Democratic deficit and the uneaven playing field

This is the next chapter in my series on Social Risk, enjoy.

What do “doing business” and the degree of democracy have to do with each other?

Well for one there is no doubt that companies that operate in environments where there is none or very few institutions in place to ensure a stable business environment often find themselves in situations where ethic and morality is strained. Just take a look at Shell in Nigeria (Oil drilling), H&M in Bangladesh (Clothing factory) or Maersk in China (Container factory) and one will know what it means to operate in such an environment.

To some degree the democratic deficit is self-imposed or reproduced through the understanding that we are “all on the same boat together”. Businesses blame the business environment, Governments blame international society, NGOs blame international business and the population blame politicians. So what we need is stable democracies that are characterized by good governance e.g. institutional structures in which the individual´s rights and freedoms are respected are a prerequisite for sustainable development. This means improvements in two areas:

  • That Rule of Law is upheld, ensuring a level playing field.
  • Democratic structures in place that ensures that can ensure that power is distributed and not centralized to a few individuals.
  • Cooperation should be undertaken with NGOs and civil society forces that work to achieve openings for democracy. In other cases, such as where civil society is small or non-existing, the focus should be on communicating an awareness of democracy, human rights, gender equality and market economy

In Sub-Saharan Africa, a region where economics determines politics of the day and where a culture of democracy has been absent and if present is under the will of a few elites. Even the smallest democratic opportunities are economically conditioned especially during elections because of poverty, corruption, illiteracy, unemployment and not least a playing field which has been all but level.

As we have celebrated the Arab spring there is no evidence that these old structures are so easily dismantled. We hoped for free-elections and a greater degree of transparency would be present, but it has done little in terms of growing a culture of democratic thinking in the region. For example, the political move by Mohammed Morsi to centralize power around the president in Egypt or the lack of security and move towards radical Islamism in Tunisia. The lesson is that democracy is fragile and needs to be supported by strong institutions that can balance the pursuit for power by individuals with the principles of democracy.  

The Social Democratic concept of democracy views political institutions as a means to offset the natural power of concentrated wealth that accrues in capitalist economies. However, during the economic crisis it has become apparent that individual states can’t handle the burden that they have been put under alone and have to seek assistance from others. In Africa for example there is no strong institution that can rescue countries in need so there are basically left to their own devisees, while we in the western world can draw on intergovernmental institutions like the EBC or others. In essence this means that the developing world is left with institutions like the IMF, EU, EBRD and the World Bank that impose strict guidelines for economic behavior and limits the ability for democratic processes. This again leads to a greater gap between the ones that have and the ones that don’t both on a region by region level but also between individual states creating tensions and eventually conflict.

For companies a democratic deficit means an uncertain future business environment. It means increased risk of catastrophic collapse and it means that what you might think is yours today might not be so tomorrow because there is no state to guarantee tour basic rights.

Links

http://www.economist.com/node/21555927

http://www.africanexecutive.com/modules/magazine/articles.php?article=5441

http://www.princeton.edu/~amoravcs/library/framework.pdf

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Can we really take another hit – Global Financial crisis 2.0

The honourable Alan Greenspan testifies before...

Image via Wikipedia

What is the difference between the state of the world in 2008 and how we are doing here in 2011. Well if one look at the global assets they fell by 16 trillion USD in 2008 according to McKinsey lead by the US, Japan and China who almost lost 10 trillion USD just the between the three (that is 10,000,000,000,000 USD).

If you look at another key indicator for economic performance that both affect organisation and countries one could look at the total Equity compared to GDP. Out of 112 sampled countries in 2007-08 every single one lost value. With countries in the Eurozone as the worst places to be it is no wonder that everyone is looking here to find some kind of political will and comprehension of the enormity of the crisis that have hit their economies. All of the countries of Greece, Ireland, Austria, Russia, and Iceland lost more than 64% of their equity value in this period. One could argue that there was an unholy alliance between business and government policies in these countries, which contributed to their demise but the fact is that it happened and now we have to deal with the consequences.

In 2009-10 the markets did regain some of their momentum and there were signs that some of the structural issues which needed to be addressed did get at least some attention. But these things take time to work and even to this date no one really have a real overview of what went structural wrong in 2007-08. The economist are at the moment treating symptoms of the decease more than they are treating the sickness it self. Not because they did not want to prescribe a cure it is just so that the financial and economic instruments available to us do not have the affect that they used to. Neither Marx, Keynes, Hayek or any of their followers can prescribe a treatment that will cure the decease and put the world back on its tracks. While we might like whish that some really brainy economist comes up with an answers to the problems we face it is more likely that they will not.

So standing on the edge of economic collapse the last thing we need is another crisis but that is exactly what we are about to face.  And we are not ready at all to meet the challenge.

First of all the world do not have the financial strength that it had priori to crisis 1.0. Not least is the banking industry not ready to take another hit and it is more likely that we will see numerous bank and financial institutions disappear in the coming years. But worse is that people pensions will be affected on a scale we have not seen before. In several countries the government were able to help pensioners from loosing their life saving or at least they had some kind of package that meant they would be able to retire with some finds to live of. This option is no longer available because the governments do not have the money that they used to and if they want to help again they will have to borrow money at a much higher interest rate. Just look at the downgrade we have seen done by S&P and how they have create chock waves through the political systems in the US and Japan.

Second issue arise because the dynamics of the crisis have changed. Before we could put the blame on the financial institutions, on greed and even on numerous fraudsters who were exposed as there schemes no longer worked. Now the crisis exists as much in the realm of politics as it affects businesses ability to operate and evolve. In the first crisis it was easy to see what to do or at least what we believed we could do, things like bank reform, ethics guidelines, systems of control etc. but now the picture is much more blurred. We have had several rescue packages since 2008 that have been designed to help one industry or another, but while the money used in the first instance were relative easy to get hold of it is more likely that future funding will come as hard money. The funding can be either borrowed at high interest rates or be fund by cutting national budgets and or in combination with increased tax. This will certainly create political instability and governments will come under intense pressure as we have seen in places like Spain, Greece, Italy and lately Israel. The question is if governments will try the short-term “easy” way out and print money instead of dealing with the issues that almost certainly will cost them their political power.

The fact remains that the state of the world is not the same as in 2008 and that neither markets nor politicians are ready for another global financial crisis.