries? Isn’t it a short-sighted policy? Isn’t it necessary a shift in attitudes? Can we say that we are on the path of progress?

It is also a mistake to think that growth is the only solution for economic prosperity because, among other things, resources are limited on a global scale. Therefore, we cannot rely on continued economic growth but in a more just distribution of resources because in this way it would generate more competitive countries (societies with a more generalized purchasing power).

Economic growth does not seem to be the problem or the solution related to a country’s socio-economic progress, but a fairer distribution of wealth… isn’t it a logical conclusion?

Obviously, a long-term economic growth is a positive sign for a country but to the extent that that growth is not based on industries that are vulnerable to a bubble generation.

C) Jobless, Employment Quality & Competitiveness:

Unemployment is worse than create low wage jobs

This is a constantly-repeated mantra within many advanced economies. But, in my view, such a situation can be an option in a few very specific cases, only for short periods of time, and in economies in transition and can never, therefore, be a variable to formulate long-term economic policy. Wages must be worthy to improving the living conditions of the people because this fact will lead to the creation of middle classes which would strengthen purchasing power and domestic business structures.

Advanced economies should compete through the quality and added value in differentiated products rather than trying to gain competitiveness through a strategy of low wages

Precarious and poorly-paid work, labour flexibility “in excess”, less costly hiring, cheaper dismissal, different modalities of hiring… This kind of employment policies lead to a reduction of social security contributions, higher rates of poverty, inequality and social exclusion and, as a result, to less consumer spending for a large segment of the country’s population. Large socio-economic inequalities lead to serious social conflicts, unstable governments and countries (Mediterranean European countries are an unfortunate example of this), and this lead to the collapse of foreign investment (especially direct investment).

Social differences have been reduced in China over the last years. China has gone from being the world’s factory to become a major consumer, both in the domestic and international markets. The growing middle class is making China more competitive. We have there an example of the positive effect in reducing huge social inequalities (countries increase their purchasing power, encourage consumption, and gain competitiveness in the international market). We have an opposite example in the European Union countries (mainly Mediterranean countries) where a policy of low-wages is generating enormous social inequalities and making these countries uncompetitive in global markets when it comes to labour costs.

Intellectual Property Rights Reserved By Author
Image: Colin Harris at www.flickr.com.(Image: Jared Rodriguez / Truthout):Tackling Inequality

Thank you very much for taking the time to read my post ! If you like this article, please comment and follow me on LinkedIn and Twitter@globalonsolucas

Comments Off on Do global socioeconomic inequalities really matter?

Socio cultural closeness and distance

January 31st, 2015

By Lucas Juan Manuel Alonso Alonso.

Socio-Cultural Closeness

Socio-cultural closeness among the home country and the host country (or host countries) is related to factors such as common/similar language, comparable educational level and cultural characteristics, similar types of business and industrial practices, workplace norms…etc.

When you start an internationalisation process you are expanding a business abroad; it is exporting an organizational structure, values, method, management style…Therefore, in many occasions, a similar type of business and industrial practices can be a greater closeness factor than a common or similar language; bear in mind that the home country’s language can be useful for the host country (for instance, countries where the native language is not commonly spoken in the world) but it is not identified with the home country’s culture.

A similar type of business and industrial practices in the host country will enable you to generate synergies, easier introduction of products/services, set up alliances, less bureaucracy… A comparable educational level and cultural characteristics are other important factors of socio-cultural closeness. As in the case of similar types of business and industrial practices, similar cultural characteristics in the host country, such as traditions, religion, life style, way of doing business and trade, form of government, etc., are going to make the internationalisation process easier.

As a result of socio-cultural closeness it doesn’t necessary to make many changes in your marketing strategy. Therefore, the internationalisation strategy will have competitive advantages in costs and flexibility. Similar types of business, lifestyles, origins, spending habits, cultural characteristics, cultural traditions, form of government and trade (…etc.) in home and host country are powerful factors in order to make easier to expand your business abroad; partnerships, alliances, and cross-border trading will be easier too, as well as it is more feasible larger amount of trade and DFI flows.

Socio-cultural closeness among the home country and the host country (or host countries) reduces uncertainty and favours a greater commitment of resources in internationalisation provided that the level of risk in the host country (or host countries) is considered acceptable. It is easy to see that the main requirement to commit resources in a foreign market is the country socio-political stability. Socio-cultural closeness will not be attractive if the host country has high rates of corruption and isn’t able to offer security over the investment. Then, considering as acceptable the level of country-risk involved, an ideal situation would be socio-cultural closeness with countries that represent large markets with high growth rates.

Socio-Cultural Distance

Socio-cultural distance generates:

Greater uncertainty. This greater uncertainty is not derived from the host country’s risk, which on the contrary can be a very safe country (good sovereign rating…), but the risk exposure to different culture of that in the country home.
Reduces the possibility that the home country’s companies carry out the internationalisation process via direct investment.
Modes of entry into foreign markets that involve a smaller commitment of resources. Export is a way of internationalisation that fewer resources committed, but in some cases it is important to be aware of keeping exports steady. A sporadic export to certain countries (for instance, some Asia countries) can damage the brand image of the company.

Sometimes is quite possible to find, low country-risk, better and larger markets with high growth rates in countries with which we have greater socio-cultural distance. Therefore, better business opportunities may take place in countries with greater socio-cultural differences. Select people who are able to suit to cross-cultural environments, setting up multicultural teams, request information from consultants and agencies abroad about the different barriers, partnerships with host country’s local nationals… are, among many others, ways to reduce the risk exposure derived from socio-cultural distances.

As a result of new information technologies the way people get news (and be in touch) has changed; therefore, it is necessary to define appropriate approaches (mainly when there is socio-cultural distance) based on the specific and fast changing needs of the foreign target group. It is important to be aware that be in contact with people from different cultures (interconnectedness) it doesn’t mean to know their cultures. Besides, not only it is necessary to know the culture (this is only the first step, the necessary but not sufficient condition) of the host country but the most important thing is to understand it.

Socio-cultural distance can have a positive effect, becoming useful for international expansion, when the host country wants to import products, services, or a lifestyle of a foreign country. But in these cases the brand image of the home country (often such a country brand image is intimately associated to the quality of its products or services, ways to carry out business, credibility…) is essential.

Sometimes, as a consequence of social-cultural distance, in some countries will be more appropriate to use sub-brands rather than carrying out deep and expensive changes in the features of products/services.

Comments Off on Socio cultural closeness and distance

Entrepreneurship & SME Internationalisation: Country Risk and Competitive Intensity

December 18th, 2014

By Lucas Juan Manuel Alonso Alonso

A. Country Risk:

This risk includes a collection of risks associated with investing in a foreign country. Such as political risk, exchange rate risk, economic risk, sovereign risk and transfer risk…

Political Risk (also known as geopolitical risk) makes reference to a country’s political changes and instability. As I state in another article of this series on Entrepreneurship & SME Internationalisation (please, read the article about market size, growth and accessibility), the fact that, in the host country, foreign investments account for a big share of its economy, it could be understood as a sign of stability and, therefore, be minimized market uncertainties associated with political risk.

Transfer Risk is very important because it can affect investment and profits. Some foreign governments impose restrictions to move money (or prevent the repatriation of funds) out of the country. Sovereign Risk is essentially the risk that a foreign government may default on its loans or fail to honour other business commitments. For example, the host country might carry out the nationalization of foreign companies. Accordingly, please take into account the following:

“Resource-rich developing countries (many of them LDCs) need to improve their infrastructures (a current core objective of the WTO) and to reach that objective it is necessary to develop the adequate mechanisms to attract foreign investments, as for example resource-backed financing”

Obviously in the above statement, for that kind of projects and funding models we are talking about large multinational companies; but the fact that foreign investments are backed with resources increasing reliability in these countries. Therefore, this situation could be considered as something positive for SMEs wishing to enter into trade relations with these countries.

Exchange Rate Risk (also known as currency risk) is associated with losses due to currency exchange. This risk is related to changes in exchange rates; changes in the value of our currency in relation to a foreign currency. When we carry out international trade operations we must take into account several macroeconomic variables, as for instance interest rates, exchange rates, expectations of inflation, monetary policies…For example, if the FED shrinks its asset purchase program (Quantitative Easing) the amount of dollars in the system will be less and therefore the dollar will tend to appreciate against foreign currencies.

The ECB monetary policy, as for example the interest rate at which the ECB lends money, access to credit by SMEs and individuals, austerity policy and possible bailouts in the euro area …, etc.

“The use of financial instruments to fix the future exchange rate which buy or sell foreign currencies is not common in SMEs; therefore, the firm needs to take into consideration these macroeconomic variables because they affect exchange rates, which in turn affect the relative prices of imports and exports and any investment to be carried out in the host country”

It is essential, in order to reduce the economic risk, be aware of macroeconomic variables trend since they influence the stability of investments.

B. Competitive Intensity:

First of all it is necessary to indentify our close competitors in the same or nearby strategic group and obviously, in order to measure the competitive intensity of a marketplace, we have to take in consideration the Porter five forces. As everyone knows, we have a high competitive intensity within an industry when there are many companies competing, limited market available, customers have free mobility to change providers, harder product differentiation, high barriers of exiting, competitors with a large market share…, but bear in mind:

“A competitive intensity environment can be a driver for innovation in manufacture processes and marketing”
Take, for example an European publishing company that, in order to reduce costs, decides to manufacture part of its product in Hangzhou (China). Thus, through an innovation in the manufacture process, it starts its internationalization process moving part of its manufacture process abroad. In this way the production process is divided between China and Europe. Continuing with our example, assume that the company holds an international patent on design stickers and sells its finished product mainly in the European market. Precisely, design stickers are its main competitive advantage (product differentiation).

“With this strategy (innovation in manufacturing processes) the European publishing company can sell cheaper its differentiated product and enhance its competitiveness in Europe. In addition, the fact to manufacture part of its production in China allows it to become familiar with the competitive environment of such market”
A marketing innovation can be a simple change in the design of a label of a product, for example in a box of chocolates, a bottle of wine (bottle shape, label design…etc)…

Take, for instance, a chocolate manufacturer located in a South America country. Assume now, the company sells its product in the local market in the following way:

· Black and White chocolates
· Delicious big chocolate bonbons
· Kiosks are the main points of sale
· Unit sale price US$ 0, 2 (unit = bonbon)

So far, the firm sells its products only in the domestic market in which it competes on prices and number of sale points. Chocolates have very good quality but it is estimated that in the domestic market is not possible to create product differentiation.

But now, the firm, together with an important distributor of Shanghai, creates a marketing plan for the introduction of its products in China. As a result of the joint development the South America company gets meaningful data about China’s socio-economic, such as what kind of competitive forces prevail in the industry, competitors’ geographic scope, lifestyles trends…,etc., which allow it to reduce business risks and forecast the strategic moves of rivals.

The high quality of chocolates is a strong point but they have to compete with famous Swiss chocolates. Therefore, company and distributor develop a marketing strategy based on the specific character of the market place:
· The market is segmented by age and events (for instance, toy-shaped boxes for kids, heart-shaped boxes for Valentine’s Day…)

· The beautifully-wrapped bonbons are sold in luxurious cardboard boxes.
· The product is marketed under the name of a Caribbean dance rather than under the brand name of the South America company.

The reason for this is that the target group likes such Caribbean dance and additionally the name is evocative of beautiful warm exotic places. On the outer surface of luxurious cardboard boxes, the dance name is shown in large red letters, while the company name, which is the brand, is just below in golden letters of smaller size.

“Through a marketing mix innovation the firm is able to create a new identity for the product’s targeted consumers. Therefore, keeping the same physical quality of the product, chocolates are perceived by Chinese consumers in a completely different way than in the domestic market”

In this way, the firm achieves a singularity of product (distinguishing characteristics, product differentiation). The company starts its internationalisation process carrying out a marketing innovation; thus, in the domestic market, it competes on prices and number of sale points while in the international market it uses differentiation.

“But keep in mind that the competitive advantage provided by differentiation will be sustainable in the time meanwhile the product’s targeted consumers perceive unique product characteristics”

A cross-country study looking at the contribution of foreign firms to national economies can be useful to know foreign competitors and their market share in different economies (for example, OECD studies).

Comments Off on Entrepreneurship & SME Internationalisation: Country Risk and Competitive Intensity

Isn’t it time for reconsidering the European project?

December 1st, 2014

By Lucas Juan Manuel Alonso Alonso.

European economy remains stagnant and in my view, mainly in the euro zone, unemployment rates will continue to rise or, at best, with only cyclical and insignificant downward variations. The main reasons for this are very simple: Member States with highest unemployment rates have (and they will continue to have) economic growth rates that are insufficient to generate employment, as well as, and it is far more decisive fact, unproductive organizational structures.

And, I am afraid that the strongest economies in Europe are going to suffer a steeper economic downturn. In fact, in spite of measures such as precarious and poorly-paid work, labour flexibility, less costly hiring, cheaper dismissal, different modalities of hiring (…etc.), there will be not any significant effect on employment but, undoubtedly, these measures are going to reduce consumer spending (less purchasing power of the middle classes) without increasing investment spending (investors are more likely to save than invest).

“The reduction in consumption and lack of investment are highly alarming factors of a continuing economic stagnation”
In addition to the above, a badly understood policy of austerity and structural adjustments are reducing government spending in core functions. The simultaneous effect of these factors (reduction in consumer and government spending together with lack of investment), leads to a sharp drop in aggregate demand. Therefore, exports are, in some cases, the sole positive factor of the aggregate demand and main driver of economic growth in some European countries but, at the same time, we see a deep decrease in imports due to lack of domestic demand and this points once again the economic stagnation.

“As a result, if European Union (mainly the euro zone) continues to follow the same policy rhetoric, it is perfectly clear that we will be facing a future of economic stagnation, greater unemployment and inequality, increase in the fiscal deficit and public debt. In my view, this situation can lead Europe to an unending vicious circle”

The EU implemented painful austerity measures in order to reduce the high level of government debt in many country members. But it was, and still is, a wrongly-conceived austerity. In fact, in various European countries the debt to GDP ratio is going onto a firm upward trajectory creating a possible risk of default. Government debt is not a problem in itself but the amount of debt (debt to GDP) and the interest rate of the government debt (debt interest payments/GDP).

And, in some countries of the euro area, a large share of government debt is composed of non-development expenditures (for example tremendous public structures which are intended to place people related to political, economic groups…., wasteful of public funds brought about by governments on opaque contracts…and others unproductive public structures) while, at the same time, expenditure on development aid is cut back (for example education, research & development, healthcare…).

The central feature is on how a government invests its resources (government revenues). The government revenues can be invested in development or non-development projects. Development projects are productive and, therefore, they are the ones who boost a country’s socio-economic progress.

On the contrary, non-development projects are a charge on a government budget. In my view, the current EU project is doomed to failure because it, among other things, benefits the few and not the many, and thus, unfortunately, many EU members are leading for the wrong reasons: high degree of social inequality, abject poverty (in very many cases, children abject poverty), very high unemployment rates (especially among the young people), low democracy quality… and so on.

The society revitalization (socio-economic progress) should come from, among other things, a combination of fiscal consolidation (for example, improving equity in tax policy, so that those that have more pay more…) and structural reforms (for example, strengthening or creation of productive sectors rather than austerity plans…). A wide range of different recipes (very different from the current ones) are needed to leave behind this deep stagnation and finding our socio-economic progress.

Tax burden in many European countries increased substantially. Paradoxically, greater tax burden is placed on households meanwhile multinational companies, quoted on the stock market, and great fortunes have less fiscal pressure. The transfer of greater tax burden on consumer prices in combination with measures of lower wages and high unemployment rates are eroding consumer spending.

It is essential to consider a harmonized and equitable tax reform:

“Reduction of unproductive government expenditures and public structures (for example, unnecessary governmental bodies and unproductive public expenditures…, in other words, it is necessary to prevent the creation of unproductive state structure and patronage networks) rather than cutting key government functions, for example education, public health, social security, or unemployment support…”

“Effective measures to fight against fraud and tax evasion, impose a progressive tax on multinational companies, great fortunes, investment companies with variable capital (…) rather than a greater tax burden on households, low-income families, severance pay, SMEs (…) because higher tax burden on them lead to a progressive reduction in consumption (for example, it is a serious mistake a higher VAT rate), higher unemployment and economic stagnation that contributes to exacerbating poverty”

Government revenue would have to be increased as a result of the combination of the above measures without indiscriminately raising taxes and cut drastically government spending in core functions. Thus, the aggregate demand would be reduced to a closer level to its real capacity, spurring real economic development while at the same time keeping inflation under control. Wouldn’t be these measures beneficial to European Member States?

“It is necessary to encourage the most competitive productive sectors (real economy) because these are the main driver of economic growth, rather than subsidize unprofitable areas”

Therefore, first of all, an appropriate action is to reduce excessive and unproductive government bodies (necessary austerity) rather than cutting key government functions, for example education, public health, social security, or unemployment support…(incorrect application of austerity)

There is a shortage of credit for SMEs that are the main driver for job creation in Europe. And, in many cases, the bailouts of hundreds of billions of euros were for banking entities which handled money in speculatively way generating huge losses and threw the financial markets into a state of total chaos before the real economy was seriously damaged. And still the unworthy and incompetent executives of these banking entities are retired with million-Euro compensation. Now, some of these banking entities are making profits but the money is not reaching the real economy.
“Bank loans to sectors more prone to economic bubbles was, and still is, responsible for this vicious circle of global crises from which there is no escape using the same recipes that generated them”

For example, when governments take steps to encourage home ownership through policies of low-interest mortgage loans and thus once the real estate bubble burst, the market value of homes began to drop and many borrowers (houses owners) aren’t able to pay off their mortgages. No problem for banking entities because they will be bailed out with public money but, as a result of huge bailouts to banks, the national debt continuous its upward trend and the country’s vast majority of people are going to suffer years of cuts and austerity, which means a decline in social-economic progress.
Does it make sense to continue with austerity plans? My point of view is that austerity plans will continue to reduce consumption and economic growth leading to economic stagnation that contributes to exacerbating poverty (increasing at an alarming pace) which in turn worsening the already deteriorated situation of many European countries…isn’t it a logical conclusion?

Comments Off on Isn’t it time for reconsidering the European project?

Measuring a country’s progress

November 18th, 2014

By Lucas Juan Manuel Alonso Alonso.

How do you think the progress of a country can be measured?

GDP is not everything

GDP is a measure of a country’s economic activity, and therefore it should not be considered a measure of a country’s well-being. Besides, it is necessary to be aware about which GDP components lead to economic growth, because a same amount of GDP does not mean identical situations.

GDP takes into account all income no matter how it is generated and some GDP components may harm human health and/or the natural environment. For instance, think about a country in which its government is forced to set lower environmental standards to maintain the country competitiveness. Consequently, factories freely pollute several zones or inclusive part of the country, but this way of manufacturing generates high economic growth and employment and the country competitiveness is based on this way to produce. From an economic point of view, the economic growth improves the living standards of citizens but at the same time pollution makes its inverse contribution to the quality of life of citizens.

Nor does GDP give any indication of how a country’s wealth is distributed. In some LDCs, many of these resource-rich countries, we have a high rate of economic growth and, at same time, abject poverty. The way wealth is being distributed is the most important factor for a country’s well-being, because large social inequalities destroy a country’s progress.

“Progress of a country must be a balance between economic and human development”

“If economic growth is being distributed on just a few people, it will never contribute to the progress of the countries that generate it”

An increase of social inequality indicates a setback in the progress of a country’s people. Such a situation is indicative of a reduction in the Human Development Index. Therefore, a country can be progressing economically at the expense of a decline in human development. Obviously, this situation cannot be understood as progress of a country because economic growth has to be a vehicle that supports human development. It has no sense to talk about economic growth without to take into account its contribution to human development.

“Economic growth is not the goal itself but rather a means to reaching the goal: the progress of a country on all fronts”
“Economic growth does not seem to be the problem or the solution, but a fairer distribution of wealth… isn’t it a logical conclusion?”

So, does it make sense to consider GDP as a country’s progress indicator? Obviously, it doesn’t.
Measuring a country’s progress beyond GDP

There are several indexes that measure the extent to which countries contribute to the socio-economic progress of their citizens, such as Human Development Index, Legatum Prosperity Index, Social Progress Index…These indicators are tools that measure the extent to which countries contribute to the social, economic and environmental progress of their citizens. Consequently, they take into account factors such as basic human needs, level of income, cost of goods and services, working conditions, quality and availability of employment, access to quality healthcare, life expectancy, poverty level, incidence of disease, quality and availability of education, cultural, political and religious freedom, economic and political stability, infrastructures quality, environmental quality…

All of them aim to develop a more meaningful measure separating economic growth from social and environmental well being. Thus, some developed countries perform well in terms of GDP and poorly on some other measures and therefore, the findings of these indexes illustrate that economic growth does not always lead to social and environmental progress.

Perhaps, the underlying fascinating question to be asked could be: To what extent a developed country with a very low social progress score can be categorized as a true developed country?

Pressing issues to be tackled:

First of all, for the correct determination of the indexes mentioned, it is essential that the governments of the different countries permit information to flow freely in order to ensure that the implementation of such important tools be able to properly asses the different issues outlined herein. With regard to these indexes and progress, I would like to express my opinion focusing more in particular on social progress made by the advanced economies.

We have experienced in the past few years a huge setback in the indexes related to social progress in many developed countries. Take, for instance, the issue of basic human needs and we might well ask: How many people in developed countries are below a minimum nutrition and basic medical care? How many people in developed countries are below the poverty line? Particularly the more vulnerable groups, such as:

1. Child poverty (it is on the rise in several developed countries, some countries within the euro-zone are a good case in point)

2. Abject poverty (the same as that described in the preceding point)

3. Growing number of food banks in many advanced economies…
About issues like satisfaction with housing, access to electricity, personal safety…etc. It raises questions, for instance: How many people in developed countries are satisfied with the availability of good affordable housing? How many people in developed countries, as a result of higher energy prices, are suffering energy poverty?

And obviously as a consequence of this global deep crisis triggered by an economic system based mainly on financial speculation jointly with inappropriate economic measures and structural reforms, the income gap between a country’s richest and poorest people is enlarging and thus personal safety and rights are under serious threat in some developed countries, as well as the real entrepreneurial spirit (genuine enterprises) strongly discouraged. Why am I saying “genuine enterprises”? The answer is very simple: There are many “enterprises and entrepreneurs” arising from political clientelism (cronyism and patronage), and that kind of enterprises and entrepreneurs do not generate wealth and prosperity in our societies because they are not competitive.

As a result of the current and future economic situation in several developed countries, which translates into drastic spending cuts in education, research & development, health and other public necessary services, whilst, paradoxically, at the same time, unnecessary public spending increases, for example unproductive public infrastructure development and bureaucratic wastage, we might well ask: How many people in developed countries don’t have (and likely they will not have it) access to competitive education, information, communication, internet, freedom of speech and press, health, wellness…? Reducing unproductive public structures rather than cutting key government functions (education, public health, social security, unemployment support…) may signify one step towards progress and equity.

“An over-dimensioned state structure does not lead to a competitive and prosperous society” There are fundamental issues related to democracy, political and social stability that are addressed and weighted by these indexes in order to reflect more appropriately a country’s social progress, such as:

1. Opposition parties play an important role and enjoy real power
2. Minority groups have reasonable self-government and/or can participate in the government through informal consensus
3. Political corruption
4. Factors that undermine freedom
5. Government censorship laws about freedom of speech and press, democracy quality
6. Independence of the judiciary
7. Country’s laws protect private property rights
8. Religious freedoms
9. Equal opportunities in the economic and social spheres.
…etc.

“The quality of these kinds of issues leads a country to stable governments and economies, whilst simultaneously creating a social justice environment which directly implies unity between people”
“A true unity between the people of a country has a direct effect on the progress as a country”

In my view, it would be also necessary to take into account other factors such as:

Governments ruled by one-party for enormously long periods of time, laws encouraging the establishment of strong bi-partisanship in policy, religious hierarchies exercising their power in the political, university sphere and public life… In fact, these kinds of actions increase corruption risks endangering country’s long-term democratic transparency because politicians can place family, relatives and friends into the state or private firms and, thus, in this way they create lobbies that ensure them a large number of unconditional voters, as well as to legislate appropriate laws in order to protect themselves and their clique of collaborators.

Because some important questions arise in relation to these issues, we could well ask ourselves:

“Is a leadership without meritocracy a true leadership?”
“Is a country with a low democratic quality a true democracy?”

Boosting investments in human development:

Some countries may have a similar per capita GDP and marked differences in their social progress indicators. Therefore, a good question to ask is: To what extent is GDP contributing to improve a country’s social progress? A key issue for policymakers should be to carry out necessary investments to promote human development with greater equity. As it says on page 20 of the 2013 Human Development Report: “…Investments in human development are justified not only on moral grounds, but also because improvements in health, education and social welfare are key to success in a more competitive and dynamic world economy…” In the light of this sentence, I think some important questions need to be considered: What kinds of investments in human development are being carried out in some developed countries (with particular reference to the euro-zone)? Isn’t it a short-sighted policy? Isn’t it necessary a shift in attitudes? Can we say that we are on the path of progress?

Deep barriers to global progress:

A crucial step forward to genuine social progress:

Comments Off on Measuring a country’s progress

Is a leadership without meritocracy a true leadership?

November 1st, 2014

By Lucas Manuel.

Several times, I have seen people really obsessed with issues of leadership that is why, I think, my question can be a key factor to take into account. For example, people talk a lot about the multiple professional qualifications and personal virtues that a leader must possess, but may be they take the essential quality for granted, an essential quality from which they could see the entire scenario: “Merit”. Don’t you think there are many leaders without any merit?

It is important not to confuse visionary with leader, a visionary “always” is a leader, while a leader can occupy such a position by political, economic, religious relationship, social status… etc. That is why the “merit” factor is fundamental, because… Are there really opportunities based on merit? Is the meritocracy one of the most important judgment to recruit people across a range for leadership positions? I think that in most cases the situation is radically opposite.

In my view, there is a Global Vicious Circle. For example:

International organizations and best companies in the world have a clear preference to recruit people who have studied at the best universities of the world. At first glance, it seems entirely logical such selection criteria, but some questions arise:

Who has more opportunities to study at the top universities of the world (mainly in the business schools, universities of economics, law and politics universities… and similar fields), a person with merit or those who are related to political, economic or religious power? I think, unfortunately, the answer is obvious. Of course, you can say that there are scholarships and this is truth, although these will depend on the country we are talking about. On this particular point, among many other things, mention should also be made about: What are the selection criteria for scholarships and how much is the amount of these? It is also fully clear, at least to me, that there is a clear link between meritocracy and a country’s democracy quality. And, therefore, the higher the level of democratic quality, the greater is the magnitude of meritocracy and vice versa.

The best universities and business schools in the world are going to prefer that kind of people because they are always going to occupy a prestige positions in different parts of the world (governments, world organizations, top world companies…) and, therefore, these universities get prestige because its graduates get the best jobs in the world. But many of these people who have studied in such prestigious study centres and next, as a consequence of this, they get top positions, it is not on grounds based merit, but by their relationship with some kind of economic, religious, or political power.

It is in fact apparent that in most or at least in many cases the access to the best education and subsequently prestigious positions is a matter of wallet size and/or relationship with the political, economic or religious establishment rather than merit, then: Talent crisis is not a logical global consequence? How to hunt talent without a real meritocracy? What is the sense to talk about (time after time) justice, transparency, equal opportunities, eliminate corruption, democratic values, global poverty… (so on) if we are not choosing people under a merit criterion?

A lack of meritocracy will generate a huge level of injustice in the social and economic spheres, which would then result in imbalances societies, where prizes achievements are not a consequence of merit but a matter of patronage

Meritocracy means that opportunities are based on the real merit of people and not in their economic position or their relationship with power groups. Because in other way we have societies in which opportunities and success are based on membership to economic, political or religious groups… or other sort of dictatorial powers and lobbies. Don’t you think that merit criterion is fair? Therefore, meritocracy is not a subjective criterion. The problem is who has the power to test the merit since in almost all countries power-holders are not elected by a criterion of merit.

And obviously, there are many people who didn’t get any university degree and /or, in addition, they are completely inexperienced, or even unsuitable for a certain position, but they are directly related to the circles of power mentioned above and, therefore, will be persons without merit in key positions. Please take a look at the background of politicians, managers of large companies and top public and private organizations… Analyze how they got to those positions, which was the first step… (…in most of the cases you will see that thanks to an initial and continued support they have been able to reach such positions of power…) Now please, tell me if you don’t see the Global Vicious Circle I am talking about.

A high level of meritocracy will result in a better democratic quality of a country. Socio-economic inequalities will be reduced generating safer and stable societies. Social stability will be a strong point for foreign investments. Cultural, business, social and economic environment will be more competitive and therefore the country as a whole becomes more competitive in domestic and international markets.

On the other hand the lack of meritocracy will result in a lower democratic quality of a country. Socio-economic inequalities will increase given place to social conflicts that damage the country brand image abroad. Corruption will become structural focusing at all levels of society. Cultural, business, social and economic environment will be less competitive and therefore the country is not able to compete in the domestic and international market. As a result, we have a less globalized country and with few opportunities of success in international trade.

Relatively often we can see on the part of media, political leaders, stock markets, influencers, leaders of big companies…:

Contradictory messages of different international organizations (because measures depend on the specific interests at stake for each of them); for example, being able to suggest freeze or reduce salaries during a recession when it would be more logical just doing the opposite. Wrong measures based on mistaken assumptions; for example, positive forecast for economic growth when there is not a sufficient basis. Media manipulation against revolutionary ideas, new political parties…; for example, makes an unfair play by limiting the key channels of communication to certain ideologies and groups, manipulation of social thinking about several matters…etc.

Unfortunately, I do not know why a lot of people give credence to such kind of leaders that clearly lack of suitable capacity for their posts

Don’t you think that, as a result of a possible Vicious Circle, those who are in leadership positions are always the same ones and their heirs, friends and/or persons connected with them? Is it truth? If so, how we might do to avoid it and have the opportunity to reach leadership roles, or at least an opportunity to express our views in a global mass media in order to be heard (or read) by a vast majority of the people?

Comments Off on Is a leadership without meritocracy a true leadership?