Education and its role in emerging markets – Indonesia

I have just participated in the EHEF (European Higher Education Fair) in Indonesia where we presented graduate and undergraduate programs in Samarkand and Jakarta. It has been a hectic week with around 15’000 participating students and over 100 European universities and higher education institutions as well as representatives from embassies and the EU.

The success of the fair and the eager questions form the students reaffirm my belief in education as a key indication for how Indonesia is rapidly moving ahead.  With a GDP growth of 6,2% a drop in poverty and school enrolment exceeding 100% spurred by more and more overage students enrol in primary school. Indonesians have their eyes firmly targeted at education.

In the years to come I believe that Indonesia will benefit enormously from the education strategy in several key areas.

First, today Indonesia is a multicultural and multi-religious society blending its own unique history with Muslim, Christian, Hindu, Buddhist and many other religions together. However, as seen elsewhere economic development also have the backside of creating social tensions as some embrace and utilise the opportunities fully, while others feel left behind. What education can help with in this process is to ease the social tensions by providing a more even playing field (or at least as close to as possible) for young people who have talent. While there are differences in access to the best schools and especially for students access to education in Europe and the US it is significant it’s a significant contributor to mitigate the risk of social tensions.

Secondly, it will bring Indonesians in contact with the world in another way than business can. Through the social interaction between students from the countries they travel to and other international students networks are created which will benefit not only themselves, but also ensue long term social and economic sustainability as students become business and government professionals and need contacts that they trust around the world.

Thirdly, It brings knowledge to Indonesia, which is much needed in the years to come if the growth is to be supported and managed. One of the threats that the country is facing is that huge bubbles are created in the economy being in housing or specific sectors. Just taking a look from my one window at the hotel reveals five skyscrapers being build so it is definitely a risk that one have to take serious. And while bubbles is a natural part of a capitalist economy the impact can be cushioned though a economy which is build one more sectors and have more players. As students take business ideas back with them they create new businesses and thereby diversify the economy bringing a valued stabiliser into the equation.

While there are critical voices around the growing internationalisation of undergraduate and graduate education, as it is seen to some as a business rather than an “exchange” of ideas. It think that the benefits significantly and especially long-term far outweighs the downsides.

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Delivering in Doah

SandyHopes were high but realistic when COP18 started in Doah. I for one did not anticipate much after the colossal failure in Copenhagen (COP15). But believing that we have to solve or differences, I did hope that at least something would come out of all the effort put in.

From the outset the ambition was to reduce CO2 emissions significantly in-order to keep the Earth from heating up. Especially the developing countries had hoped for a deal that ensured the possibility for sustainable growth. The impact of climate change have been felt in all the countries that “normally” were against any kind of real restriction on emissions so there is plenty incentive to take action.

The initial target was two degrees reduction in global warming, but now it is more likely that we will hit four degrees no matter what we do. So when the Danish climate minister Martin Lidegaard looks towards 2014 for a start of the negotiation for a solution I for one do not think it is even close to a success. Or as he puts it.

“It is crucial that we will soon have taken decisions to ensure we can keep our political promises. Therefore, I am delighted that we have established that the climate change conference in 2014 will be about how we limit greenhouse gas emissions within the next few years – for example through energy efficiency improvements and the removal of subsidies for fossil fuels”, says Martin Lidegaard.

I do belive that if we continue down this path we are creating the seeds to our own destruction. The current politicians are thinking mare about the next election (for those countries that are lucky) than about how to lead their people safely and wisely to a better tomorrow. For better or worse they are the only ones that can make real changes to global warming if we like it or not.

I have attached the official Danish press release from the COP its in Danish, but the message is clear if you read between the lines – we took a real big step in the wrong direction.

Pressemeddelelse

Tax evasion part of corporate culture

Image representing Steve Jobs as depicted in C...

Image via CrunchBase

Most people would think that countries like Spain, Greece and Portugal would rank among the very top of countries for tax evasion schemes. But even though the US has a relative low tax rate the country tops the list of places where tax evasion seems to be part of corporate culture.

So how big a problem is tax evasion? Take a look at the table below from Tax Justice Network, a London-based watchdog that fights against tax havens and for more transparency.

America’s “black” or “shadow economy,” represents 8.6% of GDP, while the percentage is by far the smallest of any of the countries on the list it does represent a significant monetary post and represent roughly the GDP of Denmark the 32 biggest economy in the world according to the IMF.

How does the companies in the US manage to avoid tax? Well, one suggestion is that companies like Google, Apple and Amazon manage to cut their tax bill by one third through a series of moves that involves countries in Europe and in the Carrabin, a system is also used by big European companies to transfer funds to tax havens. My friend Sarah Wenger has created the infograph titled “The master of Tax Evasion” that explains how the system works.

Masters of Tax Evasion
Created by: www.MastersDegreeOnline.org

Doing “good” also means taking hard decisions and being accountable for ones actions

Some people tend to think that if you are doing good you somehow do not have to be accountable for you actions. It would seem that it is like that ones you are “goodness industry” it is automatically a license to bypass the normal channels of communications and scientific standards. But with the growing number of stakeholders there is however an urgent need for more transparency also on the other side of the fence.
Very few of the stakeholder groups like NGOs or CSOs that I know of have a standardised method and understanding of how to report findings. Most often they god for a headline approach where what ever fits the main thesis is included in the reporting and all that contradicts will be left out. It is not that I think that they do this to be evil or that they are trying to twist the facts in a conscious way it is just that they are unaware that for anything to be true it needs to be transparent and capable of being reproduced. Unfortunately this is frequently not the case.
We often hold the most transparent companies accountable for their actions and dig into their annual and sustainability reports in order to find inconsistencies that we can explore but it rarely is the other way around. The possibility are explored that there is a discrepancy between what the company says and what they are actually doing. And when a flaw is found we make sure that everybody knows about it either through the press of using dedicated campaigns.
The Haitian earthquake disaster provides a good case for. NGOs and to some degree CSOs came under fire from locals who claimed that not enough had been done to transform temporary shelters into permanent homes, or to provide access to drinking water and sanitation services. In some camps run by NGOs, people were still dying from cholera a year after the disaster struck and by that actually doing more harm than good. Of cause it is not all NGOs that are active in Haiti that did wrong but it goes with the case that they cannot be left without some form of control and accountability for their actions.
Another example comes from Cambodia where international NGOs actively contributed to corruption, which was documented in the documentary “The Trap of Saving Cambodia”.

The film puts a spotlight on some of the troubling issues facing this country: government sponsored forced evictions; corruption on a massive scale; the underground trafficking of women and children. And maybe even as disturbing is that local NGOs with the finances of the World Bank, joined by huge donor countries are contributing to the continuation of these problems by providing access to billions of dollars in aid where most of the money is going to officials rather than to the people in need.
There are still NGOs that think the accountability is not for the “Goodness”-industry. Or as Mango a UK based NGO puts it “Research has shown that results-based management is not an effective way of managing and reporting most NGOs’ performance.” And Goes on to list why they should not held accountable for the results that hey produce. To a large extend reminding me of the discussions in the private sector in the 80 ties and 90 ties about quality management.
NGOs need to shape up if they are to continue to be the beacons of truth and uprightness that we have come to know them. They will need to shape up their processes and weed out the organisations that does not live up to the basic criteria of accountability, transparency and good governance or the whole sector will be dragged down into the mud from where it will be difficult of not impossible to escape.

Directions of the CSR movement

For the past five decades we have seen a tremendous development within the CSR movement from a few hippies in the sixties shouting curses at Dow Chemicals to businesses build on the idea of sustainability such as the Body shop and Starbucks. This blog is about what I think will happen in the next few years. The list is far from complete but gives an overview of some of the trends that will shape CSR in the coming years.

Codes of conducts as a “license to operate”. Code of conducts was, a few years ago, seen as a source of competitive advantage, and to some businesses a method to organise its philanthropic efforts. Today they are seen as something that most international businesses have as part of their normal business approach and more a given than an extra feature. Even companies like A.P.Møller-Maersk that until recently did almost nothing within sustainability is now implementing Codes of Conduct and have become member of the Global Compact.

Moving from a fragmented approach to CSR companies now work strategically with philanthropy and stakeholder engagement/management. As described by Porter and Kramer there are real advantages to be gained by working strategically and long-term with the company’ philanthropic activities (Porter & Kramer, 2002). And companies are using philanthropy to gain access to students and other important resources that they will need for their future growth. Apple computers have successfully engaged with university students as part of their strategy, which has moved the company from being marginalised in the market to be directly comparable with Microsoft.

The further evolution of sustainable and social risk management into real tools for business. Where companies engaged with stakeholders because they represented a business risk they would in the future also be part of business development. Globalization have meant that business have expanded its scope and reach significantly. Fuelled by waves of liberation in developing and emerging markets have initiated a significant increase in contact with countries and regions that can be categorized as difficult to do business in. The increased sphere of contact and influence have spread to every coroner of the world and is to a large extend fuelled by the prospect of high returns, first mover advantages and market shares (Haufler, 1997, Mehmet, 1999, Banfield et al., 2003, Gouldbourne, 2003,

Jamali & Mirshak, 2010). According to the World Bank some 1,5 billion people are affected by organised violence or conflicts (World Bank, 2012), this number constitute roughly one fifth of the total population of the world making it one of the world’s biggest social issues. Conflicts are present in all parts of the world and have a direct or indirect impact on the lives of everybody on the planet either through social ties or as part of our professional lives. For people who are directly affected it is an ever-present threat that invades all activities and decision making processes, for the societies involved it puts social lives and development in a state of suspended animation. To a large extend the issues that business needs to confront are outside what can be considered the norm within traditional risk management strategies (RMS) because the issues are socially embedded and complex (Holzman et al, 2003). As seen in the case with Starbucks NGO and companies can work together on areas of common interest and create new products and services (Austin & Reavis, 2004).

Social responsible investments or SRI will become more and more influential on driving investment decisions and thereby the choices of management. It is not argued that investment companies will become more social conscious but customers like institutional investors will become more and more concerned about how they are growing their portfolios (Hawken, 2004). This will not happen because they suddenly become aware that they have a significant social or environmental impact but that the customers of instructional investors are starting to wonder how their pensions are growing.

The raise of the corporate citizen. The idea of corporate citizenship was first seen a few decades ago (Crane & Matten, 2010). The idea of corporations as citizens with obligations and rights really saw its emergence with several big international finance scandals such as scandal around Enron and Arthur Anderson around the turn of the century. The idea of a corporate citizen comes from the notion that companies like people have an obligation to the community they are part of. This means that they are obliged to behave in accordance with ethical norms formulated by society. In many ways the corporate citizen come from the idea of engagement with salient stakeholders and acting in accordance with their expectations and wishes. While there are many companies that claim corporate citizenship a very have moved beyond mere rhetoric.

The inter-linkage between CSR and development studies. Will further develop and as we will see in this book gender will be one of the lessons learned from the field of development studies that will define corporate behaviour in the years to come. For decades development practitioners have known that economic growth, democratisation and security does not happened in a vacuum and that development a sustainable business climate is linked to society and governance structures. As companies increasingly becomes global even at very early stages of business lifecycle so does the issues that they have to confront. But as older companies have had time to cope with different cultures and business environments young entrepreneurs does not have the same privilege. In essence this means that they will have to experience a much steeper learning curve of they are going to survive on the global marketplace. The tools that have been refined through years of development studies will be an integrated part of creating a sustainable business platform for the future.

Since the 80’ties have seen large-scale privation of traditional state enterprises in areas like transportation, communication, healthcare, energy and infrastructure. Mostly influenced by neoliberal thinking in United Kingdom and United States were large-scale privatisation programs were implemented under Margret Thatcher and Ronald Reagan (Bhagwati, 2007:98, Harvey, 2005:57ff). As this happened private business also found its way into areas traditionally controlled by the state and as time have progressed more and more areas have seen either total takeover by private business as we have seen in telecommunication, part privatisation with majority state ownership as with railroads or private companies in direct competition with or as a alternative to state institutions as we have seen in Healthcare and Private security companies (Harvey, 2005, Dicken, 2003, Klein, 2000, Friedman, 2007).

The concept of CSR have found it’s way into the business world largely due to the weakening of the state and as a result of pressure by stakeholder groups to act as information have been more widely available from even the most remote part of the world. Word like ‘Sweatshop’ and ‘child labour’ would not have found its way into everyday language if it had not been for the increased transparency and persistence of stakeholders who have come forward within the last two decades.

Tide is turning for China

China Insurance Building (中国保险大厦), Shanghai

Image by thewamphyri via Flickr

I have touched on the subject of China many times in this blog and have warned about what can be perceived as a growing bubble. The speculation in housing has had many similarities to what we saw in Ireland, Spain and Portugal just on a much much large scale. Driven by large scale growth in the area of 10 % the Chinese economy have been a steam train without breaks or at least nobody was willing to scout for all the dangers that lay on the tracks. But now are the first signs that things are about to change and that we are after all interconnected even if we would like to think it is not the case.

Chinese has the second largest economy the world after the U.S. and in 2011 it expanded by 9.2% a figure that European governments can only dream about, but for China these represent the first figures that points in the direction of a slowdown. The economic growth in 2011 was thus lower than in 2010 and country’s statistical authorities expect a even further slowdown in economic activity.

Economic growth was in the fourth quarter, less intense than in the previous quarter but still a bit higher than economists had predicted. Production from China’s millions of factories rose in 2011 by 13.9 percent compared to 2010 but also the improvement was less than the year before. Retail sales, an important indicator of citizens’ private consumption expanded by 17.1 percent. Again also a bit slower than in 2010.

And despite the general slowdown economists do not expect a catastrophic slowdown as we saw in the US and Europe, But then again so did economists in US and Europe in 2007. As one Li Hiyong from the finance house Shenyin Wanguo in Shangha said “The actual growth in the quarter of 8.9 percent indicates that our economy remains in good condition and stable. The risk of an abrupt slowdown in economic growth is thereby diminished.”

While these figures are quite impressive they are indications that things are changing in the Chinese economy. First of all, China is still heavily relying on exports for their growth and with the slowdown in the economies in general they are vulnerable to changes in consumer behavior. Secondly, a lot of companies are taking production home or closer to their markets reversing the outsourcing flow that we have seen. One of the main reason why is because of the recession and the advantages of mass production in Asia is becoming less attractive. Third, wages in China are rising at an alarming rate some estimates puts the figures at above 20%, which have fueled the housing bubble and will eat up the advantage of producing in china. This should be compared with the 0-2% wage raise that we see in most European countries.

I will not say that the Chinese bubble will burst tomorrow but in my mind there is structural issues in the economy that will lead to a sharp corner and it is closing fast. China has a lot of money in the bank and they just might be able to pull through using their reserves to counter the downturn. However, it is imperative that the country starts to have a more conservative outlook in their economic and development of their social systems if they are not going to end up driving into a very big brick wall.