Friday, August 20, 2010

The State and the Social Responsibility

It has been usual to evaluate private firms market valuation, by their willingness to get on board of Social responsibility requirements : In this latest report previous to launch the new ISO 26000,( August 2010) the International standard organization says:
“The need for organizations in both public and private sectors to behave in a socially responsible way is becoming a generalized requirement of society. It is shared by the stakeholder groups that are participating in the WG SR(working group on social responsibility) to develop ISO 26000: industry, government, labour, consumers, nongovernmental organizations and others, in addition to geographical and gender-based balance.”
Thus, Social responsibility is getting wider field of application , while includes not just private firms, but public enterprises as well .The implications of this change are quite significant . Let get more details about it:
a.- Public enterprises and private firms might develop business partnerships on the basis of homogeneous management model.-
b.- Public enterprise develop new management model based on the accountability of its results, which creates incentive to transform public enterprises in a source of value creation, quite the opposite to the traditional public enterprises as the source of fiscal deficit, waste of resources and corruption.
c.- The Social responsibility in Public enterprises, set a new frameworks for all firms to do business based on new rules ,focused not just on short terms results but on the long run result as well.-
The implication of this new framework goes beyond business ,and get to politics. The State should also evaluate to be orientated by the boundaries of Social Responsibility.
Actually ,a lot of public services do not qualify to have high quality standard . Public Health, public education, macroeconomic policies , infrastructure capabilities , and even citizen safety .In this case accountability (democratic rules) works with imperfections which are not possible to fix them up ,because it is in the State interest to keep it that way: bad quality is a substitute to higher price, in case those services are provided by private firms.
It follows that this new framework for Social responsibility, will impose sooner or later new demand on the State actions, and how it fit with citizens expectations of better quality in everything , no matter whether it is either public or private.It would not be posssible to have again the experiences of some economies with their badly designed economices policies .

Friday, August 06, 2010

Latin America and inequality : Tough realities for public policies (II)

From the economic point of view, inequality has broad implications for whatever the notion of welfare. Starting from the macroeconomic side, it has been widely demonstrated that inequality is a threat for both social and political stability. Besides, it creates a distortion about the true nature of economic growth ,and the real meaning of freedom associate with it . As long as economic growth by itself do not solve inequality, its positive impact is strongly biased toward those who are able to catch the whole range of opportunities available as a result of growth. Thus, the paradox which comes along, is that economic growth might become “an alternative”, although it should be the best alternative. It follows that to solve inequality, policy makers try other alternatives(second worse), such as direct redistribution which is like inflicting a punishment . Those who are more fortunate, get on their shoulder the burden of the less fortunate. In this case, the state fail twice, the first because it aborts growth, and the second ,because neither it does not propose or implement the proper public policies . From the microeconomic point of view, inequality distort resource allocation as long as those with higher income levels , dictates the consumption and production pattern, because their weight on the total consumption expenditures, is higher than what it is for those with lower income. This implies either, an higher production level of capital intensive goods, or higher level of luxuries goods imports. Both cases do not help too much ,to new jobs opportunities, but do help to increase profits because these goods have higher prices, and inequality becomes wider. To overcome such a distortion, public polices should focus on the proper issue changing the measure of economic progress .It is necessary to go beyond the GDP growth, as the key indicator of economic progress. Using the GDP measure, in the sixties Brazil was among the top ten world economies , but its Gini coefficient (1970) was 0,61.In those years(1968) Chile with lower rates of GDP(2,3 annual average 1960-1975) than today, had a Gini coefficient of 0,49.(actually following the UN report is 0,55). Thus, economic growth needs good public policies and properly focused. These are complementary variables .The “real economic growth” is a broad – based one, with special emphasis for public policies on accelerating incomes growth of target poverty groups. This approach requires to redefine the “character” of Economic Growth. For inequality, it matters more the economic structure, than the rate of GDP growth. The practical implications go on to support actively small and medium size firms. Most of public management model actually applied in Latin America economies, deals with the implications of the rural urban migration flows , from the early stage of industrialization in the beginning of the twenty century ,and its demand for public services(housing, public health, education, infrastructure) .It was necessary for the Sate to organize those services with the implementation of the organizational structure functionally designed .These days, competitiveness challenges, suggest that it is needed a different public management model,a specific targeted focused one, which fit with entrepreneurs expectations (specially those from low incomes) to do business. Finally, it is also needed a different way to measure progress.It is needed an index which focus on the impact and direction of economic growth, rather than just its speed. An alternative would be, to construct a “poverty - weighted index” (Todaro 1981), to measure social welfare progress. This index ,weighs the growth of income , in each income groups, not by the proportion of total income in that groups, but by the proportion of the total population in each group.