Why care?

If you’re an American who wants your job back, or who wants to keep your job, we as a country have to move up the value chain, and be a leader in global issues. We have to get our own house in order first, and learn a new place in the global economy because, to be blunt, our old place is no longer relevant.

The reality is that the US and China are inexplicably dependent upon each other.  The idea that the US would interfere with China/US trade if they don’t let their currency appreciate is daft. Equally as silly is the notion that China would then dump a ton of US debt on the market in retaliation.  Either move would hurt both countries – it’s like going back to the cold war days of threatening nuclear war – nobody wins so what’s the point.

In the meantime, countries like Brazil, who let their currency float more freely, run the risk of overheating when capital floods their boarders.  They are then forced to resort to capital constraints in the form of higher taxes on foreign investors to slow the pace.  But foreign investment is good for Brazil and good for the rest of the world because Brazil has a growing middle class, which is the lifeblood of the global economy.

Confused?

Join the crowd. There is plenty of good information in The Economist and the Financial Times on the subject.  “How to Stop a Currency War!” was the lead article in The Economist Magazine a couple of weeks ago. But for the layperson it’s confusing, and, as a trained economist, even I have to read the articles twice.

It is incumbent on us to find ways to make these topics more accessible, and more visceral, to people outside of finance and economics.  If we don’t, we become subject to politicians reverting to protectionism because they think it’s an easy ticket to getting elected, when they don’t fully understand the dire results of such policies.  Protectionist policies will only bring results opposite to what we all want, which is a growing global economy.

A Little Currency Background

Global exchange rates need to fluctuate and interact properly with each other. To do so, they need an unbiased benchmark—something that can have a stabilizing effect across all currencies. Today, the US dollar is that benchmark in most cases, and that is proving to be problematic for the long-term.

Prior to the 1930s and the rapid emergence of US world dominance, the gold standard was the stabilizer.  In the 1940s, under Roosevelt, the US dollar became a key reserve currency as it became more desirable than gold.  Gold then went through a period of undervaluation, leading to Nixon’s decision to de-link the US dollar from gold in the 1970s.

The US dollar as the key reserve currency worked well until we arrived in the 21^st century, when our dominance in the world become less significant and we began to show unexpected and dramatic signs of economic weakness.

When a country’s currency drops in value, it typically signals some combination of a lack of productivity, a lack of innovation in general, and a lack of competitiveness as compared to other countries.  In the last 20 years US currency valuation has masked these very important warning signals because it was propped up as a reserve currency.  As a result, the US now finds itself behind the curve and has yet to fully acknowledge its predicament, let alone fully engaging in its comeback.

That’s why a protectionist driven US unilateral currency war with China is absolutely the wrong approach to what is being touted as borderline currency manipulation. It would be a kin to going backwards in time, and we desperately need a forward-looking, 21^st century plan that embraces globalization.  Politicians should be focused less on China’s currency appreciation, and more on boosting innovation, emerging industries, and exports in general.

It’s a Multi-lateral Issue

Stabilizing global currency markets requires three critical actions that involve many countries, not simply the US and China.

1.     Change: Make substantive changes to a system that only partially works by using a multi-lateral approach through the G-20.  It’s time our global systems were updated to reflect the realities and the benefits of the 21^st century global economy.

2.     Rebalance: It is in everyone’s best interest to move significant amounts of the world’s capital toward emerging economies and away from indebted rich countries.  That should also provide an incentive to the rich countries to pay off some debt, innovate, move up the value chain, and generally push the envelope to make room for progress in emerging economies.

3.     Focus: Countries should focus more on the value they bring to the world than substantiating their place in the world through market manipulations.  Creating value should bring sustainable demand, despite currency fluctuations.

It’s a small world

Globalization is no longer an option.  The entire world, and nearly every economy, are inexorably linked. Global monetary relations significantly affect even the smallest business on Main Street USA.  Understanding the intricacies of a global economy—particularly as it relates to global exchange rates—is critical to the growth of US companies, the US economy, and the global economy.

The global capital markets turn over $4 trillion daily in currency markets and the total global sovereign debt market is estimated to be somewhere around $34 trillion dollars.  A large chuck of that currency and bond trading occurs between countries and each is affected by the others. Interference in open market forces by one country trying to create a local effect creates a counter-effect in other countries.

Make markets, not war!

As US citizens living in this interconnected world economy, we have a vested interest in electing officials with a strong willingness to show understanding and global leadership in the area of international economics.  Yet many politicians seem to be promoting the reverse—protectionism—because that’s what they believe Americans want.

That’s a complete copout. Such politicians irresponsibly enact policy based on the lowest common denominator of understanding rather than what is right for the long-term interest of our country, economy, and citizens.  They might be surprised to know that we’re a lot smarter than they realize. We know that by properly positioning ourselves for success, when the rest of the world expands and prospers, we will as well.

If politicians think that forcing China to let the renminbi appreciate will somehow create more jobs in the US, they are simply misinformed.  Nor is it even possible for us to make such demands. In the opinion of many respected economists, export expansion is the best option for generating substantial growth in the US in the near term (see previous blog post for more on US growth). It’s impossible for the US to compete on cheap labor and an undervalued currency.  So, how can we compete?

Creating jobs through products and services the rest of the world wants can only come from within our borders and from evoking more creative competitive and innovation business strategies. An expanding world economy means expanding markets for US goods and services. That’s the elemental link the politicians miss.

We should recognize that countries like China, whom we perceive to be a threat, are in fact birthing the world’s largest middle class of consumers. We need strategic leaders who recognize the issue is not a US vs China currency war, the issue is: What can we sell China and other emerging markets that no one else is offering?

Bellyaching about US consumers buying Chinese products won’t get jobs back. Competitive business strategies will. There is an opportunity here for the US to re-focus on creating attractive exports based on things like innovation of new products that attract investment, filling usability demand gaps at the bottom of the pyramid, and offering unbeatable ingenuity in the delivery of on-going services.

Retooling our industries and work forces into higher levels of value added manufacturing allows us to trade short-term pain for long-term gain. In 10 years, if they act NOW, rust belt cities like Detroit can be thriving hubs of manufacturing again, focused not on aging consumables, but on nano technologies, green energy, applied materials, and other innovative industries just now emerging.

If the US can make products highly usable and full of irresistible purpose, the buyers will be there regardless of what is happening in the currency markets.  It doesn’t always have to boil down to price.  The key is focusing on what we want to support in the world and who we want to be — as opposed to what we are against and whom we can blame for our troubles.

Rebalancing the World’s Capital

When value creation comes first, money will ultimately follow.  It’s time for global capital to become far less speculative and far more connected to long-term objectives and strategies for global economic stability.  Hopefully the evolution of finance will begin to reward creating and following value and purpose as opposed to simply following short-term gains.  We’ll have to wait and see on that one.

Yet, as we have seen in Europe, the capital markets are finally realizing that traditionally “safe” developed economies (i.e. Greece, Ireland, Spain) can actually carry risks significantly greater than those in emerging economies. A shift in capital away from the traditional rich economies and toward the emerging economies underlies part of the pain the US is undergoing. This shift is necessary and contributes to a growing global middle class that will ultimately increase global consumption, and therefore benefit all.

The dance becomes how much should shift and when? When do the risks tilt back in the other direction as an emerging economy begins to overheat or doesn’t have the political stability or infrastructure to cope with the rate of growth?  And how quickly can the developed world reinvent its competitive edge and begin to attract some of that capital back?

Focused on the Wrong Things

The relationships between one country’s currency to another’s can have large and sweeping impacts on capital and export markets. This is precisely why we see China reluctant to let the yuan’s value appreciate.

Appreciation of the yuan would have an adverse affect on China’s exports, a large driver in their economy (or so they believe). The best answer for China is to allow for controled appreciation over time and focusing on gaining more growth from domestic demand.  Strategic multi-lateral pressure can be helpful.  Demands from one country simply won’t work.

The best answer for the US is to focus on pathways to becoming more competitive and innovative. There are more ways to gain a competitive advantage in the export markets besides cheap labor and a cheap currency.  We must ask ourselves: What can we do to use our gifts of freedom to continue to supply the world with some of its greatest insights and products and innovations?

To remain the leader of the developed world, it’s imperative that we use our ingenuity to continue to push the envelope on technology and progress. This is our largest advantage over China.  China’s repression of its citizens and control of almost everything, in turn suppresses creativity, connectivity, innovation, and ingenuity . . . all essential ingredients for 21^st century global success.  China’s biggest threat is itself, not the West. The US and other advanced democratic economies should take full advantage of China’s current self-fulfilling inability to fully compete.

What’s next?

We can only address these problems together, not through unilateral sparring.  Our best option for sorting out some of these disputes is to encourage the G20 finance ministers to set some basic codes of conduct around what can be perceived as currency manipulation.  This week I was happy to learn that the G20 is making some headway in discussions and is willing to address the imbalance in the voting allocation at the IMF as part of the negotiations.

We live in a complex world. China, currency, and the state of the US economy are complex issues, with complex questions: Today, are politicians on both sides of the aisle trying to pacify US labor groups and the general population in the run up to elections? Are they engaged in some all bark and no bite rhetoric against China? Or are they trying to solve the real problem at hand—the sluggish US economy?

We need to understand issues, and hold leaders accountable, and say: If you’re not doing the right thing I’m voting for someone else.  Global exchange rates are complex, but what the US needs to do is actually quite straightforward. If the only thing I convey in this blog post is the need for greater focus on the root issues facing America (not China’s currency exchange rates), then I will consider it a success.  America has been the most innovative, forward-thinking, and exciting country in the world for over 2 centuries. We have always accomplished the seemingly impossible.  Unless we quickly remember what makes us unique and use those talents to jump-start new products, services, and leadership the world needs, we risk loosing our greatness and trading it for ordinary.  I said it was straightforward, not easy and not without a lot of hard work!

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If we want to be honest, and I think we should, there is plenty of blame to go around for the predicament the US finds itself in today. We severely damaged our financial system through greed, ineffective regulations (notice I’m not saying a lack of), and a over zealous homeownership policy; we somehow forgot that economies and businesses work in cycles; and we all (people, businesses, and gov’t) failed to heed the wise advise of paying down debts when times were good.

Such a significant amount of economic damage requires corrective adjustments that will simply take a bit of time to work through the system.  There’s nothing wrong with a slow and steady recovery.  It certainly beats a continual decline or a Japanese style decade of stagnation.  What’s is wrong are politicians trying to use the slow recovery to get ahead in the poles by scaring the public into thinking the sky is falling again.  That may get you elected, but it will only harm the recovery because it breeds fear and continues to divide us.  Fear affects confidence, and confidence can either have a positive multiplier effect or a negative one (Its our choice).

Let’s first look at what is NOT going to drive us out of this recession; and yes it’s the list of things that works in most recoveries, just not this one.  It’s not going to be the housing market, since it was part of the problem.  We are still in an adjustment period of getting people out of homes that really couldn’t afford them in the first place.  There simply isn’t going to be much unmet demand until after the economy gets going again.  Consumerism is another area where we got out over our skis and adjustments are necessary to find a sustainable level.  I never really understood why the government chose to incentivized people to buy houses and new cars as a way to stimulate the economy . . . it just seems a little counter intuitive to me.  The stimulus was definitely warranted, but we could have come up with some smarter programs.  But since the government owned big chunks of the banks and automakers, perhaps one can see their logic . . . conflict?

Now, where’s the potential, the upside, the areas we can focus on that can produce meaningful results.  Some economists are saying that we need investments in businesses (boosts productivity) and a focus on exports, which I agree with for the most part.  We can use the demand that is stronger in other parts of the world to help create enough economic activity in the US, which in theory should help jump-start our own demand.  That’s the beauty of globalization.

We can also look to trends, future needs, and how this new era of globalization is shaking out to find those niche areas that require capital.  Anything that is working toward solving global issues, utilizing technology in innovative ways, and meeting the needs of people in lower socio-economic stances is likely a good investment.  I can promise you, the companies working on the $1,500 car and mobile banking/markets for the developing world, will look like geniuses 25 years from now.  We may actually be creeping up on the inflection point where it is actually more risky to bet on an investment that focuses on traditional methods of growth in developed markets than it is to explore the frontier where there are bucket loads of unmet demand . . . the bottom of the pyramid.

Success for the US in the 21^st century requires a new way of thinking, a new mindset, and paying far less attention to what the politicians are saying.

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Sunday mornings with Fareed Zakaria on CNN are sacred in my house.  Which basically means that my kids and husband abandon me for that hour.  More often than not, I’m highly tempted to blog about one or two of the topics Fareed covers.  I typically resist, because I rarely disagree with Fareed and over time I’m afraid I might come across as a “Fareed Groupie”, which could tarnish my image of a self-thinking, intelligent, strategic, modern woman.  That said, this week, I am giving into temptation. I simply must blog about this new British government and the 39-year old George Osborne (Chancellor of the Exchequer – Secretary of the Treasury to Americans) whom I found to be slightly pompous (expected), highly intelligent (expected), but unexpectedly refreshing and on-point in his ideas around what people really want from their governments.  I personally, think the US Republican party could take a lot of cues from the new conservative sheriffs at Downing Street.  As an Independent, I actually prefer it when both the Democrats and Republicans are acting wisely as it makes for better candidate options and more solution oriented action.

If you missed the show, it’s easy to watch or listen on demand.  Just click here.

Just to add my own touch to the conversation, and keep up my image, here are the four primary reasons why I like what I heard from Osborne and feel strongly that this is the direction that successful politicians will have to take (regardless of party) to be successful in the future.

Not Afraid to Act

Osborne has pledged to the British people that he will not hide hard choices from them and he will make them.  He has clearly lived up to this campaign promise with his austere budget that is getting a lot of press. He feels strongly that the public wants a government who can admit when there is a real problem, and work quickly to get it fixed.

Proper Leadership

The kicker here is their assumption that the public can and should act as an intelligent deputy to a sheriff who is willing to make and stand behind decisions regardless of which direction the political winds are blowing. This new conservative party clearly recognizes that the British public clearly understands there is a debt problem, and that the country has been living beyond its means for some time, and so they are willing to take it on as their first priority.  They also realize that not only Great Britain, but Europe, requires proper leadership to bolster their image and regain the world’s confidence in their ability to pay their own way.

Collaboration is Not a Death Sentence

Osborne speaks of forming a proper coalition government where the other party holds seats in the cabinet and how the real benefits of diversity in Parliament are less about looking different and more about being different and thinking different.  One of the best statements Osborne makes in Fareed’s interview is, “We can’t abandon whole areas of policy to the Left in British politics.  There is no reason why the Conservative Party should not have a progressive policy on climate change or be interested in issues of poverty and equity in our society and have answers to those issues.”

Open, Open, Open

They are open to new ideas, new views and anyone who can come up with a better way to reach a common goal.  Osborne indicated that he constantly seeks out second opinions and alternative views.  He encourages large numbers of people to come into meetings and say what they want to say, and understands that listening is a large part of the job.  His office recently asked the broader group of public servants for their ideas on how to reduce budgets in a way that doesn’t damage the frontline services people receive.  They received over 65,000 responses in a couple of weeks, and had some of them around to Number 11 Downing Street for a chat recently.  Interactive governement . . . what a concept!

I’ve been saying for years (just ask my friends) that the politicians in the US are simply making things worse and what most people really want is an entirely new breed of politician that is much more suited for the 21^st century.  We need politicians who care less about party line and more about solving problems. We need politicians who can explain both sides of an issue, without bias, and why they believe their decision is the best option.  We need politicians who can work with other politicians to get the job done and stop wasting the public’s time and money on petty politics.

As much as I love they way in which this new and refreshing British government is behaving, I would certainly caution them that the best solution in today’s environment is likely a combination of austerity in some areas and stimulus in others.  Because western politicians failed to play the austerity card when times were good, we are all now stuck in a precarious position.  The equation is really quite simple and it works for government, companies, and at home.  When times are good you pay off your debts, make smart investments, and put a little under the mattress for a rainy day.  When times are hard you dig out your mattress money and stretch on credit a little if necessary.  If used responsibly, credit can be a very stabilizing element in an economy.  When abused, as we all now know, credit can backfire as surely as a 1970’s MG.

One of the things I love the most about this new government is the fact that they aren’t letting fear run the show.  They are taking a stance, creating a strategy, and they are willing to listen to other ideas.  The longer we let fear run our households, our businesses, and our politics, the longer this era of uncertainty will linger.  It really is that simple.

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The opportunity to redevelop the real estate industry such that it contributes to the solutions the world is seeking, instead of continuing to pile on to the multitude of challenges, is huge. Such challenges include the energy crisis, climate change, natural resource preservation, population growth, urban sprawl with ineffective infrastructure, and a lack of sustainable growth practices. Those with the courage to see these opportunities and act upon them quickly will realize tremendous competitive and economic advantages.

Indulge me for a moment as I try to integrate the big picture of how the real estate industry can play a significant role in addressing the challenges we face as global citizens. Then, I’ll offer some details and specifics that outline a new approach to real estate.

Tom Friedman says in his book Hot, Flat, and Crowded, “We Americans are in no position to lecture anyone. But we are in a position to know better. We are in a position to set a different example of growth. We are in a position to use our resources and know-how to invent the renewable, clean power sources and energy efficiency systems that can make growth greener. If we, as Americans, do not redefine what an American middle-class lifestyle is – and invent the tools and spread the know-how that enables another two or three billion people to enjoy it in a more sustainable fashion – we will need to colonize three more planets.”

Real estate investors and developers play a huge role in how communities and cities are constructed, how buildings utilize energy, and what infrastructure and transportation is necessary to connect where we live to where we work, shop, and play. Without drastic changes in how we construct and live in our communities, what’s left of America’s competitive advantage in real estate will continue to fade. Others will take the lead in creating the technology and investment and development models that allow populations and standards of living to grow in sustainable ways that are also grounded in the pursuit of happiness and wellbeing for oneself and the rest of the world.

The global economic crisis should represent the perfect opportunity and context in which to effect meaningful change, unfortunately little is different today than it was 5 years ago in an industry that has endured massive losses over the last 2 years. The only changes fund managers (who ultimately control where and how capital is deployed) appear to be making are to appease their investor base with executive musical chairs, token fee reductions, and maybe a claw-back clause. Their plan is to ultimately convince investors that the world will soon get back to normal. Some fund managers are even sitting out a round or two of fundraising in order to avoid setting a precedent of unfavorable terms with their investors. These kind of non-structural changes or avoidance strategies will, unfortunately, not bring a new mindset, new strategies, creative partnerships, and the innovative models that are needed in the dynamic and interdependent world in which we all now reside. The pace of global change is so great, that the concept of “normal” may eventually become obsolete.

Investors, on the other hand, realize they have been paying too much to fund managers who, quite frankly, have lost their edge, allowing their value proposition to shrink to an almost unrecognizable point because such a large portion of profits have been driven by extremely favorable financing terms. Because investors rely on the income from their investments to fund whatever it is that they do (pensions, universities, etc.), they need to make commitments and keep the economic wheel turning. And, with so few new choices, many institutional investors are forced to give in to what fund managers are offering.

Large institutional investors have more power today than they realize, and with the right leadership they could help re-shape the industry for the better. Relying heavily on a previous track record as an indicator of likely success, in a future that will undoubtedly look quite different than the past, may not be the best strategy. A better bet may be fund managers that are more adaptable to change, that are more willing to present structures which focus on creating long-term value, and have a desire to begin working toward sustainable and energy efficient strategies of investing and development. When assets are viewed in terms of creating economic, social, and ecological value, growth is more balanced and sustainable and less susceptible to large swings in the financial and capital markets.

Suburban sprawl with carbon copy retail centers, minimally constructed housing developments, and energy-gorging apartment complexes are all simply unsustainable and will not work for the future. They are also poor examples to set for emerging markets that have to figure out how to support a net increase of 3 billion people over the next 40 years and typically look to America for answers.

The real estate industry will have to evolve because we are rapidly approaching the tipping point where it is economically advantageous to create and embrace new types of value. The real question is who will be the first group to realize just how incredible this opportunity is for those with the courage to change. Detailed below are two areas in which I believe the real estate industry can make great strides and become the leader the world needs in building more efficient communities that promote healthier lifestyles and sustainable living.

First, we must start with an investment model that is focused on creating value instead of creating fees. The days of creating a majority of profits from financing arbitrage while collecting huge fees and adding very little value are over (or at least they should be over). Those who can design integrated investment models that eliminate the double promote and have a viable long-term strategy that includes some elements of sustainability will have a tremendous competitive advantage.

Second, we must build asset management strategies that not only address the needs of capital but also begin to address the energy and climate conundrum we are all facing, offer end-users options that help solve their daily problems, and are congruent with the direction local municipalities and communities are headed. Typical asset management models are based on a pyramid structure driven by a chain of command. An integrated asset management model, as depicted below, puts the asset at center stage and focuses on adding value by integrating end user needs, investor needs, social needs, and environmental needs into one cohesive strategy.

An integrated asset management model is all about adding value. For example a C class apartment complex that provides residents with free parenting classes, free money management classes, and partners with a local non-profit that provides a mobile medical clinic to families that cannot afford healthcare, will enjoy the highest occupancy rate in its market. Alternatively, a high end retail center whose tenants all relate to health and fitness, sponsors weekend community races and farmer’s markets, will be able to charge a premium, because tenants will insist on being where the action is. Or how about an office complex that caters to “green” businesses that are happy to pay a premium because the building is carbon neutral and net positive on energy. These are just a few examples of a multitude of creative strategies available in an integrated model that views value through a multiple lenses.

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This post is dedicated to the tens of thousands of Haitians who have lost their lives; to those who will undoubtedly loose their struggle in the coming weeks; to my friends and colleagues at Aimer Haiti and to the wonderful creative economic development ideas we were working on that now mean more than ever before.  See previous posts for more information on Aimer Haiti.

Globalization is no longer optional for any nation, company, or person in the world, regardless of their beliefs.  The realities of our globally interconnected world are more evident now than ever before given the failures in our global financial systems that are far more intertwined than many realized.  This coupled with the shrinking populations in many developed nations ensures that disasters such as Haiti and other atrocities happening in under-developed countries are everyone’s challenges and everyone’s potential.  It is now in the self-interest of the developed world that these tragedies are tended to and we band together to allow capitalism and democracy to bring people out of poverty creating new and sustainable consumers and markets for everyone to access. It’s no longer optional; and for me that brings hope.

In order for economies to grow, they require something to create an increase . . . more consumers, cheaper inputs, faster production, more products . . . you get the idea.  Until this century, the developed world has been able to primarily rely on their own increases in population, growing middle class, advances in technology, and fierce consumerism to feed the ever-increasing wheel of economic activity.  Take a look around today . . .

• Populations in many developed countries are decreasing or slowing
• Consumerism has taken a big hit as many realize debt gone wild is bad and things don’t bring happiness
• The environment is feeling the effects of careless growth increasing production costs around the world
• Non-renewable commodities/resources continue on a trajectory of ever growing costs because, well, they are non-renewable
• Finding cheaper inputs is a strategy of the past, including labor, as the world is realizing its better to pay a decent wage and create a consumer

What does all that mean?  It means that the primary resource of capitalism has moved from capital, to labor, and to knowledge over the past 150 years and is now moving toward Connectivity . . . Stronger, deeper, more trusting, compassionate, and creative connections in every direction imaginable will drive the future.  You can’t touch connectivity.  You can’t buy it.  You can’t even learn it from a textbook, but it can be cultivated and societies are increasingly hungry for it.  Those who can connect the seemingly un-connectable dots in new and inventive ways will win.  Businesses that connect to what their customers and employees value the most will win.  Capitalists that figure out how to connect to and serve the Bottom of the Pyramid will win.  Those who can embrace the connection between failure and success will win.  Those who have the courage to connect to their passion and not to the herd will win. Those who figure out that hording no longer works but collaboration does will win.  Those who learn how to tap into the innate energy that exists in every person to do good in the world will win.  Those who can disconnect from fear and connect to the creativity in courage will win.

The US, Europe, and the rest of the developed world must realize that in order to continue our own standard of living and our own comforts in life we must begin to help other countries build middle classes and become the productive citizens they desire to be.  My hope is that perhaps this tragedy in Haiti can bring light and education to the need for global citizenship and the prosperity it can bring to so many (rich and poor).  We have an opportunity to help Haiti rebuild itself and become a model to be used by other struggling nations.

Changing our outlook and expectations from the short-term to the long-term is key.  Today, liquidity does exist; it just exists with a short-term expectation of return and is invisible to most of us.  So we have what is referred to by some economists as a “wall of liquidity” that is searching the world for immediate arbitrage situations and completely ignoring the long-term opportunities that exist today in many industries and places around the world.  That “wall of liquidity” brings a risk of continued global financial instability as it preys on unlikely places such as Russia where the currency will likely normalize in relation to the USD and EUR and monetary policy has allegedly been mismanaged.  It is critical that we recognize the many unintended consequences of the past and vow not to repeat them in the future.

“The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life.”  ~  Theodore Roosevelt

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Just a couple of months ago Aimer Haiti and I met with Agronome Noel (“Agronomist Noel”), one of Haiti’s leading agronomists.  You cannot imagine the determination and drive that this man and his wife have for their country and the need to rebuild the agricultural industry.  We dreamt of the possibilities sitting around the table of an office building that was completely destroyed in the earthquake.  He showed us the book that he has written on how to rebuild agriculture in Haiti.  We talked about the need for a master land plan for the island.  Over time, the lower flat lands that are prime for agricultural production have been used for housing and has wrecked havoc on the natural drainage ways.  We talked about how important this step is, but how difficult it would be to implement since it would require huge changes.  It now represents one of the hidden opportunities in the horrors of the earthquake.

After several hours of invigorating discussion, which left our minds swimming with ideas and possibilities, Agronome Noel invited us to visit his farm.  Fifteen years ago, he turned his frustration with politics into action and wanted us to see first hand what he had created.  So, that was that, three of us were going to Jacmel for the weekend!  This was huge treat for me, as I knew that agriculture would be a large part of the success equation for Haiti.  For decades, Haiti had been given the well-intended advice to buy their food on the global markets and instead build factories to manufacture clothing.  That strategy failed when world food prices rose dramatically and no one was interested in building factories in a logistically difficult place like Haiti when they have options like Mexico, Brazil, India and China.  It was simply bad advice that millions paid the price for.  A country should be able to feed itself.  It cuts the risk of being subject to the large fluctuations in world food prices, it provides jobs, and for a tropical country like Haiti it can produce significant exports.  But more importantly, it provides a sense of pride and accomplishment for its people.

Agronome Noel and his wife Nani purchased 15 hectares of dried up and barren land in Jacmel 15 years ago that was considered useless, for what amounted to a few hundred dollars.  He told the community he was going to grow wonderful and rich fruits and vegetables.  Many laughed at him and from that point on he was known as the “crazy agronomist”.  He did not mind because he knew that some years down the road he would prove his point, and he did.  Though at this point, I am not sure the fate of the Agronomist and his wife.  They spent most of their time during the week working in Port au Prince in order to fund their farming operation in Jacmel.

Three of us from Aimer Haiti spent a weekend with the Noels on their farm in Jacmel.  We stayed in the beautiful home they have been building for 3 years that was to eventually to become their retirement home and a bed and breakfast.  I suspect it is no longer standing.  The 3 hour drive from Port au Prince took us on a journey through the slums where all the garbage eventually collects after the rains, over broken roadways still not completely repaired from the hurricanes, and up through a gorgeous mountainous region.  Despite some barren areas, there is still enough vegetation in the mountains that you can see and feel its natural beauty.  The roads in the mountains were actually quite good and we past many small farmers bundling their harvests ready for the trip down the mountains that more often than not ended in spoiled produce before it reached a market.

We arrived at the farm in Jacmel after dark.  The only light we had was from the cars we were driving and a small generator powering a couple of light bulbs in the house.  We sat on the porch facing the ocean enamored with just how striking the stars are when you are so close to the equator and there is very little artificial light.  We drank, we ate, we laughed, and we continually talked and dreamt of the possibilities for Haiti. The energy of hope and passion was strong in the air and it felt good to me.  You cannot spend time in Haiti and not fall in love with the land, the people, and its spirit.  It does not matter how much other heartbreak and sadness you witness, in Haiti love always wins.  I am certain this is why the Clintons have remained so committed to this tiny country after all these years.

The sun arrives early near the equator; at 5:30 am in Haiti.  The breeze from the sea is not as strong as I expected.  Nor is the sound of the waves crashing against the 3-meter wall of rock down to the sea just 30 yards from the back porch of this large, half finished house in Jacmel.  I am a lover of all sunrises, so there was no way I was going to miss this.  The sun arrived on time, but shielded for some time by a large cloud. Soon, Agronome Noel was with me preparing for the day while everyone else still slept.  I heard goats on the adjacent property and asked if he had any.  He pointed to one goat off in the distance tied to a rock and told me that today would be the goat’s last day.  Sure enough, about an hour later he and two others went out to meet the goat.  And by the end of the day, well . . . we were eating goat stew.

A ball of fire finally burst from beneath the cloud and its rays reached far and wide as we quickly move from a shadowy sunrise to the full-fledge beginning of a new day.  What a peaceful and gorgeous place I had awoken to, now that I could see everything.  How could anyone have ever considered this land a lost cause?

When the Noels began 15 years ago with a plot of dry barren land, there was no road, no access to water, no electricity, and no soil.  For the crazy agronomist, these weren’t problems, just things to be done.  On weekends and holidays, with the help of a few farm hands that live on the property, they began the transformation by hand.  There are no big machines and no tractors, just simple hand tools.  They trucked in water and topsoil and began to build the tree canopy.  You see, first you must create enough of a canopy to cool, shelter, and nourish the soil below.  Once the canopy began to work it’s magic they were able to plant the tender topical plants and fruit bearing trees.  They have bananas, cocoa, coconuts, mandarins, figs, papayas, and almond trees.  At least those are the ones I can remember.  The barren land was transformed into a tropic forest full of agricultural treasures in a few short years.

I will never forget the day I woke up in Jacmel!

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When you see the level of response from the US and nations around the world to the tragic earthquake that rocked Haiti only a few days ago, it is hard not to feel proud of the quality of global citizenship displayed by so many.  Individuals and organizations have been sent to help with security, medical care, food distribution, general aid, and journalistic coverage and they should be commended for their commitment to humanity.

However, as an economist who was working on economic development in Haiti before the tragedy, I know that the strategy and model used for rebuilding is the key to success.  Despite good intentions, the developed world does not have the best track record for helping under-developed countries gain any significant traction.  There has never been a lack of funds or good intention, but there has been a lack of effective and unifying strategies designed with the population’s physical and cultural needs in mind.  This unfortunate and tragic earthquake has presented the world and Haiti with an opportunity to set the rebuilding of Haiti on a course that will have long term significance for its people, if we are all willing to try something new and think about building sustainable economies with a new perspective.

There are a number of areas that will obviously require simultaneous focus, however the primary force and core strategy should be helping Haiti to rebuild their own country, with their own hands, and resist the temptation to do it for them. Often our own need to help gets in the way of truly understanding what is needed.  This may sound over simplified or inconsequential to many, but I assure you it is not. The rebuilding must be done in a way that unites and aligns citizens, government, businesses, investors, and aid organizations.  Without unity, there will be continued factions, hoarding, corruption, and minimal progress.  This monumental task requires a top-down strategy with a bottom-up implementation plan.  I have faith that with the assistance and guidance from the rest of the world, Haiti can rebuild itself and become much stronger than it was before the earthquake.

We must avoid simply jumping in with quick fixes and rebuilding everything back they way it was.  A master infrastructure plan that is comprehensive in its ability to connect the disparate parts of the country and support agriculture and other industries is critical.   It must take into account the reverse urban migration that is likely to occur as a result of the earthquake.  Many people will go back to the small towns and villages where they are from because they no longer have homes and jobs and have nowhere else to go.  The people in Haiti’s countryside are generally the poorest of the poor — why so many migrated to the big cities in the first place.  Supporting agriculture, tourism, and arts industries in the countryside will provide people the means to stay, to start over and to allow the country to grow in a more balanced way.

Agricultural Development Aid is a crucial component, and it will be required in a way never seen before.  With the traditional strategy of sending a disproportionate amount of food aid compared to Agricultural Development Aid, we generally set a country up for failure.   Sending only food aid does serve an immediate need and feeds people today, but it can also destroy what markets still exist.  Building chicken farms, developing farm land and building other food production facilities puts people in business so they can build up their own markets allows the aid to continue to churn through the economy and even increase economic activity over time.  Simply handing out food produced elsewhere and brought in through an outside distribution channel fills an immediate need, but if it is not balanced with other strategies eventually also feeds the equation of poverty.

Businesses must be created and financially supported so they can hire local employees and begin the re-building process.  Contracts must be structured with built-in profits from the rebuilding efforts that can be used to create further self-sustaining economic activity.  The banking industry must be supported such that the bankers can make enough profits to stay in business and grow while providing heavily subsidized loans for building businesses and rebuilding structures.  The World Bank and the IMF need to find creative ways to support industries and businesses directly as opposed to giving the lions share of funds directly to the government.  When businesses begin to grow and more money is invested in capitalistic endeavors, the government’s revenue will grow in sustainable ways and can it begin to rely less and less on foreign hand-outs.  The government should be orchestrating, aligning, and ensuring coordination of all efforts.  The government should be making master plans and ensuring long-term strategies are properly focused on growth.  Groups like Aimer Haiti, who can help build and mentor businesses, should be working with the government, the World Bank, the IMF, the US, foreign investors and domestic investors to develop completely new strategies for growth.  Aimer Haiti has already been working on such collaborative and creative economic development strategies since their launch in 2009 and for years before as concerned citizens and Haitian business owners.

Energy has been a growing issue for Haiti as its population rises, and is now even more critical.  Electricity has never been reliable and is often supplemented with large battery stores powered by diesel generators.  The good news is that technology has advanced enough that a country like Haiti can leap-frog many of the evolutionary steps in energy that the developed world could not.  It’s a matter of getting the brightest minds together, inside and outside of Haiti, to come up with the best solutions given the unique conditions of the country.  Before the earthquake Aimer Haiti was exploring the possibility of using small solar energy units in some of the poorest areas to provide light, refrigeration, and power. With refrigeration, people can store and sell perishable products such as produce and fish.  With power people who cannot read or write can begin the process of building an education base through radio and television.  Mobile phones can be powered and connect people to markets to sell their goods.

Solving the energy issue is also the key to stopping deforestation.  Until there is a reliable source of energy to replace charcoal, and until there are jobs and small businesses to give people a means to survive, deforestation will continue.  Deforestation causes rapid erosion, which leads to road and bridge destruction, and leaves the land unsuitable for farming ensuring the cycle of poverty continues.  The cutting down of trees does not happen because Haitians do not care about their land, it happens because it has become a means of survival for so many people.

The interconnectedness of all of these major issues in Haiti is another reason why getting the overall re-building strategy right is so key to its long-term future success.  Every solution and every single effort of aid and rebuilding should be viewed as an opportunity to put Haitians in businesses that will create jobs.  For example, the distribution of food and creation of helicopter landing sites, which is happening right now in Haiti, is a huge opportunity to employ people and allow them to feel a part of the solution and not a part of the problem.  There shouldn’t be such a stark line between those giving aid and those receiving aid.  This is an example of the change in thinking and the change in mindset that is needed to change the trajectory of how under-developed countries are assisted, particularly in times of need.

This type of re-building is not done from an office or over the phone, it is done by creating relationships on the ground, building businesses, one at a time, and helping families, one at a time.  It’s about doing, creating, uniting, and elating in each small success that both dedication and determination will bring.

History has proven time and again that capitalism and the building of a significant middle class are still the best ways to bring people out of poverty.   Before the earthquake, one of the first billboards you saw when you were leaving the Port au Prince airport, was the large unity triangle of Aimer Haiti, which of course translates to “Love Haiti” in English.  I hope it is still standing!

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This photo was taken just before Christmas of me and my friends at Aimer Haiti.  It was the end of a busy week of planning, dreaming, and believing in what Haiti can be one day when we all work together.  I have not been able to reach any of them and pray that they and all of their loved ones survived.

I can see the shanty towns on the hillside of Port-au-Prince in my mind as if I were standing there right now and know the outcome for many will not be good after the earthquake shook a city already in pain to its knees today.

I have spent the last 4 months working with a group of business men and women in Haiti who have seen enough  disappointment and suffering and are willing to do whatever it takes to show the rest of the world that it is not to late for Haiti.  They have a dream for their country and they are determined more than any other people I have ever met to see that dream come true.  Their country is beautiful, its people are kind, and its potential is off the charts.

We are working on economic and agricultural development and devising new models that would let us use this one country and the momentum their government, the UN, President Clinton, and my friends at Aimer-Haiti have recently created to let it mark a new beginning for global economic development.  Despite this tragedy, it can still be done.

What everyone needs to know is that just because they have now experienced what appears to be massive devastation, we cannot give up on the dreams that both local Haitians and those living abroad still have for their country.  In fact we must use this tragedy to awaken the rest of the world to the story of Haiti.  Haitians have more spirit and more strength than you can imagine and they will not let this beat them.  What Haiti needs, and what Aimer Haiti is organized around, is economic development and the building of a true middle class.  Haiti will need immediate aid for sure, but they also need long term development aid so they can eventually find their own way and loose the title of the poorest country in the western hemisphere.

If you want to help please do two things:  One you can give to Yéle Haiti donations that will be used for immediate relief. Yéle Haiti is a non-profit that did amazing work after the devastating hurricanes in 2008.  Grammy-Award winning musician, humanitarian and Goodwill Ambassador to Haiti Wyclef Jean founded Yéle Haiti in 2005.

Two, you can provide donations to AimerHaiti that will be used to ensure that focus remains on economic development after the period of immediate aid is past.  Long-term development is the real lifeline that will ensure everyone in Haiti has an opportunity to earn a decent wage and take care of his or her loved ones.   If you are interested in helping this organization, please contact me directly.

There is much we are planning as far as creating new and innovative ways of using international aid and government support to promote private investment.  Alignment and partnerships can be created between local governments, private domestic investors, private foreign investors and foreign aid such that all are moving in the same direction.  Aid can be used to incentivize and guarantee investment that will create sustainable progress instead of being primarily used to shore up faltering national balance sheets and lining the pockets of a few.

We are going to insist that when it comes to the developing world:

• We must change the focus from problems to opportunities
• We must take more action and do less analysis
• We must build-up and exploit what each country has to offer
• We must reinvigorate the dreams of people all around the world
• We must let the world participate in it’s own rebuilding

Please don’t give up on Haiti, there is still a chance to rebuild; and rebuild something far better than what exists today.  Haiti is a beautiful country that has much to offer the world.   We have an opportunity to show that the world together can develop a small country into a productive nation that can in turn help others.  We simply must be smart about how things are rebuilt, create partnerships that last, and align all parties in the same direction.

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The short answer is EVERYTHING. The long answer is what this post is all about.  These are three of today’s most pressing issues that are all too often discussed in a vacuum.  The best progress will be made at the margins where each of these pressing issues overlap.  When we begin to see them each as an integral component of global economic progress and prosperity and not discrete issues, much will be gained.

Perhaps the inclusion of 21^st century business models is a surprise to many lumped in with the other two that get a lot more focus and media airtime, but please notice that I use the predication “21^st century”.  If we want to do something about the ramped greed and selfish strategies that exist in many of today’s firms, then it must be added to the mix.  If created correctly, new and improved business models can be a large part of the solutions to climate change, global economic development, and their own perils of decreased employee morale and disgraced public opinion.

• They all require new, passionate, and innovative solutions. In fact, we must assume that the very best solutions are not yet known.  Thus, the solution frameworks that are being bantered around today need to accommodate the unknown solutions of tomorrow.  It’s beyond out of the box thinking and into a world without the constraints of boxes of any sort.  It’s about unleashing the mass of untapped potential and productivity that lies dormant inside people and organizations around the world.

• They are each integral to the success of the others. Slowing population growth in the developing world is one of the keys to avoiding a climate catastrophe down the road.  Economic development and the creation of a middle class is the most effective way to slow population growth in the developing world.  Private sector ingenuity is key to new technologies that will reverse the current trajectory of climate change as well as promote economic development in the developing world.

• Alignment is key to effective solutions in each case. Businesses are learning how to align their shareholders, employees, customers, and the public in ways that will dramatically increase productivity.  When transparent alignment and partnerships are created between foreign aid, domestic and foreign private investment, and public money, global economic development will become significantly more efficient and effective.  Unless we properly align the big players in the world on climate change soon, it will likely suffer the same fate as the Green Revolution in Africa.

The most successful businesses models in the 21^st century will be those that realize contributing to the creation of new markets is a winning long-term strategy, that focusing on something besides growth and profits is the key to engaging employees and winning the hearts of customers (yours as well as your competitors), and that how you decide to be in the world can be just as important, if not more important, than what you sell.

Too often when these topics are discussed in the media, there is too much focus (in my opinion) on the facts known today which narrows the conversation and too little focus on what we want to create.  In other words, discussions and potential solutions are being filtered based on what we know how to do today and not on whether or not they fit what it is we are trying to create.  All great movements start with an unadulterated view of what should be created, if anything is possible.  There isn’t much humans can’t do once they set their minds to it.  Some things take a few months and others a few generations.  The problem is that we sometimes lack the belief that it can be done, which ends up being the biggest thing that holds us back from succeeding.

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