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The story of a loaf of bread

A local bakery of a village is happily baking 100 breads every night for his 100 customers. The breads cost 1 euro a piece and the daily turnover is 100 euro. All 100 families in the village are loyal customers. It has been like this for many years and everyone is happy.

One day the wheat salesman came by to say that there is a growing shortage. The price of the key resource has to go up. The baker can still get the usual supply but the situation is critical. The salesman said that everything was done to bring the situation back to what it was before. The baker had no choice and raised the price of his bread with 10 cent. The loyal customers understood and paid the difference gladly, knowing that is was only temporary. The turnover of the bakery raised by to 110 euro per day.

The situation did not change. The wheat salesman returned to say that the prices did not only go up further, he would also have to half the supply. The baker was desperate and went to the local politicians. They promised that everything would be better if they were re-elected but meanwhile he would have to cope with the dip. The baker raised his bread price to 2 euro but could not make more than half the usual amount. He decided to sell the bread in halves. The loyal customers were furious but had little choice. They bought the half’s for 1,50 euro. The turnover of the bakery had risen to 150 euro even though he had produced only half his usual amount. The local newspaper was talking about an economy of growth and certain local business people taking good benefit.

The resource problem continued and got worse, despite the promises of the suppliers and the politicians. In the end the half’s would cost 3 euros and the baker even sold bread by the slice. His turnover went further up, his productivity down and his customers became less and less loyal. They could not afford it anymore. Newspapers report that “the market was grimm”.

One day certain wealthy local citizens decided to make the bakery the deal of a lifetime. They were fed up with the half’s and slices of bread. They wanted their entire loaf of bread every day and were willing to pay 10 euros per piece. The bakery accepted, of course. He had been tought about market working in business workshops. His turnover shot up to record sales. The baker even became entrepreneur of the year and was invited to membership of the local Rotary to discuss “common interests” among the “powerful” every week. His status had grown but in his shop many people could not buy slices anymore, not even breadcrumbs. There were people now living in poverty and hunger in the village. And they are angry…….but the economy was growing.

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Now you can think of your own happy ending of the story. What will happen?

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Moral of the story: When you hear powerful people say that the economy needs to grow and that it is going to solve all the problems, please think twice, unless you are this baker of course and you have not thought yet of a happy ending ūüėČ

Poverty of old rich changes the world, not money

Geographical poverty

In the world there are roughly three economic “worlds”, the old rich, the new rich and the poor. These can be seen horizontally per region in the world.¬†The old rich regions speculate with value, the new rich countries create some of the value still through industrial process with cheap labor, and then there are the poor that have nothing but themselves. Meanwhile climate changes and pollution of the rich make the globe more inhabitable affecting the rich in their quest for resources using greed, and the poor who are being ¬†robbed of their chances for survival. Some try to get to the rich parts of the world by¬†hazardous¬†migration, others just perish, accepting their destiny in some way as inevitable.

This has always been the case ever since industrialization began and even before. Nowadays the old rich suffer crises because they¬†cannibalize¬†on their own wealth, the new rich do not learn the lessons of the old rich and go into the same direction while the poor remain poor, exploited by the rich, die and don’t know much better by lack of reference. What is “rich” anyway? That your children survive beyond age 2 or 5? That you have a car, a house to live in, two TV sets, a mobile phone and access to the supermarket every day? Peace at home or in the street?

Poverty among the rich

Then there is this other way of looking at the same three worlds but vertically, within the confinement of the rich countries. We find the same  mix of poverty, wealthy and rich but within the same region. The difference with the general poverty around the world is that this type of poverty has known what it is like to be rich in material sense and sees it around them all the time. In the area of poverty within rich regions we see three ways that people deal with it:

  1. Solidarity, meaning that fellow people, families, friends and surroundings help the people out voluntarily for their primary needs. Often people who are being helped just need some support because they thrive to be self supported and need no official help. They are the entrepreneurial types of society that do their best. They normally see their situation as temporary and part of life, trusting to be able to deal with it.
  2. Social welfare, a government caring system to assist people who have entered in some kind of misery until they can find their way back into the system by themselves or through pressure of the government. Often these are people who have suffered a loss, a divorce or whatever mishap. It can also represent a cultural problem of employment diversity.  Social welfare is the social cushion that provides them with rest and material peace of mind for a while.
  3. Criminality and chaos, is when people do not trust the system or themselves anymore and abuse the system through rebellion acts, criminality and chaos, out of mentality or need.

In new rich countries we see governments trying to deal with the newly growing rich, taxation, equality and old poverty through education programs and welfare creation. In the current old rich societies however we see a general raise of poverty that covers all three situations. Yet the mix tends to alter due to the development of the collapsing richness. The crises that the culture and paradigm suffers develops an explosive situation that eventually will provoke a paradigm shift. It is these poor that upset the old system and introduce new conditions for stable progress, but not before some chaos and collapse is created in the community. It is not the money that will change the world, it is the poverty among the old rich.

The traditional solidarity of local people goes to their own relatives or close ones. Many rich countries have opened up their borders so much for the entry of cheap labor that foreign poverty mixes with local poverty, both with a different mentality around scarcity. The local poor start to believe that the  chances are being taken away from them by the foreigners. The newcomers come for work and see the rich society as something to take their chances no matter what. Some come with a genuine interest to take benefit, others with a hit and run opportunistic attitude towards the abundance in the materially rich environment.

Crime rises among all populations groups ¬†simply because of the masses in jeopardy, the distrust between locals and foreign groups and the declining “can do” culture in the region. When social security funds dry up as the old rich country cannot keep up the old standards the welfare support is taken away gradually and causes more poverty. The solidarity in the community slows down and finally stops because people lose faith and ask their people to take responsibility. They do that by finding ways to rise against the inequality through marches, protest or attacks, yet they also develop new pre-paradigms and paradigms. The significance of have lived through different worldviews as an individual is key for progress. Poverty then is a way to let go of the old securities that the remaining rich try to defend. But this¬†defense,¬† even with the powerful support of the law, is not enough to withhold the demanding forces of the people who want to introduce change. We have seen this happen in Northern Africa and the Middle East. We will see it happening across the globe.

The following questions arises:

  • When, with what proportion of poverty in the mix, does a stable economy of old rich collapse into chaos prior to renewal
  • Can a country take precaution before? Eg by allowing social innovation by the poor instead of defending the situation of the rich
  • Is social welfare always an adequate cushion? Or should it be limited only to the new rich while the old rich should focus on paradigm shift through social investment rather than protection?

As poverty in the rich countries grows we general see the difference between rich and poor grow too. The speculation at the top end of the social pyramid is showing economic growth while the bottom is reaching a point of starvation. The differences grow and so does the social stress. Yet the new poverty has the insight, knowledge and education to produce change that can move the old rich into a new phase of development through fundamental changes. The growing rich out of the old paradigm will try to influence change negatively. I also referred to this in the blog entry of the route of least resistance. The only problem any country deals with in this situation is its governance. What side does government chose? The conservative rich out of tax interests and their influential lobby? Or the innovative poor understanding the need for social innovation? Can a middle way exist?

Looking forward to your reactions……

Poverty policy is key to capitalist success

Most business policies focus on welfare and growth communities because that is where the money goes around. Hardly any of the business plans involve the markets of the poor. The companies that do actually included those markets structurally in their policies tend to score better on the Multidimensional Index of the 5K Group. Why is that?

There is nothing noble about combating poverty. It is good business practice. During the credit crisis we have seen the down fall of big, so called “solid”, institutions s.a. banks due to a moral crisis rather than financial. Typically this moral crisis was caused over the backs of the financially unstable and unwealthy. Does this indicate a contradiction in my argument? Not at all.

The risktaking of the banks by entering bad credit zones was caused by greed and self interests of high level executives who covered their backs by insuring bad credits with others misplacing the trust relationship in the chain. As the entire chain was based on the same material principles of greed the business was a pure speculation that unnoticed inflated the ballon of risk until it exploded into the face of the world. One can hardly argument that all this was a policy to help the poor.

When we design a policy to develop markets with poor people we do that from the moral multidimensional principle of the ideal market development through healthy and motivated people. To achieve this poverty needs to be eradicated from the entire world. We do not talk only about poverty in complex, unstable, tribe oriented third world countries. We talk also about the growing poverty in the rich welfare countries. When a company decided to address this market too, not just by making products available to it but by truely developing a strategy to address the issue effectively, it shows moral integrity. Nobody will ask the company to finance such development our of their own pocket because such strategies of sensitivity to the reality of the world finds many partners in government, institutions and foundation to join forces for a common goal.

The willingness to address such markets by connecting with other organizations and creating serious policy shows and develops an authentic and responsible company culture that is filled with sense and that subsequently will radiate also into the wealthier markets where competition is strong and one does not distinguish anymore through price or quality but with company integrity and authenticity. And this is the basis of any sustainable success and therefore the reason for a company to score high in our Index.