The Singapore Management University (SMU) chapter of AIESEC, a worldwide student organisation, together with SMU Broadcast and Entertainment hosted a panel discussion in February 2007 on the topic, “Why does poverty continue to exist in Asia and what can society do about it?”

Part 1 of this two-part article provides edited excerpts of presentations by Stephen Young, executive director, Caux Round Table; Claire Chiang, senior vice president, Banyan Tree Holdings, managing director, Banyan Tree Gallery ,and president, Singapore Compact for Corporate Social Responsibility; and SMU political science professor Steven Ney. The panel moderator was SMU law professor Eugene Tan.

Tan: I would like to take this opportunity to welcome a very distinguished panel here today. The different strengths they each bring to the table will make for an enlightened discussion.

What is poverty? The international benchmark refers to [living on less than] 'a dollar a day'. Is the world really making progress in reducing poverty? In 1981, 40% of the world’s population suffered from absolute poverty. My understanding is that today the figure has been halved, but that still means that we have more than one billion people living in poverty. The first goal of the United Nations Millennium Development Goals is to halve extreme poverty and hunger by 2015. We crossed the mid point on 7 July 2007, but we still have more than one billion people who remain in extreme poverty. This has led some economists to comment that the Millennium Development Goals are “half crusade and half charade” even though numbers have gone down quite significantly over the last 25 years.

This reduction in poverty can be largely attributed to remarkable economic progress in China and, to a lesser extent, India. But Africa still remains mired in poverty. Paul Collier, an Oxford economist and author of The Bottom Billion, draws our attention to 50 failing states which he describes collectively as the “bottom billion”. Essentially, these states have resisted established strategies for reducing poverty. As Collier puts it very bluntly, “These states are not falling behind; they are falling apart”.

Why should we be concerned? Poverty does not just offend our sense of what is humane, fair and just, but poverty also makes the world a more dangerous place. The battle against global poverty has become a fight of necessity not simply because morality demands it, but because of global security as well. Just as poverty begets insecurity, the reverse is also true.

So without further ado, I now invite Stephen Young to begin.

Young: Chapter 5 of my book, Moral Capitalism, is about capitalism and poverty. I would like to make three points quickly, if I can. The first point is three numbers: 79, 500 and 50.

US$79 trillion was estimated by several McKinsey professionals as the total value of liquid capital stocks in the world in 2000 before the equity market dropped. It’s a huge amount of money. It grew from about US$20 trillion to US$79 trillion in 20 years, mostly private sector work through a process called capitalisation. US$79 trillion in liquid assets is more resources than humanity has ever had since the dawn of time. You take US$79 trillion and divide it by 6 billion and you get something like US$27,000 per head for every man, woman and child on this planet. Where is that US$79 trillion? It sits in about ten jurisdictions: London, New York, Switzerland, Tokyo, Singapore and a few other places.

The next number is US$500 billion. This is the amount of money one of our participants, Raymond Baker, in his recent book , Capitalism's Achilles Heel, estimates is flowing every year out of poor and emerging markets to join the US$79 trillion in the money centres. US$50 billion is roughly the amount of official development aid going back in. So, ladies and gentlemen, US$500 billion is flowing out, US$50 billion is flowing in. It doesn’t take a rocket scientist to figure out we’ve got a problem with poverty.

The second point -- a concept we at the Caux Round Table suggest needs to be thought about much more by people in development, by scholars, academics, business leaders etc -- is the notion of social capital. Our position is controversial, that the one and only thing that solves poverty is wealth. Poverty is fundamentally an absence of wealth. Wealth creation is what you need to get rid of poverty. There are two aspects: one, you’ve got to create the wealth; and two, to distribute it. There are all kinds of arguments about both but, fundamentally, wealth creation is the answer. You get the goose that lays the golden eggs and you get a lot of golden eggs. How do you get the goose? One of the arguments is that of the government versus the private sector, government versus the free market. It’s an argument we have been having a little after the dawn of capitalism in the earlier 19^th century. Many people assume that business is in the driver’s seat and that, if you want to solve poverty, you’ve got to get business and business leaders out there solving it.

We want to suggest that business and the market forces of capitalism are actually a derivative phenomenon. They are a secondary order, not a primary institution. What business and markets and wealth creation follow on is what we call social capital. Social capital is a number of things. Social capital is what this leadership set out to create first in 1965. By creating social capital what happened to Singapore? It’s got OECD standards of living in various ways. So, the third term is wealth creation, the middle term is social capital, and the prior term is who is responsible for creating social capital. Here we come down to government, public goods, public structures, all kinds of things.

My third and final point is, what about individuals? Who are the individuals in societies who have wealth and have access? How, under the rules of capitalism, can a poor person expect to become wealthy? What I suggest is that you manipulate time in three ways: debt, savings and education.

One, I borrow money which is taking advantage of time past. Two, with savings I manipulate time future. I somehow try to take out of my current consumption a certain amount of money and I put it back -- I save it. The critical thing about savings, and what many people in consumer societies don’t like, is it takes time. But what many people overlook is the power of compound interest. Put S$2,000 in a bank account and add S$2,000 to that each year. In Singapore you can probably get 6% return on compound interest. How many dollars do you have after a 40-year working life? It’s actually about S$1.3 million. Every one of you can become a millionaire before you die. Thirdly, education is the use of time. It is piggy-backing on time past, all the work you’ve done understanding, reading, things like that.

These three things manipulate time and they create capital value for the individual. If you increase your capital value and bring that to the community and society, you make some money.

Tan: I teach a course in ethics and social responsibility and I’m familiar with the sort of literature that talks about how businesses can do wonders to deal with global poverty. I take the view that the role of businesses has perhaps been exaggerated. It’s not because I’m sceptical about the strength of altruism, but I think my concern stems rather from the scope of what we call corporate social responsibility (CSR) of the business world vis-à-vis poverty. The real test of CSR is how viable altruistic motives are in a competitive market environment where competition is primarily motivated by profits. So long as we don’t change this paradigm that profits matter, I’m pretty sceptical about what businesses can do. But I think we can now benefit from the insights of Claire Chiang.

Chiang: When we talk about corporate social responsibility, it’s not about altruism, philanthropy or charity. The very understanding I have of corporate social responsibility is a value proposition that is not only sufficient but a necessary business imperative for the 21^st century. It is the kind of organisation that you, as future leaders, will have to build to be sustainable and competitive. It is not something you do extra out of profits. In fact your profits will depend on how you drive this value proposition through your organisations. So it is not a PR exercise, not something you do with your free time, not something to be executed by your human resources manager, not something you do as volunteer hours.

It should be very much within your own conscientisation journey. More, it should be in your management creed. It has to be an embedded corporate DNA value as much as it is your own. The top leadership has to walk the talk. What does that mean? You build the management infrastructure along these lines and have the values filter through even down to the gardener in your organisation. It’s not something you do to feel good. It’s really something you do to create real good. And that’s what it means -- change and empowerment.

Therefore, business to me is an incredible force for change only if we restrain and contain its excessiveness. How do we manage that? It’s for me [through] CSR. Somebody calls it corporate social responsibility with the triple bottom line of corporate governance, environment protection and quality engagement. The Shell Company calls it the three `P’s: people, planet and profits. The important thing is that businesses no longer are able to just play the role of wealth creation only for themselves and the shareholders. Businesses have to create wealth for their stakeholders who include the community, consumers, partners, investors, you and me. It must be an integrated perspective that looks at business playing a role in creating real good for the people. I challenge you therefore to rethink, as leaders of the future, what kind of values you should learn.

I would like you to look at one area of work which is social entrepreneurship. For me, that is the third sector of future development where profits, planet and people can be integrated. You can make profits and still feel good and you really will do good. Social enterprise is the big thing that is going on in Singapore, but we haven’t found quite how to do it and we haven’t quite found the people to execute it.

Tan:  In Singapore, social enterprise is seen as the way forward. In fact, I think the Singapore government has viewed it as a form of corporate social responsibility for businesses to get involved in social entrepreneurship and social enterprise. But it remains to be seen. You can certainly use business principles in trying to make enterprises with a social concern and non-profit motive sustainable. But I think the larger concern is really how to keep society cohesive even as incomes are pulling apart, even as businesses demand a business-friendly environment. Professor Steven Ney will talk about some of threats to social cohesion.

Ney: The first thing I would like to talk about is the causes and solutions to poverty. While it may be true that the causes of poverty can be straightforward, i.e. the absence of wealth, I’m not totally convinced that the solution to poverty is just to replace it with wealth. Poverty is just not the absence of wealth. Poverty creates dynamics, practices, norms, ways of living that create institutions which perpetuate the reasons for poverty. Let me give you an example. If your family is too poor to send you to school, you won’t have the schooling that gives you the means to hoist yourself out of poverty. If your family is too poor to afford a doctor’s bills when you’re small, your life expectancy will be lower.

The intervening variable between what causes poverty and what solves it are institutions. Institutions matter. It’s very good that Stephen pointed out social capital. Amongst social scientists, social capital has a very definite meaning and I wonder whether it’s the same one. It’s institutions that create social capital, that create what it means to be a wealthy society. These days wealth is really abstract because it is based on institutions, these recursive practices. If we have bad institutions, we won’t have an end to poverty.

What types of institutions are we thinking of? Are they institutions that create social capital? These institutions or institutional arrangements – they exist in Asia but most are in Europe – mediate between the big abstract institutions of society, the family, the market, the state. They create an institutional assemblage that directs the wealth, creates the goods and services, the norms and recursive practices that make up a wealthy society. This is what welfare states are. They are the institutions that mediate between fundamental institutions and create social capital. Welfare states are just ways of organising the relationships between the state, market and family. Each country has done it differently. Here in Asia, welfare states are less market as the family mostly provides this social welfare.

Now, there is a more fundamental reason as to why we need the welfare state. Poverty deprives us of the capacity to fulfill the things we need to do to be citizens. In my mind, poverty is fundamentally incompatible with citizenship because citizenship presupposes that we have the capacity to do certain things. It’s those capacities, for instance to read or write, that are undercut by extreme poverty. If we are serious about creating societies in which everyone is a citizen, what we need are the recursive practices or institutions that allow people to be citizens.  

Tan: I think the whole notion of the welfare state, as providing a sort of social safety net, is something which the Singapore government is trying to consider. Perhaps behind the anti-welfare rhetoric is concern about how to keep society cohesive even as incomes are pulling apart.

To read Part 2 of this article click here