Wednesday, November 26, 2008

Poverty & Recession Slayers: New Investments in the 3rd World

Economic recessions and crises are inevitable. Recessions are really thousands of companies undergoing business cycles that go on the downswing at relatively the same time. Even in business, what comes up must come down. There is never a permanent up!

What’s the major pulling force? The culprit appears to be market saturation. A point will always be reached when buyers can buy no more. Here are two bare bones examples:

First: The Asian crisis of 1998 started out as over twenty years of US prosperity. East Asian tiger economies (Hong Kong, Taiwan, Singapore, Korea) rose to the 1st World by riding the US prosperity horse for more than two decades.

The four tigers exported immense quantities of consumer goods to the USA. Less-developed neighbor countries followed suit at much smaller volumes. Example: mid-1990s yearly Philippine exports: $15 billion, Singapore, $102 billion. European and US investments and short-term loans poured into the tigers and kept them roaring. By 1996, Western investments in the Pacific Rim except Japan amounted to $720 billion in short term loans circulating mainly among the tigers.

Unfortunately by mid-1990s the US consumer market was close to saturation. The indicator: major declines in US imports from East Asia. By 1997 export-dependent Southeast Asian and tiger companies could no longer repay their short-term loans. Voluminous short-term loans that built thousands of building high-rises could not be paid either.

In a panic, Western financing companies stopped lending altogether and repatriated all collections back to the West. $105 billion in East Asian investments and loans flew back to Europe and the USA within just one year.

Deprived of rollover funds, major Pacific Rim companies nearly collapsed. Their thousands of suppliers followed suit. Dollars became so scarce that Asian currencies depreciated by as much as 90% of pre-crisis exchange rates. Most East Asian economies were import-dependent so local prices shot up. The region lost millions of jobs.

Over 20 million Southeast Asians who had risen to the middle classes reverted to $1 a day poverty. The IMF had to rescue the region thru $100 billion-plus in loans. Asian conglomerate operators sold entire companies to Western investors to raise new dollars.

Fortunately China was then a rising market. The tigers rebounded by selling to China and to remaining Pacific Rim middle classes thru generous credit card lending. The tigers’ less-developed neighbors Indonesia and the Philippines took a lot longer to recover. Today the two countries have stuck it out with the 3rd World. The Philippines is now even worse off. It’s now within the top five among 3rd World countries with the most people suffering from hunger, according to recent surveys.

Second crisis exemplar: The current worldwide economic recession, appears to have been triggered by market saturation (again). Since the 1950s the entire world has been pouring money to the USA for reasons of safety and good returns. Most of the money ended up in the hands of investment companies, and they used the trillion-dollar sums in stock market speculation (gambles). A major part of some $270 trillion in yearly stock market and financial trades in end-1990s were handled by US investment companies.

Such speculation to excess can only mean two things: (1) manufacturing and service companies have little need of new loans and investments; (2) entrepreneurship for production has not caught up with entrepreneurship for finance.

Indeed when ‘gambling’ returns is greater than production returns, most money will go to gambles and yield mainly paper wealth. It would appear that US companies’ markets were again nearing saturation. All of East Asia plus old Europe had been eating away at large chunks of US corporate markets.

Lately much of the gambles financed buying and selling of billion-dollar bunches of collateralized housing loans in statewide USA. The assumption was that house buyers could pay. Unfortunately large numbers of them could not. It was an obvious indicator that employees’ sources of income (US companies) were not as prosperous as before. East Asian and European competition had been too effective.

Again this can only indicate saturated US markets. When entire states’ housing borrowers defaulted, their train of lenders and buyers of securitized loans collapsed in near-bankruptcy. Construction companies, their suppliers and the stock market followed. As finance dried up, every US company and its mascot had to tighten their belts.

The US government had to come to the rescue. So far, from $700 billion to several trillion dollars in rescue funds are deemed still not enough. Reason: much of the 1st worlds’ industrial markets have plunged into the downswing together with the US financial markets.

Why the world-scale contagion? The US is the world’s largest buyer-producer economy at around $5-7 trillion yearly GDP this past decade. Japan was next at around $3-5 trillion, but most Japanese production went to US markets. Major chunks of East Asian production are still dependent on the US market. So is Chinese production. European markets are diverse but major portions are still US-reliant.

Even world finance is dominated by the USA, and around 96% of the world’s $100 trillion or so in investment funds circulate within the USA and the rest of the 1st World. The 1st World has largely been selling, buying, investing and lending to itself, although it is peopled by less than a billion consumers. The rest of humanity, five billion people, enjoy just wisps of world capital and depend on tiny local markets. No wonder the 1st World is market-saturated. No wonder a mere US marketing or financial cough can send millions of 3rd World peoples to the hunger line.

What are the key words to all these? It’s saturated markets! What’s the logical solution? Create new markets! Where? Obviously not again in the 1st World where buyers can buy no more.

Instead of pouring more trillions of dollars to market-saturated 1st World companies, 1st World governments and businesses must create new companies in the 3rd World! How? World governments have to introduce the idea of mass entrepreneurship among 3rd World employee and managerial masses.

3rd World Philippines alone has 30 million or so employees and managers. If these business skills formed thousand-member investment unions, a million profitable business joint venture ideas can easily flower. If world governments lent 20-year entrepreneurship loans to 3rd World investment union members on perpetual basis, the joint venture ideas will become perpetual realities.

Joint ventures quadruple local capital thru foreign investments and loans. Hence, say $20 billion in yearly entrepreneurship loans to Philippine employees and joint venture companies can create thousands of large-scale corporations worth $80 billion each year!

$40 billion of the amount will become sales by 1st World makers of machinery and equipment, and interest-earning loans by 1st World financing companies. $20 billion will represent dividend-earning investments by 1st World joint venture partners. The remaining $20 billion will ultimately become stock shares in the hands of ordinary Filipino employees.

Half of resultant profits will go to foreign joint venture partners. The remaining half of profits will flow among Filipino masses, not local elites as usual. Of course the new ‘billion-dollar’ masses become huge markets for all companies involved, on perpetual basis.

Perpetual joint venture formation of this sort will gradually absorb 68 million Philippine poor into high-salary employment. The newly-employed will qualify for entrepreneurship loans. Creation of jobs and wealth among the masses goes geometric. Iterations of the Philippine model all over the 3rd World will ultimately create a five billion-strong market for consumer and producer goods for all world companies.

Five billion entrepreneurial minds (a consequence of investment union formation) will produce countless new products and technologies. The innumerable purchasing choices will mean minimal market saturation for all companies for all time.

Any company that experiences grave sales downturns may easily shift to more salable and profitable product lines because the markets are so huge and production choices and technologies so many. The long term consequence: humanity no longer subject to grave economic crises and recessions that perpetuate mass poverty.

How may the grand visions become reality? The tactics described are populist and political. We need to fight propaganda battles, each cyber general to his own area of operations!

No comments: