National prestige is not only measured by the weight of population but also by the economic prosperity and growth that citizens enjoy. Countries that may be minnows when it comes to absolute numbers can still shine by virtue of the scale of their business interests.
Switzerland, with a population just over 7 million, is home to Nestle, UBS and Credit Suisse, and has a GDP per head of US$ 54 000. Their influence on financial markets is profound despite having only limited ability to project its power through numbers of people, or military might.
What happens to nations that lack a homogenous and large population attractive as a massive market (such as India, China or Indonesia), overwhelming business and financial power (such as Hong Kong, Taiwan or Singapore), a dynamic and industrious labour-force (Vietnam, Cambodia) – or some combination of these (the US)?
In semi-nations, like South Africa, aspiring to be taken seriously by the international community, it means openness and transparency imposed by strong outside forces.
The Johannesburg Stock Exchange (JSE) has seen numerous big-listings flee overseas where capital is more readily available. Foreign investors couldn’t read the JSE and so didn’t investigate. Recently, the JSE and Financial Services Board (FSB) have introduced IFRS regulations from abroad, designed to harmonise all financial disclosure by companies. The result is that our disclosure is now identical to European and US companies. Suddenly we can be read and understood. This has unleashed a tremendous amount of activity on the main bourse at the JSE and pushed it to its highest levels ever.
At the same time, though, plenty of financial mismanagement is exposed. The sorry saga of Fidentia, a massive fund manager, is a case in point. The fund managers are suspected of having simply pocketed the money they were supposed to be managing. The Living Hands Trust invested R 1.47 bn with Fidentia, cash needed to fund monthly payments to widows of deceased miners. All of it is missing.
Revelations come daily, the most recent of which concerns Danisa Baloyi, a self-declared business magnate, who was meant – as a director of Fidentia – to be in a position of impartiality to oversee the running of the fund. Turns out she took an R 8 million soft loan from Fidentia, such declared as a "material conflict of interest" by the FSB in January.
What’s good about all this disclosure is that – imposed from the outside – come laws and regulations that benefit South Africans. Fraud and corruption at the highest levels are often blamed for the perpetuation of poverty and it is useful to have these exposed.
As wealth generation moves ever further into the realms of ideas the entanglement of nations gets greater. A common set of rules allows simple communication and straightforward transactions. Those nations with financial clout will set the rules that they are happy with. Nations that want that investment and trade will have to play by those rules.
The most developed nations are in the process of getting rid of cash and going totally electronic. This starts having a significant impact.
The anonymity of cash has supported crime and corruption. Once it becomes possible to track the flow of money it becomes a lot easier for people to demand transparency from their governments.
Corrupt governments may not like it. Again, disclosure is likely to be imposed by investors from the outside who just won’t part with their wealth until systems are in place to track that investment.
In this they will be cheered on by ratings agencies such as Whythawk. Transparency allows for direct and meaningful analysis and comparison. And that helps everyone, especially the poor.
In December, when introducing our conference on Responsibility, Reputation and Risk, we mentioned Jacqueline Maarohanye - the principal of Ithuteng Trust in Soweto – as an example of the embarrassing situations that donors could wind up in when supporting charities.
Mama Jackie was exposed by television actuality show, Carte Blanche, for getting children and family members to fabricate stories in an effort to raise funds for non-existing charity projects. She managed to defraud a number of people, including Nelson Mandela and Oprah Winfrey. Her image and organisation continue to be promoted at Ashoka and the Schwab Foundation.
Her continuing saga sank to new lows over the weekend. On Saturday she kidnapped Sowetan reporter, Vusi Ndlovu and held him hostage till Sunday. During that period he was assaulted. He had visited her to conduct a follow-up interview regarding the previous events.
Once again she has dragged her supporters into the fray. Fifty women and children from the Trust were arrested and charged with public violence when they attacked the police who had arrived to arrest Maarohanye for the kidnapping.
Once again she embarrasses her sponsors by association.
Whythawk has received numerous letters from NGOs and charities threatening us with legal action for conducting our ratings. As Maarohanye indicates, charities do not always act in the best interests of donors and recipients.
Even where outright illegality is not taking place, every charity benefits when donors know that impartial scrutiny is taking place and ensuring a continuing standard of service and efficiency.
Two ideologies vie for influence over the nature and direction of human development. No, not the Cold War; Global Warming.
During the Cold War the United States and the USSR fought a conflict of attrition; each using proxies to fight their ideologies across the planet. Almost until the end it was not clear which ideology would prevail: the US with their belief in individual expression and the power of the dynamic tension of freedom of expression and economic competition; or the USSR with their belief in state-directed development in which the needs of individuals were sacrificed for the good of the whole.
At their core the two philosophies centred on an ideal: is society better off when we allow unrestrained expression of all ideas, or when those ideas are limited and constrained by notions of equality and fairness?
The US decided on the former, the USSR on the latter.
While the experiment itself asked a fundamental question about the nature of humanity, the result of the displaced conflict left a legacy of destabilised nations across Asia, Latin America and Africa. Millions of impoverished people are still subjected to governments who offer the naïve hope that they alone know all the answers about how economic development should take place. The gap between free societies and controlled societies widens every day.
Unless anyone is still in doubt: societies that allow individual freedom - in which ideas survive only when they receive support - perform significantly better than societies in which a chosen few decide on what constitutes fairness for everyone. The more ideas that compete for the attention of a society, the more choices there are, and the better-off everyone is.
Now we have global warming. We again have two competing ideologies: is the world better off when we allow unrestrained expression of all ideas, or when those ideas are limited and constrained by notions of how to stop global warming?
Over the past 50 years, throughout the period of the Cold War, free-market economies have developed revolutionary and astonishing technologies. Not a single futurist ever came close to imagining the extent of development. And innovation is accelerating.
When Russia emerged from their communist experiment it was as a nation materially and spiritually worse-off than they were at the end of the Second World War. Far from accelerating their process of development, communism destroyed wealth and opportunities for everyone and drained away their best and brightest.
Now we have global warming.
On the one side we have Europe, as before, leading the charge to declare the way in which we should combat the problem. Their belief is that we should set artificial constraints on development, on the market of ideas, and that a small committee of select minds should decide for everyone how we should respond.
On the other side are China and India; two nations with massive levels of poverty and astonishing levels of economic growth. Neither are going to declare to their poor, "We’re sorry, global warming means we can’t build that coal-fired plant near you, you’re going to have to remain unemployed, poor and without hope. Sorry." They are more than willing to see developed nations artificially limit their development so that they can catch up and surpass them. They are allowing a free market in ideas. With continued innovation it is more than likely that they will invent something which will not only solve the problem of global warming but reap huge rewards to them for doing so.
This is not to suggest that global warming is not a problem. But it is impossible to declare what the solution should be. The nature of the problem has been defined. It is now up to the market of ideas to sell innovations to combat that problem. The more ideas the better for everyone.
Limiting that market will leave Europe, and its fellow travellers, behaving like the Soviet Union; punishing people for expressing their ideas and - ultimately - worse off once the problem is solved.
Learn about the Spyder Curve
