In our daily lives we are bombarded by offers to get more for less. And we respond accordingly as we strive to balance our household budgets. This saves us a few dollars here and there, perhaps hundreds of dollars on a big-ticket item, and we get to feel good about ourselves and our financial skills.
This is a question that is difficult to answer.
As practitioners we often focus our attention on operational efficiency. What were this year’s costs compared to last year’s? Is efficiency increasing or decreasing? There are suites of tools to give technical comfort to back up such assessments – from simple ratio analyses through to more sophisticated approaches such as econometric modeling and Data Envelope Analysis.
But what about capital efficiency? The assessment is not so simple as, in most cases, this is a prospective assessment – that is to say, a comparison of what was spent compared to a hypothetical of what might have been spent. It is rare to have a side by side comparison. Yet in the water sector, annualized capital costs can be equal to the annual operating costs. So, when we focus on operational efficiency, we are in fact only looking at half the story.
At the same time, we talk about mobilizing more finance to fill the gap between historic investment levels and projected investment needs. Yes, there will always be a financing gap in all countries around the world. However, whilst thinking about bridging that financing gap (“Maximizing Finance for Development” comes to mind), shouldn’t we also be thinking about how to reduce the financing gap by being more efficient in our use of capital?
"You can commit to what you control; if you commit to what you don’t control, you are just a fool.”
- Tidjane Thiam, in response to criticism of his new plan for Credit Suisse. Rather than dramatic restructuring seen at other banks, Credit Suisse will reduce the amount of risk-weighted assets by about a fifth and raise equity through a combination of increasing capital by $6.3 billion from sales of shares, scaling back investment banking, slashing costs and a modest shake-up among senior management.
Thiam is a French Ivorian businessman and former politician who became the Chief Executive of Credit Suisse in June 2015. Born in Côte d'Ivoire, he holds dual Ivorian and French citizenship.
Inequality is of concern for at least three reasons. First, lower inequality per se is an objective for a decent society. Second, lower inequality improves the efficiency of economic growth in achieving poverty reduction. Third, high inequality impedes growth itself, through its impact on social cohesion and the investment climate.
These are some of the views and reports relevant to our readers that caught our attention this week.
Facebook’s Gateway Drug
The New York Times
SILICON VALLEY was once content to dominate the tech world. But recently, its leading companies have ventured deep into areas well outside its traditional bailiwick, most notably international development — promising to transform a field once dominated by national governments and international institutions into a permanent playground of hackathons and app-fueled disruption. To observe this venture humanitarianism in action, look no further than Internet.org, a coalition of Facebook, Samsung and several other large tech companies that promises to bring low-cost Internet access to people in underserviced parts of the world, via smartphones.
New World Order, Labor, Capital, and Ideas in the Power Law Economy
Recent advances in technology have created an increasingly unified global marketplace for labor and capital. The ability of both to flow to their highest-value uses, regardless of their location, is equalizing their prices across the globe. In recent years, this broad factor-price equalization has benefited nations with abundant low-cost labor and those with access to cheap capital. Some have argued that the current era of rapid technological progress serves labor, and some have argued that it serves capital. What both camps have slighted is the fact that technology is not only integrating existing sources of labor and capital but also creating new ones.
If the global financial crisis -- and the events that led up to it -- have taught us anything, it is,“No complacency with asset price booms”. We know first hand the dire consequences of bubbles, so it is clear monetary policy makers can no longer passively observe the evolution of asset prices. If an economy is to pursue macroeconomic and financial stability, they should coordinate with financial supervisors – in an economic marriage of convenience – to ensure financial regulation and monetary policies are complementary, and implemented in an articulated way.
Decentralization in many countries has given subnational governments certain spending responsibilities, revenue-raising authority, and the capacity to incur debt. Furthermore, rapid urbanization in developing countries is requiring large-scale infrastructure financing to help absorb influxes of rural populations. Not surprisingly, the subnational debt market in some developing countries has been going through a notable transformation.
I recently returned from travel to India and East Africa where I attended a round table on social enterprise with the Government of India and met impact investors focused on Kenya, Tanzania, Rwanda, and Uganda. After listening carefully to entrepreneurs, investors, and government officials, I’m compelled to say something entirely inconsistent with conventional wisdom in the world of impact investing: there is not enough capital to support the pipeline of enterprises focused on solving our most vexing social problems. By social problems, I mean the provision of basic goods and services to the bottom of the economic pyramid where governments and markets often fail.
Take access to energy for example or access to sanitation in much of Africa and South Asia. More than 1.3 billion people on the globe still lack access to electricity and over 2.5 billion lack basic sanitation. Every 20 seconds a child dies because of poor sanitation.
These are public goods and unambiguously the responsibility of public actors. But in reality, governments often don’t have the resources, the will, or the capacity to provide these basic services to many of their citizens. And purely commercial enterprises lack incentives to provide services where financial upside is limited and the ability of poor people to pay is constrained. But this is precisely where inclusive (or socially driven) businesses and social entrepreneurs, for profit and not-for-profit, are innovating and developing new business models to solve our most pressing social challenges.
Concepts derived from structural-change theory are being revived and debated in exciting new ways, as evidenced in a recent conference at the World Bank earlier this month on ‘Structural Transformation and Economic Growth.’ Top researchers presented new papers and new ongoing work that covered globalization and structural transformation, sectoral diversification and human capital, industrial policy, and country case studies.
The conference revealed an important emerging consensus about the role of the government in providing both soft infrastructure (for example a conducive business environment, regulations, and legal system) and hard infrastructure (such as port facilities, highways, telecommunications, and power). Indeed, few dispute that broad-based interventions to support industrial upgrading and diversification are crucial to facilitating structural transformation and to spurring sustainable growth.