Designing Fair Shares Prosperity in Asia

Societies aiming for social progress have a few mechanisms: Governments can tax wealth and fund programs or NGOs; mandate a level of investment in beneficial programs, while giving companies and investors the benefit of choice; or impose few restrictions, hoping that companies and investors choose to strengthen communities on their own. Social investments can be piecemeal or far-reaching. With its growing wealth, Asia has a rare opportunity to take the latter approach, investing in social progress that benefits all, argues Chandran Nair. With more than half the world’s population, Asia cannot afford rising inequality or the attendant instability. Nair urges “fair-shares prosperity – the deployment of capital, private and public, to create a positive impact as well as generating financial returns.” Policy incentives can pursue environmental protections, affordable housing, community development, reduced health disparities or higher literacy rates. Avoiding unfettered consumption, resource waste, corruption, and boom-and-bust policies could lead to secure societies that enjoy a sustainable prosperity. – YaleGlobal

Designing Fair Shares Prosperity in Asia

Asia’s future depends on sustainable investments, prosperity shared by all, not export-led growth
Chandran Nair
Thursday, May 31, 2012

HONG KONG: Wealth is being transferred in unprecedented ways from the West to the East, and an old economic model is crumbling ushering in social and environmental disasters.

It’s high time for a new approach, and Asia must take the lead. By 2050, the continent will be home to over 60 percent of the world’s population – and the majority of the global poor, undernourished and uneducated.

A recent UN report, “Resource Efficiency: Economics and Outlook for Asia,” warns that managing resources more efficiently is critical if the world is to address the needs of the disenfranchised and not strip the planet bare. Given its population, Asia is at the heart of this dilemma. The report points out that to meet the basic needs of humanity and sustain the planet’s resources, per capita use of resources must be reduced by 80 percent from current levels – requiring an overhaul of current investment approaches and the economic models which thrive on resource inefficiency.

Given these stark realities, Asia should stop nurturing hopes that a quick return to export-led growth via unfettered consumption will bring prosperity to all. Instead, a rare opportunity exists for a great leapfrog moment – not about technology, but building on progress of the last 30 years by devising policies that give essential rights and dignity to the deprived majority.

Essential rights would start with a secure and safe food supply, adequate water and sanitation, basic housing, access to energy, primary education for all, health care and appropriate mobility. If all factors were aggregated as one indicator, more than half of the region’s population would be deemed disenfranchised.

The numbers are big: In India about 800 million people are without access to improved sanitation and 400 million have no access to electricity. Over half a billion across Asia live in slums, with the total projected to reach over a billion by 2050. Over 70 percent of the world’s malnourished children are Asian. Meeting these basic rights should be the priority of all governments without reliance on aid from the developed world. Otherwise, pronouncements about an Asian century hide a ticking time bomb.

The global financial crisis should trigger Asian governments to launch bold new ideas using the rise of Asia to address the core issue of human progress.

One possible direction is what might be called “fair-shares prosperity” – the deployment of capital, private and public, to create a positive impact as well as generating financial returns. Often referred to as “impact investing,” such  investments primarily help to build businesses and economic activity that deliver basic needs. These businesses are now often broadly called social enterprises though there is healthy debate about what qualifies. This is not utopian as it might first appear.

One example is the yogurt factory created in Bangladesh by a joint venture involving Grameen and Danone to address nutrition issues. Another example is a real estate developer in Philippines providing affordable housing. Other success stories include community food production and special needs education in China, health care for the rural poor in India, and renewable energy projects in India and Laos.

Such investments require two core principles: a commitment to investing in the real economy to address basic needs and no incentives to maximize profits by externalizing costs and underpricing resources. More investors and shareholders are beginning to see the need to include such investments in their portfolio – from established family businesses in Asia trying to protect long-term interests to financial institutions which recognize the need to move beyond leverage and find investments that meet the basic needs of the majority. Government recognition, facilitation and even legislation are critical in most countries in persuading banks, corporations and investors in China, Vietnam, Indonesia and other countries.

Fair-shares prosperity could allow governments, corporations and investors better ways to channel their financial resources, at the same time building legitimacy in an increasingly transparent world where old models and their failings are questioned. One target is social enterprises with explicit missions and sustainable development strategies. As a key barrier is often access to capital, management skills and technology, governments and investors need to work closely to ensure that incentives are aligned and this new asset class built.

With regard to capital, for example, governments can mandate that financial institutions allocate a certain amount to this sector.  In addition financial institutions in the region can nurture a new asset class for the creation of fair-shares prosperity. Private wealth units within banks can play a critical role by introducing their clients to the possibilities in this sector rather than promoting philanthropy. All of this would allow investors to move beyond the current trend of simply giving, even as core business activities rely on  practices that are socially and environmentally destructive.

According to a recent report, “Redirecting Asian Capital: Beyond the Margin” from  Avantage Ventures, a Hong Kong–based social investment fund in Asia, a commitment of around US$2.75 billion annually – 1 percent of the total inflows into the region in 2010 – would satisfy the funding need of existing social enterprises. By 202o the impact investment market potential would grow considerably, the report estimates: up to $4 billion for rural access to energy, $17 billion for water and sanitation, $50 billion for elderly health care and $33 billion for low-cost housing.  

Companies actively look at such trends. The motivation is to build new markets with niche products, diversify, attract new customers, align select business strategies with the priorities of Asian governments in meeting the most basic needs and simultaneously generate enormous socio-environmental improvements. Many executives view this as a more productive use of funds now allocated to charitable and corporate social responsibility budgets which are too often accused of creating spin.

Key to addressing these challenges is creation of an efficient capital marketplace through a combination of government policies and key players in financial markets and businesses in Asia. For those still unconvinced, another reason is reducing the risk of wide-scale social upheavals that could threaten existing assets and diminish expansion of business interests. 

Asia has no shortage of capital to build this new asset class for enlightened investors. High-net worth individuals, who generally prefer to invest money in the US and Europe, is one source. Governments in Asia should create incentives for them to invest regionally, but a marketplace built by pioneers requires a leap of faith. They could shape the sector rather than replicate unsuitable Western models. Social enterprises seeking investments – not donations include rural water supply projects in Vietnam and Cambodia, community agriculture in China and Cambodia, rural electrification in Laos and India, affordable housing in the Philippines, and health care in China and India.  

Now is the time for Asian investors, supported by governments, to brave the challenge and lead the way by investing money into ventures that lead to a more prosperous Asia, where wealth is shared fairly and thereby building societies which are more secure.

 

Chandran Nair is chairman of Avantage Ventures and author of Consumptionomics: Asia’s Role in Reshaping Capitalism and Saving the Planet (John Wiley, 2011). The author will field readers’ questions for a week after the publication date.
Copyright © 2012 Yale Center for the Study of Globalization

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