As leaders gathered for The World Bank Group and International Monetary Fund’s spring meetings in Washington, D.C., the question of how to confront and reverse the tide of extreme poverty features prominently on the agenda. So much so, that three banners are strewn from the Bank’s headquarters with this very call to action. Looking at this critical item of human progress through the longer arc of history, set against our current global challenges, and the jury remains adjourned on how we can accelerate human development. This is especially true with so many world leaders reaching for the hand brake on global cooperation and integration. Critically, ensuring that the opportunity gap that has left billions of people behind is narrowed and eventually closed depends on leadership, innovation and, most of all, innovation. These efforts should be accelerated and the gathered leaders in Washington must lead by example.
The first gap of human economic development was crossed when our species became an agrarian and sedentary society, leaving behind our stonework and early metallurgy. The next steps towards the death of distance and the bridge toward puling more people into an economic updraft accelerated with the advent of the wheel and getting beasts of burden to yield. Advancements in science, math, technology and socio-political organization pulled the early adopters up the ladder making them the masters of the known universe – albeit a flat one as the limits of earthly navigation created frightful tales of dragons over yonder horizon. As a cornerstone of this bridge, notwithstanding its attendant externalities, innovation and technology remains the beating heart of human progress. From Gutenberg’s printing press breaking down informational silos of hand-made illuminations in both gold and in wisdom, which created incalculable economic and political power for its bearers, originally the clergy.
Fast forward to the mercantilist era when trade took to the high seas and the prototypes of the modern multinationals, the European trading houses such as Portugal’s Casa da India or the British East India Company and harnessing the wind propelled the next wave of change and economic progress – again, albeit one-sided. This maritime world brought with it previously “undiscovered” lands, people and treasures, along with the attendant spread of communicable diseases, slavery and other scourges. The next waves, the advent of industrialization and electrification, at once shifted human economic progress from the extent animal and human muscle could bear us, with electrification lighting the way. The era of steam and industrial progress like others before it created incalculable wealth for the early adopters of these technological revolutions, respectively the Robber Barons and industrialists whose progeny still wield vast wealth till this day. However, their carbon hungry economic model, was not free of economic consequences as it has unleashed anthropogenic climate change, one of our gravest planetary threats.
The death of distance was further accelerated by the twin miracles of the telegram and early aviation, which saw human imagination and technological innovation soar to new heights, new speeds and over greater distances. Alas, telephony and the early internet, which collapsed the amount of time new technologies required to reach more than 100 million users around the world from thousands to hundreds of years and eventually to decades or mere months. With this wave the Robber Barons progressively handed the baton of global economic and political power to their offspring, the Tech Titans, who have amassed a hitherto unimaginable amount of wealth in both financial, technological and human capital by harnessing data, the world’s first limitless asset. Enough such that their ambitions, whether it is to kill the 100-year old dominance of the internal combustion engine, whose horse power has pulled the world’s economy forward while its noxious fumes choked us along the way. This same ingenuity has not only collapsed distance, it has collapsed the very forces that keep us earthbound, as the commercialization of space is now within reach, with the goal, some would argue, our very survival. Like the Robber Barons, the age of Tech Titans is not without negative externalities as they have inadvertently opened Pandora’s box of cyber risk and society scale social engineering courtesy of our technological dependencies. Even still, our last miles of economic progress will be paved with code and not oil, asphalt or steel, for the limits of financial inclusion and ending extreme poverty using yesterday’s tools has been reached.
Advancing to today, a world where more than 3 billion people remain unbanked or under-banked, more than 1 billion people have no identity and 260 million are globally displaced by war, famine, failed states and climate change and yesteryear’s model of economic progress is not only under strain, it appears broken. How then can development institutions like the World Bank Group or the United Nations, whose Sustainable Development Goals, SDGs, seem fleeting as advanced economies retreat behind walls of economic nationalism and populist sentiments? With this retreat, they have also tightened their purse strings and what little financial support went into development coffers in the form of official development assistance, ODA, has flatlined. Is it possible that industrialization, capitalism and globalization, the tripartite forces that have accelerated human progress have reached a point of diminishing returns? How then do we rise to the occasion of eradicating extreme poverty, an issue with wide disagreement on where the poverty line begins, let alone reaching the ambitious 17 SDGs and the more than 100 sub-priorities? A task that will require that development agencies shift the locus of their activities from crowding in public largess and technical support, to serving as a point of leverage for moving from the billions to the trillions needed to brighten the rather bleak global outlook.
If the first mile of human development was wide-scale collaboration as sedentary agrarian societies, the last mile of pulling 3 billion into the financial system and therefore out of extreme poverty cannot be reached without technology at the core. For this, an economic system of low-trust, high-friction and systemic corruption-inducing opacity is anything but participatory. The result is that most corners of finance and economics, particularly those that aim to import their traditional operating models to the so-called base of the pyramid struggle to find yield given their prohibitively costly financial models and zero-trust propositions. As an example of disproportionality, we have a banking system whose onerous know your customer (KYC) and anti-money laundering (AML) rules would rather send no money across borders for fear it may fall into a few wrong hands, while leaving billions of people hopelessly on the margins. These people become easy recruits to turn to nefarious activities such as piracy, terrorism, human traffic, among others and a global vicious cycle is born. This pernicious issue is not only present in the developing world, it is very much at play in many advanced economies, such as the U.S., where a perilously large percentage of the population not only struggle to make ends meet, they are themselves over-leveraged, under-banked and under-insured.
As capitalism appears to have reached its point of diminishing returns coinciding with the collapse of institutional trust, paragons of business such as Jamie Dimon, JP Morgan’s Chairman and CEO and Harvard Business School’s Dean, Nitin Nohria, are coming to its defense. Indeed, living in a world where 26 billionaires control as much wealth as 50% of the world’s poor does not augur well for the future – notwithstanding the targeted largesse and philanthropic efforts from these people and their eponymous foundations. The best place to start to end extreme poverty is to look for and eliminate the points of friction in the global economy, while identifying and fully incorporating the costs of doing nothing that poses a financial double-jeopardy. Why it still costs 10 times more to send a cross border payment or remittance anywhere in the world no matter how small the sum, is one such example. Remittances are the world’s most important and persistent cashflow at more than $625 billion and growing, and one of the key ways the world’s diaspora populations and economic migrants turn the flywheel of global development and stability. Mercifully, efforts are under way to help the world’s largest asset managers rethink financial and social equilibrium, such as the Responsible Asset Allocators Initiative, as much as the accelerating pace of fintech innovation will help bridge the last financial mile.
