The IRIS Of Economic Growth.

     It is steeped in legend that the great Chinese philosopher Lao Tzu once said, "A journey of a thousand miles begins with a single step." And yes, of course I had to begin with a Chinese quote.

     Well, this journey of more than a thousand miles began on a lazy Christmas afternoon, even as the world was soaking in the Yuletide spirit. Two movies had reeled past and I needed something to alleviate the boredom that had set in. Preparing for campus placements was one option but seriously, who does that? After all, boasting about your track record, knowing some technical aspects from the domain of finance and backing all that up with some worldly knowledge and happenings from the world of business are essentially the concoction that impresses any interview panel. And of course, prophesying a potential M&A deal or suggesting a promising stock tip ensures that by the time the interview is over, the panel is eating out of your hand and you are, literally, The Chosen One. But you didn't hear any of that from me.

     I seem to have digressed. Even as I was wondering what I could set about doing, my mind wandered back to the Christmas of 2014. Work, assignments and projects were streaming in and so were a few competitions. Two of those competitions seemed extremely alluring; one promised a 2/5 chance of travelling to Manila for the Asia Pacific finals of the CFA Research Challenge (we had already won the West Zone finals and the National finals were upcoming, with the top 2 teams heading to Manila) and the other promised a one in many thousand chance of travelling to Switzerland to take part in a symposium. To cut a long story short, I chose the former, one thing led to another and Manila stayed several thousand miles away, as did Switzerland.

     Over two decades may have elapsed since The Lion King took the world of cinema by storm but without a shadow of a doubt, it continues to remain the best animated movie of all time (take that, Frozen!). Incidentally, the musical on Broadway in New York City is another experience altogether. Besides being the sexier rendition of Hamlet, The Lion King is a movie for all ages and its life lessons are both inspirational and educational (honestly, who could have thought that the 'Circle of Life' could run so deep?). And of course, there is that one epic quote by the sage - like baboon shaman, Rafiki, which continues to resonate, long after the closing scene on Pride Rock. It goes a little something like this. 

     "Oh yes, the past can hurt. But the way I see it, you can either run from it or learn from it."

     Well, on that soporific Christmas afternoon, I had nowhere to run so I thought I'd redeem that fateful blunder of 2014 and give the other competition a shot, this time around. Life, sometimes, does give you a second chance. And no, that isn't just a corny line plucked from a romcom. 

     Since 1969, the St. Gallen Symposium is an annual affair that descends upon the sleepy canton of St. Gallen in Switzerland in May. A Mecca for the elite of business leaders, politicians, scientists, entrepreneurs and students from around the world, the Symposium fosters the exchange of perspectives, thoughts and ideas across generations and disciplines. It's essentially the summer version of the Davos Summit that also encourages the debate of future issues. 

     The St. Gallen Symposium essay competition, conducted by the International Students Committee of the University Of St. Gallen, was live and it sought answers to the question, 'What are the alternatives to economic growth?'. Well, I registered for the competition, which was the easy part and then got down to penning the essay, which I soon realized, was the far from easy part. 

     For over ten days or so, different ideas presented themselves but nothing seemed to be a deal - clincher. 2016 rolled around and a February 1 deadline was looming large. At last, with a little over three weeks to go, a really promising school of thought was set in stone and the essay started shaping up around it. Many a sleepless night went by in writing and re - writing, refining and perfecting what seemed like a logical thought process. Adhering to a 2100 - word limit, however, was a major challenge. For good measure, I added my own framework to the essay, just to ensure that the substance in the essay was backed by a tad of style. 

     Why the element of style, you might ask? Well, quoting the doyen of French fashion, Yves Saint Laurent, "Fashions fade, style is eternal."

     And yes, www.corporateprophet.blogspot.in bore the brunt of my new found obsession, with the flow of blog posts being reduced to a trickle, even as all my writing time was dedicated to that one essay. On February 1, I sent the essay on a cross - continental, one - way trip and heaved a sigh of relief as I could finally resume my fast - paced, adrenaline - filled daily existence.

     Nearly two months later, an email landed in my inbox declaring that my essay had been chosen as one of the Top 100 globally for the St. Gallen Wings Of Excellence Award, earning me a participation at the 46th St. Gallen Symposium, as a 'Leader Of Tomorrow'. The Symposium, slated for the second week of May 2016, is centred around the topic 'Growth - The Good, The Bad and The Ugly'. Some of the speakers lined up for the Symposium include the CEOs and Chairmen of Nestle, Maersk, Credit Suisse, Swiss Re and GlaxoSmithKline, the Prime Minister of Luxembourg and closer home, Aditya Ghosh of IndiGo. Incidentally, did I mention an all - expenses paid trip to oh - so - sexy Switzerland and by far, the absolute perfect way of culminating an MBA?

     Well, here it is. An essay that was excruciating to say the least but at the end of the day, the payoff for which was well worth it! An alternative to economic growth, called 'The IRIS Of Economic Growth'. 

     Oh and to conclude, here's another life lesson from The Lion King. It goes a little something like this. "Hakuna Matata!"

The IRIS Of Economic Growth.

     In today’s global business environment, the elements of volatility, uncertainty, complexity and ambiguity (VUCA) have become the order of the day, with crises emanating from different regions – the United States in 2008, the Eurozone in 2011 and China in 2015. Worldwide, commodity prices continue to hit new lows, currencies slide further, industrial production decelerates, bourses remain volatile, central banks continue to keep economies chugging along by loosening money supply and it still is anyone’s guess as to whence the next bout of economic shock would emerge. Yet, even in these turbulent times, economic growth continues to be the Holy Grail that every country lusts after, the perceived panacea to the global economy’s obstacles. Economic growth, however, is hardly a new phenomenon or object of desire, having always been present in one form or another. But what are the alternatives to economic growth? Before answering that question, it would be prudent to observe how economic growth has evolved over time.

The Evolution Of Economic Growth.

     Ever since ancient times, every empire worth its salt would hunger for new lands to expand its borders and become a regional powerhouse. Seers tracked population growth, grain production and the growth in trade. Increasing counts signalled growing empires, as did coffers that brimmed. For several centuries hence, it was the primary sector that sustained most countries’ populations, nudging the global economy forward. Agrarian economies measured growth by way of increasing harvests, more land under cultivation and a greater taking for their produce. It was only in the nineteenth century that economic growth was sparked off globally by the Industrial Revolution. For over a century, all the way leading up to the World Wars and beyond, manufacturing drove economies and became the growth engine for several countries, such as those in Europe and the Americas, while the rest of the world was relegated to producing commodities and raw materials that fed their industries. In the 1970s, the baton was passed to the tertiary sector, which began to grow in size and scale, employing more people, commanding greater investments and contributing to the lion’s share of several economies’ output. In fact, services have become so entrenched in the global economy that it was technology and banking that caused the two most debilitating economic crises of the recent past, in 2000 and 2008 respectively. In today’s world, while agriculture and manufacturing still contribute 6% and 30% of global GDP, the tertiary sector, spurred by the recent advent of the digital revolution, contributes over 60% and still exhibits the fastest growth, a trend that would persist for the foreseeable future at least. All along, the focus has been more on the economic aspect and less on the human aspect.

The Economic Growth Of Today.

     Economic growth has today assumed a stature of unparalleled significance, especially in the face of the economic turmoil that persists. While the same economic growth may have its alternatives, it has its impacts and effects – both positive and negative. Economic growth is a blessing when it drives investment to further development, which goes on to create employment and multiply income levels. Living standards, healthcare and education systems all rise to nurture the growing population. Increasing tax revenues fuel more growth, while corruption and bureaucracy temporarily take a back seat. Trade grows, economies interlink and nations develop into local and global powerhouses in their own right.

     Despite this seemingly utopic scenario, economic growth has almost never played out as perfectly. On the flip side, economic growth has broadened the chasm between the haves and the have – nots, while causing an influx of migrants to the urban areas, leading to overpopulation and the proliferation of slums. Easy money and excess liquidity go on to drive inflation, making it harder to make ends meet. Exploitation of and strain on natural resources is a given. As more and more countries compete on the trade front, governments impose stringent taxes, duties and other protectionist measures. The evils of economic growth include the contagion risk, hyperinflation, flight of money to tax havens and increased risks of wars breaking out as countries try to assert themselves on the global front.

     Evidently, a common thread runs through all these observations. Economic growth, across the globe, is considered the primary objective, while human capital or the appropriately named ‘Human Development Index’ is only viewed as a consequence or by – product. The benefits of economic growth do flow through to the citizens of the country, albeit belatedly but so do the ill – effects. Considering the above, it would be prudent to pose a pertinent question. Why not focus on the development of human capital as a priority? At the same time, this would also address the $64000 question, or should I say, the $108 trillion question. What are the alternatives to economic growth?

The IRIS Framework.

     Instead of giving a solitary focus to economic growth, it would be wise to drive human development on a global scale. The growth of human capital and not just economic growth could indeed be the solution to the problems that countries face today, ranging from economic to political to social. The UAE, for example, which has a very high HDI ranking, was the least affected by the Arab Spring that rattled the Middle – East and clocked a laudable 4.6% GDP growth in 2014, despite skidding crude prices. Ultimately, what is imperative is that economic growth, as a result of superior human capital, would turn out to be inclusive, resilient, innovative and sustainable – the IRIS framework.

     Investing in human capital to drive economic growth would provide better returns over the long term than expecting economic growth to drive human development. Take China, for instance. The lion’s share of its investments was directed towards creating infrastructure and industry, rather than investing in its population and the current slowdown is largely on account of weak demand. A Chinese recovery from here on would largely be driven by increased domestic spending and growth from the hinterlands, which could have been achieved by investing earlier in its people.

     At the end of the day, if the same society does not enjoy a better standard of living tomorrow, economic growth would be for naught. In order to dissect how the development of human capital would apply to driving economic growth, each component of the IRIS framework needs to be examined individually.

Inclusiveness.

     Human capital should be invested into so as to include all strata of society and not just for the benefit of the wealthy. While uplifting the poor, the government ensures a better standard of living to all. Singapore, for instance, has a high standard of living as the government handles the housing, education and healthcare systems, which are accessible to all and rank among the world’s finest.

     Inclusiveness is a necessity in the healthcare domain as the majority of the population in most developing and underdeveloped nations do not have access to quality healthcare. Governments need to involve healthcare providers and generic pharmaceutical majors to provide low – cost healthcare to the poor. While government hospitals are an existing solution, government incentives to more efficient private players who can offer low – cost services and set up facilities in rural areas is a way forward. Education is another area with huge scope. While penetration remains low, technologies such as e – learning and virtual classrooms, as well as volunteer teachers can be used to ameliorate the same.

Resilience.

     It is imperative that human capital be developed to resist all adversities – diseases, lack of education, poverty and unemployment. If the human capital is adequately resilient to these evils, the same human capital would contribute to the economic upliftment of the country, so much so that its economy would be more robust and sturdy. The Human Development Index (HDI) has consistently ranked Norway, Australia and Qatar in its upper echelons. Consequently, it is of no surprise that these countries were amongst the least impacted during the financial crisis that resulted in 2008.

     Governments around the world are doing their bit but there is a long way to go. India, for instance, has launched a nationwide ‘Swachh Bharat’ (Clean India) campaign, to increase sanitation and cleanliness. A lack of sanitation facilities, common across most developing and underdeveloped countries, takes its toll on healthcare and education, as diseases are rampant and children do not attend schools respectively. Governments can launch schemes such as providing mid – day meals, oral and personal hygiene campaigns, all of which would serve the purposes of improving nutrition, encouraging children to attend school and reducing healthcare spends, especially in the rural areas.

Innovation.

     The third component of the IRIS framework involves making the human capital of the country innovative and dynamic, in order to capitalize on the current economic trends and more importantly, create new avenues of growth for the economy itself. Skill development initiatives by governments, especially in the technology and digital domain are vital to impart the requisite technical knowledge and skills that would help individuals ride the growing digital wave. The start – up culture and disruptive technologies have taken several industries by storm and given that these would be prominent features of the global economy, children can be introduced to the domain from their school days itself via a universal curriculum that incorporates the same.

     Cash rich governments, along the lines of sovereign wealth funds, can also set up funds to promote promising, home – grown start – ups that operate in industries which the government wants to actively develop, such as healthcare and education. Furthermore, similar to carbon credits, an international system of credits can be implemented for improvements in human capital or human development, which could be judged on parameters such as literacy, income levels, health coverage and reducing unemployment.

Sustainability.

     Any investment to develop a country’s human capital should be done on a sustainable basis, keeping the long term time frame in mind. Governments have attempted this in the past but most initiatives have not succeeded. The USA, for instance, tried to promote home ownership on a large scale but what ultimately resulted was the sub – prime mortgage crisis. Greece’s liberal pension system was one of the main causes of its debilitating fiscal crisis. China, in the past few years, tried to democratize stock ownership but what resulted was a 150% rise in the index and a near – 40% crash in 2015, which wiped out retail investors’ savings and triggered a massive global sell – off.

     While these moves were noble in their intent, they weren’t sustainable. In order to ensure sustainability, development is needed at the bottom of the pyramid. Microfinance is an area that offers immense potential in this regard. Government banks can capitalize on the vast potential by offering low – cost credit to small entrepreneurs who lack access to banking channels, in turn enabling them to compete in the local market, enhance their income levels and their standard of living. In terms of income levels, governments must ensure national compliance to a minimum wage, in order to ensure that its citizens can meet their basic needs, even in the worst of times.

     It cannot be stressed enough that sustainable development is essential to meet the needs of the present as well as conserve enough resources to meet those of tomorrow. For instance, potable water is a vital need and estimates suggest that by 2025, nearly half of the world’s population would be starved of it. The demand for food is also likely to outpace food production. Promoting water harvesting and recycling, as well as increasing soil fertility through organic farming would all yield results.

     Governments ought to encourage local sourcing by foreign companies and provide tax incentives to set up production facilities in backward zones to provide local employment and encourage development. Moreover, countries which have stagnant economies and falling birth rates coupled with ageing populations would have no alternative but to attract talent from overseas by offering them citizenship and better living standards. This, however, must be done in sustainable measure or a refugee crisis, à la Europe in 2015, could erupt. The long – term sustainability of the human capital development is the most crucial need.

Conclusion.

     Using the four components of the IRIS framework, human capital development would be the way forward and an alternative to economic growth. Just like the iris controls the pupil of the eye, the IRIS framework would help develop human capital, driving economic growth. In conclusion, the IRIS framework of human capital development is not just an alternative to economic growth; it may just be a whole new way of looking at the world.