Breaking the cycle…

February 23, 2010

Corruption can be broadly defined into Bureaucratic, Political and Organised Crime. The former two have been carefully documented and are a result of the complicated political structure imposed on Bosnia and Herzegovina by the Daytona Accords which has resulted in strong ethnically based loyalties and a large bureaucracy which leads to plenty of opportunity for corrupt practices.

(please see http://www.u4.no/helpdesk/helpdesk/query.cfm?id=221)

Ethnic division is a particular difficult barrier to overcome as it is difficult to find common ground that cannot be easily countered by an ethnically charged argument. This cycle preys on the recent history in BiH and the “what your people did to our people mentality”. Understandably very few people want to be feel like or be portrayed at as being disloyal to their family or ethnic group.

Paul Collier a Professor of Economics at Oxford University Economics Department spoke last June about mending broken state. (http://www.ted.com/talks/paul_collier_s_new_rules_for_rebuilding_a_broken_nation.html)
I have to agree with Professor Collier on all of his main points and clearly we need to greater economic development in Bosnia, especially outside of Sarajevo. Money will divide people, but also unite people of all races, religions and beliefs. Economic development is not however enough as pointed out by Professor Collier.

In the case of BiH this needs to be combined with a reformation of the political system. I would suggest that the internationally staffed commissions are set up to oversee the different ministries and especially the flow of foreign investment. Governments they pledge money should also expect and demand greater accountability, not how the money is spent – but rather where the money goes. This has to be facilitated by independent commissions with a strong enforcement mechanism (a whole topic in itself).

That is all for now.

Advertisements

Setting up small functioning businesses is a difficult enough with having to worry about corruption and organised crime… The question is how to we work around it? Let’s consider Bosnia Herzegovina as a good example of a developing country with a definite corruption issue.

“In Bosnia and Herzegovina, we find that corruption exists in all its facets – bribery, nepotism, embezzlement, diversion of public funds, tax fraud, illegal rent seeking, kick-back schemes etc.”

(Harald Mathisen and Vera Devine, Bergen: Chr. Michelsen Institute (CMI Report R 2005: 8))

Bribery and illegal rent seeking are the main concerns for setting up small sustainable business should I follow my model for International Development for Profit, by opening small easy to run and replicable businesses.

Bribery is a difficult to overcome. The key has to be patience and lots of plans to get around problems without resorting to buying people off. If it takes 60 days to incorporate a business then so be it. However, at the same time a strong base of lobbyists must be developed to push for reforms in the law to remove the needs for bribery such as large amounts of bureacracy or making processes faster than it was previously.

The much more difficult situation is overcoming illegal rents that are paid to organised criminals… something I will consider further. I will also be looking at how bribery has been reduced in other countrys to see what has worked and what hasn’t.

“Before Afghanistan’s President Karzai asked him, at the end of 2001, to become his adviser and then Finance Minister, Ashraf Ghani had spent years in academia studying state-building and social transformation, and a decade in executive positions at the World Bank trying to effect policy in these two fields.” (Ted.com)

http://www.ted.com/talks/ashraf_ghani_on_rebuilding_broken_states.html

This short talk looks at how we need to engage with broken states.

There are two key elements that should be considered for my purposes. Firstly, that there is a lack of ambition in reaching for micro loans or micro financing when larger scale job building initiatives although more difficult to achieve will produce a greater net gain.

Secondly, it is that results need to happen faster. The length of time to produce university graduates or PhD students can easily exceed twenty years; there is a huge potential in this human capital that needs to be yielded sooner. Perhaps, traditional educational methods which are a relic of the 19thC need to be reformed to tap into this resource in a much shorter period.

Perhaps the key undertone is that there has to be greater ambition in developing states; not by those within the developing states but rather by international investors, developmental agencies and international governments.

A friend recommended an article about Microfinancing in Bosnia from Al Jazeera… things aren’t going well.

Microfinancing started in Bangladesh in the 1980’s and has been used throughout the world since then with mixed results. Until recently everything was going well in Bosnia. People started getting greedy it would appear.

The article states that, “Microfinance is almost universally associated with high interest rates, sometimes as high as 30 per cent a year, and high levels of repayment, adding up to the potential to make large profits.”

Isn’t Microfinancing about helping people out? You know, developing nation states, helping people to help themselves. I think having a pool of money others can use to start up their own business is a great idea, but it has to be policed and it has to be able to expand to support growing businesses and should not be driven through the need to make money by the lenders.

Ideally, we need a system where Microfinancing can be used without any pressure to make a revenue. Perhaps the funding system I considered in my last post could be adapted. Perhaps part of profits could be used for Microfinancing. Later, as this fund grows it could be used to purchase an equity stake in promising businesses so they can expand further thus creating more revenue for the Microfinancing but without any direct need to drive profit from this particular arm of the business, thus providing lower and more manageable interest rates and better terms to the beneficiaries.

Bookmark Microfinance… screwing people

So where shall I begin…

Humans, it would seem to me are selfish. Perhaps I am a cynic and of course one rule never does fit all.

I think we should start be looking at what International Development hopes to achieve. In essence, the overall aim of International Development is to help others to improve their lives and of those within their community by providing them with the means to do so.

On that basis it shares many of the same characteristics as charity. It may be that people tell themselves that they give to charity out of the goodness of their hearts, but I don’t believe that. People give to charity because it makes them feel good. If people were really committed to helping they could give away much more than they do.

If you earn £24,000 then you are in the richest 1% of the worlds population and if you think giving £1000 is too much then I would suggest you fall into my primary assumption that you are innately selfish (I do not think that is a bad thing, but rather a fact) on the basis that you could probably afford it.

Do you really need you foreign holiday? Or is it that you feel you deserve after all your hard work? what about the family that doesn’t have enough to eat. What if it was put into real term – either you go on holiday or another human dies. But that approach doesn’t work either because generally people don’t care or prefer to remain ignorant.

If we take my assumptions as fact, then we can move onto my proposition that people will participate to a greater extent in helping the lives of other if they actually gain from their involvement. Imagine making money from helping others. As a very basic concept – imagine we could create a company then sells £1 shares to 100 people.

You take this £100 and you use it help a small group of people open a small restaurant for example. The profit from this restaurant is returned to the company; let’s say they make £250 profit over the year. Fifty percent of this money is then divided between the share holders, so each shareholder make £1.25 a gross profit of £0.25, and the rest is re-invested.

You now have £125 to re-invest. You take £25 to contribute towards the health care or education of the children of the first restaurant – the other £100 is used to start up another restaurant and so the process continues. As more people buy shares in the company the more project will begin, the more people that will be helped and the more the shareholders will make.

So for sure this is an simplified version of reality but the concept seems, to me at least, to be an avenue that would be worth some more consideration.

Bill

Bookmark Humans are essentially selfish…

Hi I’m William and I want to make a difference.

I graduated Law and Human Rights which I enjoyed immensely but I have always had an interest in making money… which it would appear is a dichotomy.

This blog is my journey from Law and Human Rights graduate to businessman to International Development for Profit…

Right now, I don’t know a whole lot. But I’m am going to get reading, mix that with some experiences of my own and see what I come up with. Let’s see if I can mix my understanding of running my own company with human rights and the sixth months I spent in a developing country to good effect.

Bill