Thursday, April 24, 2008

Poverty ... not because people are poor, but because the system is dysfunctional

Dear Colleagues

One of the characteristics of Dr. Yunus's work has been the fact that he does not see poor people as being the cause of poverty, but a poor system ... a dysfunctional system ... as being the cause of people's poverty.

Why ... he has asked ... is it that people working very hard for very long hours have little of value to show for it at the end of the day. His answer, as I understand it, is that the system makes it impossible for them to keep much of the reward of their effort for themselves.

Over the last 150 years, the United States was at the forefront in terms of making ordinary people full participants in the economic opportunities of the country. Hard working entrepreneurs and labor collaborated in building wealth ... and the country progressed enormously. It was not all comfortable cooperation, and not everything was right ... but there was impressive progress in many ways.

The bottom billion has never seen anything like the opportunity and the collaboration between entrepreneur and labor that gave the Unites States its prosperity. Instead, most of the world's poor are confronted with economic and governance systems that ensure a poor and brutish life ... but it need not be this way ... it should not be this way.

Dr. Yuynus, and people like Dr. Yunus, have started to bring opportunity to poor people. If this can continue, and grow, the bottom billion will start to progress for everyone's benefit.

But the system has also got to be addressed. For the past half century the business schools have taught analysis that only has had one dimension ... entrepreneurial profit and how to maximize stockholder value. The social dimension of economic activity is not in the curriculum ... and now it is showing.

Social Benefit Accountancy ... or Community Impact Accountancy ... is needed so that decision makers can start to prioritize the allocation of resources so that there is the maximum of good community impact and social benefit as well as reasonable reward to stockholders and other financial stakeholders.

This is urgent ... second rate teaching of economics and business over fifty years has done a huge amount of damage, and it will take a lot of effort to change the focus. How many expected that the sub-prime meltdown ... that became a banking and finance meltdown ... and may yet become a dollar currency meltdown ... and an inflation crisis ... and an energy crisis ... and a food crisis ... and a perfect storm of everything bad would every happen. But it is happening.

If the analysis is about identifying critical needs ... allocating resources to work on these needs ... that puts everyone to work on critical needs of value ... then there can be a rapid rebuild of the global economy. If, on the other hand, the analysis stays focused on building "my wealth" ... in my view of the situation, "wealth" will evaporate into thin air, and poverty will expand rather as it did in the 1930s.

We are at an important fork in the road ... Community Impact Accountancy ... ought to be the basis for a new GAAP.


Peter Burgess