Investing with Impact: Why Finance Is a Force for Good – Jeremy K. Balkin

Here are my comments on the book:

How does investing have an impact on everyone? Jeremy K. Balkin, regarded as an international thought leader on ethics in banking, impact investing, and the strategic engagement of millennials in financial services, states that despite the financial crisis in 2007/08, we shouldn’t lose confidence in the market as investing impacts everyone. He argues that investing in markets has enabled us to further develop the world’s economies and as a result, everyone’s quality of life has increased. Governments alone aren’t able to produce the amount that they do currently if it weren’t for private companies. If everyone loses confidence in the market, businesses can’t grow and same with our economies. This results in rendering our standard of living stagnant. Here are some of the points to the book:

 

1. People have argued that capitalism has failed us but I would have to argue that capitalism wasn’t just created on its own, people created capitalism. Having said that, if anything, we as a society have “failed” and we need to fix ourselves first before putting blame on the system. If you think that capitalism is “evil,” just look at the majority of the wealthiest countries in the world. Most of them have adopted this political/economical system which demonstrates the potential behind it. Now I’m not saying that capitalism is perfect, far from it, but it’s the best we have to move civilization forward. The global financial crisis demonstrated a fundamental deviation from the essence of capitalism, characterized by egregious human misrepresentation of enlightened self-interest, collective moral failure, and ethical violations. Capitalism itself did not fail, because failure rests with the unenlightened human beings participating in the system who acted with myopic selfishness. This broken world does not need inclusive capitalism, conscious capitalism, crony capitalism, or even capitalism 2.0, because capitalism does not need to be repaired. It is human morality that needs repairing; the world can no longer afford to flirt with an alternative system that stifles prosperity and human development. At this point in history, continued human development depends on the restoration of human beings to the core of the economic system, because people have never before been more connected with and dependent upon one another. Capitalism has more than 4.5 billion disciples scattered throughout the world, and billions more yearn for the same freedom, aspirational opportunity, and economic prosperity. Apportioning blame for the crisis serves little purpose in the pursuit of rebuilding the economy. It is the freedom of the capitalist system that allowed market participants to engage in the morally and ethically challenged behavior that led to the global financial crisis. Therefore, rather than looking to the past, we ought to pursue the essence of capitalism, which is powered by impact investing and positive social impact.

 

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2. Capitalism has raised the standard of living for everyone, not just the rich as some people believe (“The rich are getting richer”). Never before has there been so much money flowing around, never before has poverty been so low in history, and never before have deaths due to lack of basic necessities have been so low. When money gets injected into the economy, there are some imbalances of how it gets distributed, but none the less the standards of living for everyone raises. Free markets not only deliver reductions in poverty but also higher incomes. Unsurprisingly, countries with the highest economic growth are also countries with the fastest income growth among the poor. This enables people at the bottom of the economic pyramid to purchase an increased quality and quantity of food. According to the United Nations, people now consume significantly more fruit, vegetables, and protein, reducing undernourishment rates among children in developing countries from 31 percent in 1990 to 26 percent in 2008. The World Bank estimates daily calorie intake rose from 2,200 per person in 1960 to 2,800 in 2007. Many of the world’s poorest people are agricultural farmers, so increased food consumption and free trade have had a positive impact on their living standards. Rising living standards have had widespread political ramifications as well. Free markets are the natural precursor to a whole range of other personal freedoms, because capitalism is the economic equivalent of free speech. Dictatorships are more likely to democratize as they become richer, and democracies are less likely to collapse the richer they grow. There is an exception to this rule, however, specifically in countries that are endowed with oil resources, where there is a tendency toward ruthless dictatorship and hereditary monarchical concentration of power. According to the International Monetary Fund, forty-five of the fifty-six countries with gross domestic product per capita exceeding $15,000 are democracies. Therefore, rich countries more often than not also tend to be robustly free societies. Perhaps even more telling is the data from the Cato Institute’s Annual Economic Freedom of the World Index. In 2011, countries that fall into the top quartile of the measurement for economic freedom had an average per capita income of $36,446, compared with $4,382 for countries in the bottom quartile. Interestingly, the average income of the poorest 10 percent of the top quartile was $10,556, more than double the overall average income of the bottom quartile.10 In other words, the freer a nation is, the richer it becomes. Political and civil liberties are considerably higher in economically free nations than in politically repressive and tyrannical nations.

 

3. When investing, instead of investing just for profits, adopt an “investing for impact” approach where you look at the “6Es.” When looking for a company to invest in, look at their 6Es: Economics, employment, empowerment, education, ethics, and environments. Starbucks is a prime example of a company that excels in the 6Es. Starbucks is led by Howard Schultz, a visionary leader who became chief executive officer in 1987. Schultz’s business concerns extend far beyond the corporate bottom line, and he attributes the company’s success to a business model that balances profitability and social consciousness, and that places employees and communities at the core. ‘Starbucks represents something beyond a cup of coffee,’ Schultz has said. During the period Schultz has led Starbucks, the company share price has grown more than 12,300 percent. A model corporation in terms of balancing profit and social impact, Starbucks has delivered both simultaneously over a long period of time. The company offers an exemplary case study of a publicly listed corporation that ought to be considered an impact investment because it intentionally delivers both measurable positive social impact and strong financial returns. In 2014, Starbucks’ total market capitalization touched $60 billion,40 roughly equivalent to the total gross domestic product of Luxembourg, one of the wealthiest nations in the world based on per capita income. Starbucks generates close to $16 billion in annual revenue, serving more than three billion customers and using more than four billion paper cups per year. In fact, the company embodies the very essence of enlightened self-interest.”

 

By Ryan Timothy Lee

 

Thank you for reading! Please share this post with someone who you think will benefit from it. If you have any book requests/recommendations, I’d love to hear them out so please let me know through an e-mail at bookstakeaway@gmail.com. Also join my Facebook group here, to receive updates on future posts.

 

My rating:
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Check out the book here:

Amazon US
Amazon Canada
Amazon UK

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