This paper was prepared for Global Investor 2000, an Internet-based conference sponsored by the London Stock Exchange. Note that the spelling conventions used are British.
I was very much surprised to be asked to contribute. I was the Executive Director of a non-profit humanitarian agency (now defunct) and was the only such person invited to take part. Apparently, other published work had caught their eye. I was given three months to prepare a paper, but frankly, I was too busy and just let it slip my mind. Then came the email asking for it by the next day. I could ask for an extension, but I felt guilty enough already, so I just sat down and wrote it in one multi-hour session and sent it off. I had thought about these issues enough that the words just flowed. I look back on it and, personally, I especially like the point I made about the war in Kosovo and the little-noticed shift in US policy, but that’s just me.
Note to the reader: This paper was prepared for an audience usually ignored by humanitarians. When not ignored, they are often criticized on the assumption that their only motivation is greed and that they have little or no interest in the social consequences of their investments. I know too many exceptions to that “rule” to ignore this important sector of global society whose cooperation is critical to the development of a peaceful global community. Although written more than a decade ago, it doesn’t seem all that dated to me.
Is that Man Over there with the Gun Aiming at You? – The Social Consequences of Global Investing by Bob Adams
In an interview with Business 2.0 magazine in August of this year, calling him the “pre-eminent business philosopher of the 20th century”, Peter Drucker was asked: “One of the seminal books that you wrote was The Age of Discontinuity. If you were to revisit that today, in this age of accelerated change, what would you write?”
He responded, “I don’t know, because I haven’t read that book for 30 years. I don’t read my old books, I write new ones. But I would put much more emphasis on demographics, much more emphasis on globalisation. Much more emphasis on the Internet, particularly on business-to-business e-commerce. What the new economy or new society will look like you can’t predict, but you can see certain trends and some things I believe you can anticipate. In the last 40 or 50 years, economics was dominant. In the next 20 or 30 years, social issues will be dominant.”
Globalisation is not a new process. It began many centuries ago and is only now concluding. Perhaps at some point in the future, a similar process will begin again beyond this planet, but that is unlikely to be in our lifetimes.
At this “final stage” of Earth’s centuries-old globalisation process, a new global elite is being formed. Congratulations! By virtue of being Internet-connected, globally invested, and attending this conference, you are a member of that elite! You have gained and/or stand to gain a great deal of wealth as a result, but you also are vulnerable to great losses, some or all derived from a failure to address social issues.
If you are going to be part of a leadership elite, you are going to be out in front. When you are out in front you make a wonderful target. I believe the first steps in reducing your vulnerability should be to confront potential errors in your perception of the globalisation process, its actors and their roles. I will present a few of those I have come across in my experience and look forward to hearing those based on your observations and experience. We cannot eliminate the potential for losses, but we can reduce it.
I would like to begin by discussing some barriers to understanding; generalizations that roll easily off the tongue, but which threaten an objective investment analysis. Let me begin immediately with one that I would find amusing if it was not so dangerous.
The Dangerous Illusion of “Safety in Numbers”
When I talk to investors, I frequently find that an exaggerated feeling of “safety in numbers” is a barrier to analysis. The global elite is made up of millions of global investors as well as millions of others who realize they have a stake in globalisation. Using a broad definition, including all those Internet-connected, all those who have travelled, lived, invested, and worked in another nation, plus those who plan to, we might suggest a “global elite population” of 400-600 million. That would be an extremely generous definition, but even at this level, there are still five and a half billion people outside the elite.
Still, the estimate is such a large number; it is easy to exaggerate its significance and to understate its dependency on the much larger majority. It can provide a sense of invulnerability, of the inevitability of the elite’s success and the futility of opposition. Something akin to this operated for a while in South Africa among some proponents of apartheid. It was a grave error in judgment.
That generous number above represents a very small minority of the global population. If we see ourselves as separate from the others, rest assured they will separate themselves from us. If we believe we are so numerous and so powerful that nothing can stop the process, rest assured that we will soon discover how small a group we are and how easily the process can be disrupted.
The Dangers of “Easy Assumptions”
Another step in reducing our vulnerability to the potentially negative social consequences of global investing is to confront some very common assumptions that may reflect reality some of the time, but are too dangerous for us to accept uncritically. Here are three that I find present in the thinking of some investors and which often influence their attitudes toward the importance of social issues to economic development in much of the world.
Those in control, have control. That is, a powerful elite is likely to retain control over their nation because they currently exercise great control. They may be backed by a powerful military, a well-organized and ubiquitous secret police, and centuries of tradition while faced with an impoverished, poorly educated, “unsophisticated” opposition. Surely, we can count on their maintaining control of social discontent under these circumstances.
Tell that to Mohammad Reza Shah Pahlavi. As far as power was concerned, Iran’s “King of Kings” had it all and his opposition so little that they were never expected to pose a serious threat. In late 1978, widespread demonstrations, strikes, and civil unrest broke out. Within a few months, the King of Kings fled Tehran and the “unsophisticated” took power. Those in control have control until they lose it. The point is simply that they can lose it, no matter how awesome their power at any point in time.
Incumbent politicians are savvy. If the current political leadership acts politically savvy, many people assume its judgment of the socio-political situation is accurate. In 1988, Augusto Pinochet, right-wing President of Chile, allowed a promised referendum to be held to either endorse his rule or remove him. He was removed. In 1990, Daniel Ortega, left-wing President of Nicaragua, ran for re-election convinced that he would win. He lost. Both men were considered very savvy politicians. Both had powerful national networks of supporters to inform them of the popular will. Both were supremely confident. Both had the power of the government behind them and used it. Both failed to understand the depth of their unpopularity and paid the price. Incumbency is no guarantee of good political judgment. If there are crowds demonstrating in the streets, it is wise to listen to them. If there are not, because demonstrations are not allowed, you have cause to be even more worried. The odds are good that a totalitarian or highly authoritarian state that suppresses dissent is a state with a volatile future.
The enemy of the status quo is your enemy. Many businessmen and investors were convinced that the South African political status quo prior to 1990 was essential to maintain the value of their investments. Their greatest fear was the release of Nelson Mandela from 28 years of imprisonment. They were convinced that Mandela’s release would immediately lead to a collapse in South Africa’s civil order. Their worst nightmare was the thought that Mandela might actually become the Head of State! That is precisely what happened in 1994.
There were widespread predictions of a civil war, the introduction of socialism, and a total economic collapse from many commentators in the investor community. They were wrong. Nelson Mandela reached out to the business community and led South Africa through a peaceful transition far more favourable to the future of business and investing than had been true under apartheid.
We all make assumptions and rightly so. Life would be far too complex without them. Nevertheless, when they are important to our investment decisions, we need to challenge them consciously. Each of those above, and others like them, has been used as a justification for ignoring social issues and their importance to global investment, yet each of them has caused global investors considerable pain on more than one occasion. If you are tempted to think one assumption applies in a given situation, challenge it anyhow and do so with strength.
The Transition to Global Community
In Red Herring magazine [September 2000], noted futurist Ryan Mathews was profiled. He was asked what might occur as the less advantaged arrived on the Internet. “When the Internet finally makes it to these people, they will begin to understand what they’re missing. When they see how the rest of the world is living, they’re going to be very angry. You cannot have this much social dysfunction forever. Today it may be possible for the rich to hide in gated communities while the poor are shunted into ghettos. In the interconnected world of tomorrow, when the underclass has access to innovations like Web TV, Internet appliances, and other inexpensive networking devices, no place will be safe from hackers who are so disenfranchised that they have nothing to lose by wreaking havoc on financial systems or telecommunications networks.”
Social issues are community issues. “Community” is a grossly over-used and often abused word, but essential to judging the social consequences of global investing.
The best way to avoid or at least minimize the potential for social instability alluded to above is for us to recognize the importance of community from the outset. The globalisation process has a community-building component that is often ignored as immaterial to an investor, but must be given very serious consideration.
The construction of a genuine global community, which I believe is clearly underway, is not the result of intention, good will, or accident. It is simply a result of current events. It cannot be avoided by ignoring it and it cannot be expected to disappear of its own accord. Let me offer just one example of how a growing sense of community can manifest itself without any of the participants being immediately conscious of it.
The political history of the United States has many themes, but one has been a constant from its conception to very recent times. Beginning with its first President, George Washington, there has been a conscious effort by the US government to avoid entanglement in foreign wars, specifically wars in Europe. Through its first 140 years, the US successfully resisted any thought of actively intervening in European wars. Despite Americans’ European ethnic roots, Europe was seen as a very distant, separate “community” whose internal problems had little or no effect on the US. When there were clear benefits to be had from a relationship to Europe, as through trade, they were eagerly sought, but when there was a danger of getting pulled into a war, it was just as eagerly avoided.
It does not require a university degree in American History to recognize that this aversion continued well into the 20th century. If we had to find two American leaders willing to testify to this aversion, they would surely be Presidents Woodrow Wilson and Franklin Roosevelt. Both Presidents had an extremely difficult time trying to convince Americans to enter either of the two “world” wars. They were both seen initially as primarily European wars, the very kind that Americans were committed to avoiding. What was called isolationism to some was seen as simple common sense by many.
I think it is fair to say that the history of World War Two demonstrates that Europe was almost lost to the Germans before America entered. Did it enter because of that? I think most historians would agree that the obvious crucial element was the Japanese attack on Pearl Harbour. In a matter of a few short hours, Asia went from a “very distant community” to a “neighbouring community” in the minds of Americans. Europe could hardly be thought of as distant if Asia was not. No one really needed to explain this sudden shift, it was self-evident and American “entanglement” in a war in both Asia and in Europe became an almost instant reality. Still, without that unexpected attack, it easily could be argued that World War Two would have had a very different conclusion. There was still no sense that the US was part of the same community as Japan and Germany.
Contrast all the above with US involvement in Kosovo. The Serbs never presented a credible threat to US sovereignty, thus it was truly a European war. It certainly seems sensible to assume that any “ethnic identification” Americans might feel with Europeans was even less a factor than it had been a century or more before. In both World Wars, Britain and its allies, with great difficulty, had had to convince the Americans to join them in Europe. In a bizarre twist in the case of Kosovo, it could be argued that the US had to convince Europeans to become actively involved in a European war! However one explains it, one thing is clear. What would have been unacceptable, even unthinkable, throughout prior American history became reality.
Surprising though that may be from the historical perspective, what was just as surprising was the negligible opposition to American involvement from within the US. Obviously, something very significant has occurred. I argue that, although the transition process is still underway and will take decades to complete, the American people now are beginning to see Europe not just as a “neighbouring community”, but as a “neighbourhood” of a common community.
Although that transition may be less visible with regard to Asia or certainly Africa at this point, the trends give every appearance of being the same. It works in reverse as well. The huge investments made in the US by others are less and less seen as “foreign” investments. They may not be referred to as “community” investments in the press, but that just might be a more appropriate identification.
We are not consciously creating a global community, it is simply happening and global investing is one more manifestation of it. Whenever a new community is created, there will be social issues and social consequences.
Some Potential Social Consequences of Global Community
This subject could easily justify a very thick book in itself, not unlike the subjects covered above, but this is neither an academic treatise nor even an attempt to cover the subject matter in detail. With that in mind, I would offer the following as examples of what I believe to a few of the social consequences resulting from the emergence of the global community, some of them avoidable at least in part.
1. A truly global elite is being created, it is a minority group and will continue to be so for some time, and you are a part of it.
2. You can expect the emergence of a powerful opposition to globalisation from those left out of the process as they watch the growing power and wealth of the elite, while seeing their own power and wealth, what there is of it, diminish.
3. As globalisation’s critics become “globalised” themselves through use of the Internet and the formation of Net-based organizations, they will become part of the global elite as well, but you can expect them to deny that.
4. The new global community and its tools, especially the Internet, will be subject to disruption by an angry opposition. The larger the opposition, the greater the extent and frequency of the disruption.
5. If the opposition is met with fear and anger, it will respond in kind, serving no one’s purposes.
6. One truly terrible potential social consequence of failed global community building would be a global “class war”. If we can understand the devastating results of prior class wars, we can understand the obvious importance of avoiding one on this scale. On the other hand, history demonstrates that otherwise intelligent people are quite capable of missing this point, no matter how obvious.
Ultimately, there are three primary social consequences, only one of which is guaranteed.
1. There will be confrontations, arguments, anger with, and opposition to the globalisation process and those who initially benefit the most, including the global investor. That is all but guaranteed.
2. Poorly handled, the community-building process will collapse in social chaos destroying everyone’s investment whether financial, social, political, or otherwise. At the very least, it can delay the benefits of globalisation for so long that you, the global investor, and your global investments will be long gone before the benefits can be realized.
3. Well handled, the community-building process can be successful, reducing the destructive impact of confrontation and taking us to the point where this process has always led in the past, the creation of a peaceful, productive community on a larger scale than ever before.
What is There to Do?
Oh, how I wish I could answer that question specifically, but that is not how the community-building process works. We are all in this together and we all have to contribute. I will make some suggestions as to how we should begin, but they will be just that, a beginning. I am neither qualified nor licensed to give specific investment advice and I am not about to start making that mistake now!
There is no sure way to avoid all potential problems, but there are ways to begin the search for risk reduction.
1. The very first thing I have to emphasize is the need for “empathy”, putting yourself in the other person’s shoes. Empathy may sound to some like a weak word, but it is actually a powerful tool and a necessity for a successful community-building process. Do not turn away from criticisms of globalisation, no matter how emotional they may be or how insulting or illogical you may find them initially. Remember what I said earlier, to be a leader is to be in front and thus alone and vulnerable. A successful leader does not assume he has a right to followers. He seeks them out and listens to their concerns.
2. As a result, recognize that the financial gains to be had investing in the new global community will only be enhanced by encouraging the positive engagement of all sectors of society in the process. Confrontation kills profits. Cooperation builds them. The gains offered to the general public must be real, not theoretical, and they must be in response to the public’s perceived needs, not the investor’s perceptions of what their needs “ought” to be.
3. In terms of your investments, demand that those you invest in take social issues and potential or current social discontent into consideration. Insist that they take the same approach as described in the two points above. If you do not want a class war, then the first step is to fight the tendency to create classes. If this is not expressed in your investing, your contribution is much less significant and you are left much more vulnerable.
4. In terms of your personal involvement, make any contribution you can to easing the potential for trouble. One step is to support efforts to bring as many people into the process as possible. Encouraging the widespread adoption of the Internet may have its problems, as Ryan Mathews suggested in the earlier quotation from Red Herring, but, as he also suggests, it is inevitable. If so, we might as well be involved and make the point that globalisation is meant for the whole community, not just the elite.
5. Finally, do not take any pride in being defined as a member of the global elite. The more an elite tries to preserve its status, the more likely a class war will be the result. If you want to preserve your “status”, spread its benefits to as many as possible. It is an old lesson that has been learned many times and forgotten just as often. Give and you will receive.
Invest in companies/countries that recognize the above. Beware of the three myths above: military power, a “savvy” incumbent, demonising the opposition. Support efforts to bring real benefits to the rest of the world from the global community-building process.
My experience is that investors are frequently one of the least likely groups to provide social activists. When the stakes and the potential rewards are as high as they are today, social action becomes a positive, valuable investment tool.
From the family to the tribe to the city state to the nation state, at each stage the community-building process has a proven track record of providing spectacular investment opportunities in comparison to whatever was traditional at that stage. Global investing is like any investing, it is a matter of risk as well as reward. As events this year in both the high tech and Internet markets have demonstrated, otherwise sophisticated investors can become so enamoured of the potential for reward that they blind themselves to the reality of risk.