South Africa Edges Out Indonesia in Several Ways, Including Readiness to Seize Global Manufacturing Opportunities

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In a McKinsey Global Institute Report on South Africa from 2015, advanced manufacturing is named as the country’s top opportunity. The report’s estimate is that advanced manufacturing alone could add 540 billion rand to GDP and 1.5 million jobs by 2030.  To me, this begs another question: do they have the infrastructure and capacity for this? In the same report, McKinsey argued they do have the capacity and that they are committed to capacity expansion through infrastructure spending. In fact, they showed that their infrastructure is double Mexico’s (4.9% vs 2.5% of GDP).

As a final take-a-way from the report, the reports creators contended that, “South Africa has a good environment for business compared to its peers”. It’s key peers based on the report, as well as many key factors on the Competitiveness Index, are Indonesia and Mexico. Mostly, Indonesia. So, which of the two is the better investment?

At this point, South Africa performs better than Indonesia (not to mention Mexico) on a handful of metrics that are important to FDI, and especially investment in manufacturing. Based on data from the World Economic Forum’s Global Competitiveness Index, the two countries are relatively similar in respect to their ‘enabling environments’, but South Africa edges out Indonesia on infrastructure (64th vs 71st). Infrastructure is critical to effective manufacturing, and it’s one of the reasons China’s Guangdong region has been the world’s factory. Considering that South Africa and Indonesia are both a long distance from most large export markets, it’s important that their railroads, roads, and ports are conducive to smooth transportation. South Africa is better setup in these regards. In fact, the country has the 11th most airports and 13th most railway in the world. Interestingly, South Africa also maintains a strong lead in a head to head comparison of labor markets, at 55th vs. 82nd. Most importantly from an investor perspective, the financial system of South Africa is better than Indonesia’s. It is among the best in the world, at 18th, meanwhile Indonesia’s ranks at 52nd. Correspondingly, the value of publicly traded shares in South Africa are the 16th most in the world.

Additionally, I believe the effects of climate change will have a slightly worse effect on Indonesia, and it’s future economic capability, than on South Africa. Indonesia is made of 18,000 islands, many of which are inhabited and disappearing. Furthermore, even Jakarta faces critical challenges, including that it’s sinking.  While climate change may exacerbate droughts and water issues in South Africa, with good governance, their issues can be more easily solved than Indonesia’s. Furthermore, a look at both countries exports (see the images below from MIT’s Export Atlas) reveals more endangerment to Indonesia and easier opportunities to capitalize on for South Africa.

Both countries are decently diversified for emerging markets, but both continue to rely a lot on resource exports. Indonesia’s big carbon industry may soon be in danger, as the world shifts away from carbon emissions, which even Indonesia is committed to, via the Paris Agreement.

Furthermore, as the effects of this shift take place, the demand for green technology and battery-powered automotive’s will continue to grow. 6.6% of South Africa’s exports are already cars. They may well be situated for international auto manufacturers to take advantage of low wages, a large labor supply, and solid infrastructure to expand the industry. Outside of the auto industry, South Africa has a handful of other export types that involved more complex manufacturing, such as centrifuges. The country has a solid base to build on.

Overall, South Africa appears ready to grow over the next ten years. While Indonesia offers great opportunity as well, South Africa’s infrastructure, labor market, and financial system are more attractive. Moreover, South Africa’s characteristics orient it to take advantage increasing manufacturing opportunities. Furthermore, by involving a higher percentage of its population in its economy, especially through the engine of manufacturing, it can activate another aspect of the Cobb-Douglas equation other than capital stock, which the South African Reserve Bank shows has driven most of the country’s TFP since 2001. Increases in labor can not only help the specific type of investments I am recommending, but they can also further a virtuous cycle of development in South Africa.

Optimism for South Africa's Next Decade

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Much of South Africa’s future hinges on its much-anticipated leadership change from Jacob Zuma to Cyril Ramaphosa. Ramaphosa looks to be the man who will be voted into power in spring 2019. Jacob Zuma’s disastrous presidency was mired in corruption, a true travesty for South Africa. Zuma was finally pried from power in 2018 and now deservedly faces prosecution. The Economist called South Africa’s last decade the ‘lost decade’. According to the Economist, under Zuma, GDP gradually declined while gross public debt steeply increased. Despite how Zuma’s mismanagement degraded confidence in the ANC party, most expect ANC’s Ramaphosa to win.  In a 2018 poll, 60% of people said they would vote for him. His campaign directly attacks Zuma’s corruption and mismanagement. Craig Botham, Chief Emerging Markets Economist at Schroders, says, “If you’re prepared to bet on Ramaphosa managing that [corruption and mismanagement], South Africa could be a good place to put your money.”

Ramaphosa seems to be a good bet on paper, especially because of the context he would take power within. Ramaphosa was once the supposed man to take over for Nelson Mandela. He has the credentials for the job – he’s a successful manager of his own company and has been helping lead the ANC party for three decades. Additionally, I believe the country will be insulated from risk of further cronyism due to the pressure upon the new president following Zuma’s exit. Ramaphosa’s number one message is rooting out corruption. The level of anger from citizens, not to mentioned investors, from the lost decade, is enough to keep Ramaphosa’s leadership on course over the coming decade.

South Africa can capitalize on the global shift in manufacturing. As wages continue to rise in China, manufacturing is finally moving away from the Guangdong region to the rest of the world. A confluence of factors in South Africa make it likely to see burgeoning manufacturing in the coming years. Beyond a change in leadership, South Africa has an excess of labor. Manufacturing is the country’s opportunity to put the  27.5% of the population that is unemployed to work.  As a comparison with other manufacturing peers, the unemployment rate is 3.4% in Mexico and 5.5% in Indonesia. Many in South Africa are desperate to work and to escape from poverty. They live in one of the world’s most unequal societies, but they can’t currently get onto, let alone climb, the economic ladder. Manufacturing is their opportunity.

Mexico May Be Set to Outpace Brazil, During a Time of Perpetuated Populism in Latin America

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If there is one region of the world most closely perceived with populist politics it is Latin America. From Che Guevara in the 50's and 60's to more recent leaders like Ecuador's Rafael Correa and Bolivia's Evo Morales, populist leadership south of the U.S. is the norm. Elections in 2018 saw Jair Bolsanaro and Andres Manuel Lopez Obrador (AMLO) take power in Brazil and Mexico, respectively. While they both continued the populist trend, their political approaches came from separate camps, befitting of what was seen as a necessary response to the current establishments in both countries.

Mexico's AMLO is a life-long politician. He ran on a left-winged platform within a party he created, the Movement for National Regeneration, that challenged the entrenched political establishment in Mexico. In Mexico, of course, that means being a challenger of the Institutional Revolutionary Party (PRI), which has held power most of the last century. AMLO's leftist ideals threaten the capitalist approach Mexican elites have built since the 1970's. In Breakout Nations, Ruchir Sharma explains that privatization in the 70's meant effectively handing over industrial power to a few rich families. Since then, those exact same families have remained at the top of Mexico's billionaires club list. So the riches of the rich have grown at high rates, but Mexico's economy has remained at 2-3.5% rates. That is partly due to the fact that Mexican tycoons have turned from their people and put attention in profit-enriching opportunities outside of the country. In turn, Mexicans have been passed by Brazilians and Chileans on an income per capita basis. For these reasons, it's not surprising to see AMLO's leftist platform, which includes halting $13 b construction plans for a new airport in Mexico City and closing off the oil and gas industry to foreigners, capture the attention of the Mexican people. After his inauguration, he took a page from the book of Jose Mujica, and rode away in a simple car, instead of a fancy bullet-proof limo with security detail all around. He's a man of the people, but will he be able to get things done.

In Brazil, many politicians get things done in a mafioso way. Brazilian culture is so enmeshed with quid-quo-pro that just like the Eskimos have 50 words snow, Brazil has an entire set of language devoted to corruption. Historically, Brazil may have been doomed from the start with the way representatives of Portugal encouraged close links between the public and private sectors, and even turned a blind eye to illegal activity. Today, the system remains so broken that it even broke Dilma Rousseff, who believed so staunchly in breaking the political establishment up that she was willing to endure secret prisons for a decade. We know how that ended - she shifted from a populist to a pragmatist to the overseer of what is perhaps Brazil's biggest scandal in history. In response to these scandals and economic recession, Brazil recently elected populist politician Jair Bolsonaro. Bolsonaro campaigned on a hard-right platform with the penultimate promise to "break the system". In many ways, he was the political polar opposite to Dilma and offered the stability level opposite to what Brazilians have seen over the last decade. Along those lines, he touted his alliance with the military and he preyed on fear. Much like Trump did in the U.S., Bolsonaro branded himself as the anti-politician who would put Brazil first. It worked.

The important question, between Brazil and Mexico, is which country will fare the best in the near-term. Like with most questions like this, it will ultimately come down to leadership's strategy and their ability to implement those strategies. My forecast is that Mexico will see the most short-term improvement largely due to global trends in manufacturing. Costs in China have risen dramatically in the past 2 decades, as wages have risen above those in Mexico. Correspondingly, firms throughout North America are turning their attention to what BCG calls a rising global star for manufacturing. Given these global trends, Mexican leaders don't need genius strategies to boost their economy. They simply need AMLO to be enough of a pragmatist to maintain a capitalist mentality toward free-trade partnerships. He needs to keep a NAFTA deal in place that attracts firms to do their manufacturing in Mexico. By doing this, he has a chance to take advantage of a similar model that Japan, Korea, Thailand and others have used to pull rural workers into cities, where they can earn a better wage and gain a better education, which cycles into the country's ability to strengthen higher value industries. Furthermore, this model would help vulnerable Mexicans avoid the trap of drug cartels. While Brazil struggles its way out of the corruption quagmires of the past decade, AMLO can help Mexicans return to the top of Latin America's per capita income list.

How Southeast Asian Nations Can Avoid Being Controlled By China's Gravitational Pull

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As China has grown over the past three decades, Southeast Asia has followed along. The correlation is noticeable especially by looking at the lift in GDP per capita over the past 2 decades (see the graph below). After China transitioned power over to Deng Xiaoping and his market reforms took hold, their economy started to grow. For Southeast Asian economies that meant several things. China became richer and increased their role as a creditor, which funded projects throughout the region. Chinese commercial and consumer demand boomed, which meant imports from the region expanded greatly. Today, this continues as a trend, as the world's factory (China) has shifted to outsourcing labor. It only makes sense - just look again at the graph below. In a recent trip to Phnom Penh Special Economic Zone, I noticed the effect first-hand. Over 75 firms have opened up shop, most of them are export-focused manufacturing firms and many are exporting to China. Furthermore, at the Sihanoukville SEZ, the country's largest, 94 of 106 companies are Chinese. For better or worse, China's effect is substantial.

Historically, Cambodia, like many Southeast Asian nations was a tributary to China. That hasn't really changed. If we look to East Asia's Taiwan, there's a similar situation. 18% of China's intermediate imports come from Taiwan, which on one hand is great for Taiwan's economy. On the other hand, Taiwanese politicians have allowed the country to become so export-dependent that the current Trumpian trade war puts a major chunk of their economy in jeopardy. Much of the world recognizes Taiwan as an independent nation but they should be more aggressive about making that a reality if they want it. Turning our attention back to Southeast Asia, we could probably say the same thing of Laos.

Thailand is another country that was a tributary. China remains as their primary partner for imports and exports. The key question is whether they will seize the opportunity to fortify their economy and harness, not be controlled by, China's growing gravitational pull. The country, which, interestingly, has recently been ruled by several ethnically Chinese leaders, could have grown from a rising star into a legitimate star by now but its political scene is a mess. According to Ruchir Sharma, in his book Breakout Nations, Thailand is falling victim to the middle-income trap. In contrast with Japan, which was able to break through the trap by creating an environment conducive to domestic consumption and investment, Thailand has created an unstable environment conducive to halted investments and the evaporation of trust. They've done this through populist measures.

70% of Thailand's population is rural. This fact is a basis for why political populism and other forms of lacking discipline are destroying Thailand's future. The rural majority, the 'red shirts', are at odds with the 'yellow shirts', or the middle-to-upper income segment of the population. This is significant because the 15% of the population that is urbanized around Bangkok, account for 40% of national income. This sets the stage for a volatile political process and delicate decision-making. Nothing has been delicate about the past decade and a half. The prime minister's office has been marked by a game of musical chairs, with the chair being filled by 10 people from 2006 to 2014. Many of those leaders pandered to the 'red shirts, creating angst amongst the country's wealthy minority.  Furthering the issues, Yingluck Shinawatra convincingly won an election and took the chair in 2011 by appealing to the masses. Then a few of her populist initiatives resulted in catastrophes, including suicides by farmers who couldn't pay off their debts. The 'red shirts' were unhappy, and the 'yellow shirts' protested. Instability rose to the point that the Hunger Games film series was banned, in fear that it would spark greater uprisings. The instability led to a military coup in 2014. 

After the 1997 Asian Financial Crisis, you'd think Thailand would have learned the importance for fiscal and political discipline.  Malaysia is sitting right there with them. Mahathir Mohamed took the post of Prime Minster in 2017 in his triumphant return to politics. He led the country in the same role from 1981 to 2003, and was known as a populist politician. He roused the majority Malay and other Islamic-segments of the population and alienated Indian and Chinese minorities through a series of initiatives, not to mention alienating much of the Western world. Although it's helped him get votes, he limited GDP growth by stifling the potential of Malaysia's bamboo network, by weakening the judicial and legislative systems and thereby allowing cronyism to infiltrate, and by scaring away foreign investment.

Mahathir could look no further than Malaysia's 'twin', Singapore, next door to see what it takes to turn things around. Thailand, Cambodia, and others could also learn from Singapore. They must create their own unique model, just as Lee Kuan Yew did for Singapore, but they should follow his lead to focus on three principles - discipline, clarity, and trust - that economist Peter Henry discusses in his book, Turnaround. At this phase, Thailand is weak in all three areas. Cambodia has some clarity but that's it. Malaysia has unusual amounts of clarity and even some discipline, but they do not have trust. These countries will need all three pillars in order to turn themselves around and fortify their economic futures.

India's Rise Will Depend on Political Alignment Across Its Vastly Different States

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India will lead the world's growth in future decades but it won't be marked by the consistency of 6-10% growth rates we observed in China over the past decades. India has the economic capacity and readiness to bull forward. They are set to overtake China with the world's biggest population by 2023. Their economic scene is filled with multi-sector global titans and entrepreneurial geniuses. Politically, they've embraced a promising capitalist model for decades that has worked. Internationally, they've defied the need to align, being friends with nearly everyone. However, as India rises, structural cracks will be exposed. The  level and stability of their growth rests in the hands of politicians and how well they can fuse the cracks and align those from across vast differences.

Churchill once remarked, "India is just a geographical term with no more a political personality than Europe." India's consists of 29 states. 4 of them have a population that are among the top 15 most populous countries. Across the provinces, cultures and consumer preferences vary significantly. In the book Breakout Nations, the author, Ruchir Sharma, makes this point by sharing the challenge of a Korean retailer. In China, preferences are streamlining and so they can streamline, but in India, it's the opposite. The retailer must constantly adjust to meet widely different demands of widely different consumers. Due to the great diversity Churchill pointed out, and which still exists today, he and other leaders saw the importance for the Gandhi's to be India's great unifiers. To this day, the Gandhi family is still the leading national brand.

The Gandhi's are a political dynasty that help unify the country, but they and the rest of India's political forces must clean up the government and align business forces. According to a McKinsey Global Institute 2014 special report, roughly 50% of public spending on basic services doesn't reach the people. Given that information, it's not surprising to learn that India ranks 81st on Transparency International's 2017 Corruption Index. At first glance, that may not seem so bad, given that China ranks 77th. The difference for China, though, is that their GDP growth rates have persisted despite corruption thanks to a centralized strategy and 90 million party members aligning every powerful company and group to implement the party's strategy. In India, there isn't a strong aligning force. Corruption could much more easily have devastating derailing effects.

India is relying on politician's fortitude to fuse diverse groups, billionaires, and leaders with the country's best interests. The country's 270 million impoverished citizens are especially reliant on them. The good news is that India has made progress on poverty. Rates have decreased from 45% in 1994 to 37% in 2005 to 22% in 2012. The bad news is not only that 22%, 270 million, accounts for enough people to make the world's 4th most populace nation, but also that the official poverty line is imperfect. Using McKinsey's Empowerment Line, a benchmark for an acceptable standard of living based on access to food, energy, housing, drinking water, sanitation, health care, education, and social security, 680 million Indians are deprived of essential needs. There's a ways to go. India needs more politicians like Nitish Kumar in order to pull more people out of poverty. Nitish started cracking down on corrupt leaders in the province of Bihar in 2005. Since then, his province has done an about-face, seeing growth rates catapult from worst to among the best in the country. With the right political strength to match business strengths, the country can creates waves of 6-10% growth rates in the decades to come as the country is slowly fused together.

Market Inefficiencies in China and the Need to Further Ratchet Down Central Controls

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China’s greatest present challenge is The Party’s inability, in current form, to graduate the country from a developing to developed nation status. It’s a tall task for any state to move toward having an advanced economy. Most nations that have overcome the odds are those utilizing a democratic and capitalistic set of systems. While China certainly exhibits many capitalist characteristics and is seen as a capitalist hybrid, Xi Jinping’s government will need to further loosen its grip on the economy.

The Party’s ability to centrally plan solid strategies is limited. After the 2008 financial crisis, the government used a massive stimulus package which created corresponding massive levels of debt. Since 2008, corporate debt levels have increased by 66%. That money has not been put to work efficiently, especially by SOE’s, which have gobbled up loads of cash. In 2016, the government funded China Ocean Shipping Group with most of the money needed to build three $1.5 billion container ships, at a time when global trade had decreased by 12% in the previous year and shipping capacity was already in excess. All around China, local governments are dutifully dolling out money to help the government hit GDP growth targets, but the Communist Party is misconstruing what they perceive as dutiful.

The story of debt and misused funding is trickling down to the Chinese as well. Just over a decade ago, the broader real estate industry made up around 10% of China’s GDP. Today, that number is at around 30%, as a result of the middle class stashing its money in the housing market. Housing prices have sky-rocketed and the Chinese have taken on extraordinary amounts of risk, not to mention debt, in the process. In fact, Shenzhen, Hong Kong, Beijing, and Shanghai topped the list of the world’s cities with the highest home-price-to-income ratios in 2016 at 44.4, 36.2, 33.8, and 32.6 respectively. That same figure in New York is 12.1. Many people following the masses in this way have put themselves in dangerous spots. Dilapidated ghost towns are popping up around the country, built with the money of people lured into the idea that they would be investing in towns of the future.

The Communist Party’s series of five-year plans has gotten the country from the developing to the developed status. Their loosening and allowance of capitalism has helped them expand the successes of Hong Kong and Macau into the mainland. Now, they need to find more ways that allow market forces to eradicate gross financial inefficiencies. Furthermore, this would help ‘the rest’ of the country. Rural Chinese and those outside of Eastern commercial centers need the incentives and opportunities that come with a more democratic and capitalistic system. They are being left further and further behind, which could have negative long-term implications to national security. If China is willing to relinquish more control and augment its system further, its own people will trust the country’s future more. Rather than siphoning trillions of dollars out of the country, they will be able to efficiently put their money to work at home and help China become a service-oriented advanced economy.

The Public Sector is Stuck so Business Must Step Up

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Business must return from the shareholder model back to the stakeholder model. This return is necessary primarily because of the shift Milton Friedman started when he published his 1962 book ‘Capitalism and Freedom’. In the book, he described his view that executives’ social responsibility is to maximize shareholder profits. He justified his staunch opinion by saying that it’s the government’s job to guide those robotically self-interested executives in a direction that helps society. Problem: what greedy executive wouldn’t use this text to their advantage? The more significant problem, though, is that Friedman’s idea had contextual relevancy that doesn’t apply anymore.

Friedman’s view came at a time when there was enough congressional and socio-political alignment to win the space race by sending a man to the moon. According to Pew research, in 1962, approximately 75% of Americans trusted Washington all or most of the time. That sounds like a joke, but it’s not. 75%. Today, that figure is 18%, meaning that over 60% of the 46% of America that voted for Trump do not trust in the government. Welcome, Friedman, to the age in which government is dominated by two factors: polarization and ballooning.

Polarization is strong. Today, the left, the right, and the camps that support both have a difficult time finding middle ground. We know that based on the number of bills Congress passes, which is less than 25% of the number passed in 1948. We see that through the unfounded level of hatred even our well-educated friends have toward the ‘other’ party, even if their views effectively support much of the party’s platform. Unsurprisingly, Edelman, the world’s biggest PR firm, used ‘polarization’ as the key word to describe 2018.

The second factor to note is ballooning. It’s described in “Rebalancing Society”, a recent book by management expert and McGill professor Henry Mintzberg’s. Henry says that historically there was a balancing act of power that shifted in weight between the public sector and the private sector. The problem, however, is that crony capitalism, along with other forces, has allowed both sectors to balloon in power together. For society, this is bad news, especially within a Friedman-driven dystopia. The good news is that business leaders are recognizing these contextual factors. They are seeing that Friedman’s concepts are less relevant while other concepts are more pertinent.

To outlast their competition and drive performance, American businesses need to step up to meet the call of what Michael Porter calls Creating Shared Value (CSV). Porter, professor at Harvard Business School and arguably the world’s top expert on competitive strategy, has been harkening business leaders toward a model of stakeholder competitive advantage for over a decade. Furthermore, BCG is now on the leading edge to help business leaders see the value of that approach and act on it. BCG’s body of work that comes out of their Sustainability Practice is called Total Societal Impact (TSI). In Wendy Woods TED Talk last year, she showed how BCG’s ‘TSI’ proves that businesses with a stakeholder model are gaining a competitive advantage and outperforming their peers.

There’s a clear case for a stakeholder model, but there is also what one could call a moral imperative to guide the direction society goes. In 2016, leaders at Honeywell, DuPont and other chemical firms banded together to meet the call in their domain. Knowing the impact HFC’s have on the ozone layer, they rose above government and united to essentially halt the global use of HFC’s. Behavior like this is the new trend and will rebalance society the way Mintzberg prescribes. He says that to balance the public and private sectors, the plural sector, or social sector, as some call it, must unite to increase its power and become the third equal leg of the societal stool. Corporate actions like those from DuPont, or from Danone when it committed to becoming a B-Corp, or from Nespresso which does much of its work alongside of Rainforest Alliance, are the actions that strengthen the social sector. Business must, and is, stepping up to guide society.

The Corporate Plague of SHORT-TERMISM

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Unethical corporate behavior is disgustingly unattractive. Listen to these three cases. In the case of Darling International, employees shortcut company sanitation methods and destroyed a river ecosystem. More severe, Wells Fargo employees used unethical sales practices and destroyed millions of customer relationships. Most potently, WorldCom accountants cooked the books and destroyed a telecom empire. It’s no surprise that, according to EthicalSystems.org, 94% of MBA students say they would forego some pay to work for a more ethical organization.

If you dig into each of the above stories, you will quickly find a similar narrative. Darling, Wells Fargo, and WorldCom leadership had grown obsessed with hitting short-term numbers and placed extreme pressure on staff to hit those numbers. An additional learning comes from Valeant, which saw its stock price drop 90% in 2016 after regulators and the market cracked down on unethical price increases. The learning to note is that their CEO, Michael Pearson, was personally incentivized by the tune of 100’s of millions to see short-term stock prices gains. It’s no wonder the short-termism plague is rampant in Corporate America.

While short-term pressure can increase performance, much like it does for a marathoner making a final push to the finish line, that level of performance leads to massive breakdowns if used beyond periodic brief bursts. Few find themselves with the energy capacity necessary to adapt and survive in the long-term when market forces demand it. Only 60 firms from the 1950 Fortune 500 list remain today. IBM is one of them and is a prime example of a firm that transformed. When IBM realized it would be eaten alive by competitors, it pivoted away from hardware, and it now thrives as a services-focused firm. It narrowly escaped death via the plague.

Unlike countries, companies don’t have to opt for only a short or long-term system. While the United States and France avoid dictatorship through periodic leadership rotations, they lose out on consistent strategy execution over decades of the kind that Singapore, Russia, and China enjoy. Companies can benefit by balancing both, and they should, just like Unilever is learning to do. Despite external pressures, Paul Polman, Unilever’s CEO, has partnered with the Aspen Institute on their American Prosperity Project which is beginning to change United States strategies to gain benefits like those, say, of Singapore. Internally, he’s instituted a series of policies and made unconventional decisions like withholding quarterly earnings reports in effort to keep the company focused on long-term objectives. In the time Polman has introduced these approaches, Unilever has continued to churn out enviable annual yields and the market has already adjusted to the firm’s new style. Hopefully it eradicates the plague and ushers in a new era of business.

Justice Department Must Continue Its Actions to Hold Executives Accountable

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You’ve heard the quote: “Anonymity dilutes accountability.” In cities, people are disgustingly rude in a way they would never act in their small hometowns. On the highway, people flip the bird with no hesitation. The dark web is a cesspool of illegal activity. In the same way, corporations are home to humans who can get away with murder. A prime example is the case of HSBC Mexico and its bankers who covertly functioned as the financiers of Mexican drug cartels. For years, London leaders looked the other way despite being fully aware of the activity.  Once the illegal activity was brought to light, not a single person was held accountable and the bank received a $2B fine (annual profits are over $40B). This is sickening.

Personally, I’m one of those ‘the glass is filled with 6 ounces of water” type of people. To me, people are not just inherently good or bad; they are both. The most important factors that determines behavior are contextual ones. I motorbiked across the same bridges to Diamond Island just weeks before Cambodians stampeded their fellow citizens to death. They did it because they were scared for their own lives and oblivious to anything other than survival. Some organizations are the same way, provoking similar survival mentalities through culture and incentives programs. However, others benefit from more thoughtfully designed systems which encourage behavior that puts a premium on the welfare of others.

In the 2015 New York Times article “Justice Department Sets Sights on Wall Street Executives”, Apuzzo and Protess explained a powerful shift in the approach the Justice Department is taking on corporate crime. Loretta Lynch announced new policies which target executives by incentivizing corporations to ‘cough up’ leaders in exchange for billions, potentially, in savings for doing so. This move was one of the first significant attempts made to improve accountability.

While this was big step, many more are needed next. Major companies such as HSBC are unquestionably muddied with politics and with that comes two major challenges. First, there’s potential for executive framing with these new policies, in other words coughing up the wrong people. One potential solution would be creating shared fines between groups of executives based on a percentage of their compensation. In Finland, speeding ticket fines are proportional to a driver’s annual income so wealthy people don’t get away with a mere slap on the wrist. It’s highly effective. The second challenge related to politics is getting organizations to actually name names. To avoid a hushed response, the justice department might develop a tip line or other anonymous format to gain leads.

Good for the Justice Department for taking responsibility to hold others to their responsibilities and now let’s hope they strengthen their approach.

Black Panther Reminisces Mansa Musa from the 1300's

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Who was the richest person in the history of the world? Is it a contemporary of ours like Bezos? How about Rockefeller? Or, maybe Stalin? All of these are wrong. Most likely, it was Mansa Musa, who led the West African Empire of Mali. Mansa Musa was so rich that when his 100-camel caravan spent a little of its gold in Alexandria, it caused runaway inflation.

Before Mansa Musa's travels, his kingdom was unheard of outside West Africa. In fact, Arabs and Persians didn’t even believe it was possible for Africans to create a nation like it. Racism was strong. However, after his travels, Mansa’s empire became so famous throughout the region that Europeans created fables about the fanciful gold-laden kingdom. And, to some extent, it lived up to the hype.

Mali centered around Timbuktu. It was a prospering economic center. The city was filled with architectural feats and was home to a renowned university that persists to this day. Mansa attracted scholars, scientists, and experts from around the world to make their mark on the kingdom, and the kingdom flourished.

Fast forward 700 years and we can see that the movie Black Panther doesn't only tell a tale of a rich sub-Saharan African nation. It reminisces 1300 West Africa (although Wakanda was supposedly written to be in East Africa). The best parallel between Black Panther and Mansa Musa comes from the UN scene when the jaws of world leaders bounce in laughter and then drop in awe when they realize what Wakanda has to offer humanity. Mansa Musa must have received a similar reaction from Alexandrians. The important question is who will elicit a similar response in the future?