Enlightened capitalism towards a more sustainable future

MANILA, Philippines – Thank you for inviting me to be with you today. I know that this is one of the most eagerly awaited events in your industry. I feel honored to be part of this event – to be among some of the most creative minds in the country.

The Ad Congress is a vast opportunity for learning and a great opportunity for us to challenge traditional thinking.

This is precisely what we need today in a world rudely awakened to alarming environmental and social realities that can no longer be ignored or accepted.

We’ve all seen the devastating impact of climate change. Whichever part of the world you’re from, the outcomes are one and the same – countless lives lost, human displacement, livelihoods and businesses disrupted, agricultural resources obliterated and the tragic loss of hope for so many.

These devastating environmental problems can no longer pass as ‘acts of God’. We are witnessing the direct consequences of a human footprint that is so large that it is degrading nature on a massive scale.

We are consuming more goods, using more resources and creating more garbage than we are equipped to handle. Technology has allowed us to push the limits even further, but has resulted in more emissions that warm the atmosphere. Companies are pressured to grow faster, produce more goods, increase profits, expanding environmental footprints in the process.

These are all reinforced by the promised rewards of a capitalist system under which much of the world operates. Ironically, it is the same system that created great wealth for nations and improved the well being of societies. Capitalism, after all, has been the most positive force in uplifting the human condition. History has proven it is the single greatest engine for the creation of wealth. Countries which adopted it, like China, have sustained economic growth for years and spread prosperity. But along with this, it also finds itself surrounded by environmental ruin and persistent poverty that afflicts a great part of its population.

While it is true that capitalism has allowed many countries to climb out of poverty, many have not. A great percentage of the world’s population is caught in a poverty trap which climate change will only worsen.

Certainly, there is a host of complex reasons why millions are stuck in poverty. Population explosion is one of them. But it is also clear that inherent failings of our current economic system have aggravated it.

While capitalism has been a great economic model, it has also not been efficient in providing goods and services to people who need them most. It has failed to provide basic infrastructure needed to allow the poorer sectors of society to join the formal economy.

Poverty alleviation approaches have relied heavily on charity through multilateral aid or donations of rich countries to poor countries. There has been a dependence on government for the provision of basic goods and services to the poor.

This model does not work sustainably. The charity system has tremendous inefficiencies that leaves it grossly insufficient. The US, for example, has given billions of dollars to Africa. But, according to Jeffrey Sachs of Harvard University, the true developmental aid, net of the portion for US consultants, food, and other emergency aid, amounts to a grand total of six cents per African. Hardly enough to make a difference.

Charity has not been able to deliver long term solutions on a scale that can genuinely uplift the lives of the poor. Businesses in turn have traditionally prioritized more developed segments of society which tend to be more profitable. This further isolates the majority and leaves them entrenched in a vicious cycle of poverty.

From a moral standpoint and even as a businessman it is unacceptable.

Business simply cannot flourish in failing societies. The building blocks of society—families, communities and businesses cannot prosper if the air is polluted, if the rivers are clogged, if forests are denuded, if biodiversity is threatened, and if people are mired in poverty.

These realities must force all of us to stop and rethink the very conduct of our lives, the way we govern, and do business. They scream for radical shifts in our current paradigm of capitalism and deeply ingrained human practices that have led us to this state.

Let me emphasize that the problem is not capitalism per se – but in the self-interested way that it is practiced today. It is capitalism that is highly individualistic, that is motivated by purely personal gain at any cost, and in many cases, with no regard for anything else. This, I believe, can be as destructive as it is creative.

Instead, we need to fundamentally reorient this economic paradigm towards a more “responsible and enlightened form of capitalism”, one that seeks long-term sustainability and balance, one that uses the mechanisms of the free market, but recognizes the needs of the broader community. If we don’t, I’m afraid we will continue on a path that leads to more frequent natural disasters and the resulting toll on human suffering and poverty.

I have confidence that practical and realistic solutions exist and are within reach. Today, I see three trends combining to form the foundation of a new, more “enlightened” capitalism, or what Bill Gates calls “creative or soft capitalism”. This is capitalism that uses market forces to address the needs of the poor, those at the base of the economic pyramid, who in the past were not considered a profitable market. This is capitalism that looks at greening the supply chain, that minimizes environmental footprint, that seeks more efficient use of natural resources and replaces those it has used. I see many people and companies beginning to transform, ready to embrace an alternative path that leads to sustainable, more inclusive, and equitable growth.

The first trend I see is an emerging social pact. People are increasingly demanding greater accountability, higher levels of ethics, heightened social and environmental responsibility, and governance from both the public and private sectors. Consumers are demanding products that are environmentally safe. Employees are more inclined to pursue careers with companies that are ethically and socially responsible. Capital is finding its way into companies that have strong social and environmental dimensions in their business strategies. It is imperative that this momentum is nurtured and reinforced so that it is adopted at all levels.

The second trend is the increasing ability of business – using new business models, new technologies, and partnerships with communities and government – to profitably meet the needs of the lower income groups. By finding ground-breaking ways to tap this market profitably, companies are unlocking new opportunities, and unleashing billions of dollars as they provide access to services and goods for the poor.

There are many successful examples of business models that cater to the base of the economic pyramid or the poorest sectors of our society.

In India, Philips Electronics is making access to healthcare facilities more affordable through custom-built clinical vans. These vans constitute a real business that combines the capabilities, technologies, and expertise of business using approaches developed by the non-profit sector.

The same impact has been made by the telecom industry in the Philippines. When Globe and Smart collectively brought down the cost of mobile phone services through innovations in technology platforms, the penetration rate of phones dramatically increased. Today, an astounding 80 percent of the population has access to a mobile phone to communicate with family and friends and to manage their businesses.

We saw the same outcome in our experience in Manila Water. Bringing piped water to communities that didn’t have access to it at a fraction of the cost, created a huge leap in people’s quality of life and an enormous improvement in health, especially for lower income groups.

But perhaps, no other base of the pyramid business model is more powerful than microfinance. We all know how the Grameen bank in Bangladesh introduced microfinance and radically transformed the lives of millions of people who otherwise would have had no access to credit.

This model has been taken to most emerging economies where mainstream financial institutions are now moving into this space successfully. There are examples like Compartamos Banco in Mexico, Credi Amigo in Brazil, Bank Andara in Indonesia and ICICI in India. These institutions and many others are already serving millions of people around the world. With 80 percent of the population in the Philippines still un-banked many people in our country are exposed to unscrupulous characters that lend them money at exorbitant rates. This will rapidly change as more and more institutions look into microfinance as a profitable business opportunity.

Within our group we recently decided to tap this sector by combining Globe’s G-Cash technology with BPI’s expertise in managing loan portfolios. Through a combination of technology and experience, we feel we can expand the reach of microfinance and bring down transaction costs in a profitable way to ensure its sustainability.

Companies are clearly moving into sectors that were previously left to the NGOs or government agencies. They have shown that they can operate profitably within this space and give basic access to the poor. Companies like Pfizer, Unilever, Nike, Microsoft, Petron, and many others are aggressively looking for solutions to serve the broader base of the market. As these businesses can be profitable, you will see an enormous amount of innovation and resources being channeled to a sector that has been neglected for so many decades. In many cases, the lower income groups will be getting access to basic services for the first time and in many other cases the drive for efficiency in the private sector will allow them to get the services and goods at a much lower price than in the past.

The third very positive trend I see is the move towards more Strategic Philanthropy. Philanthropic activities have dramatically evolved from being relatively small sporadic distributions to larger, more strategic social consortiums. These cross-border and multi-sectoral partnerships enable programs to scale up and magnify their impact, benefitting entire sectors, cities, and even an entire country.

The Bill Gates Foundation is perhaps the most prominent example. It uses its own resources and its partner institutions’ to strategically address infectious disease problems in developing countries. They support sustainable ways of delivering technology and invest in R&D for affordable interventions such as natural vaccines, low cost repellants, and diagnostics. Their efforts apply the same kind of strategic thinking and discipline that made Microsoft a global enterprise.

Another example and one that we can see right here in our country is the Shell Foundation’s work with an alliance of over 200 international companies to combat tuberculosis and malaria in Palawan, Apayao, Quirino, Sulu, and Tawi-Tawi. To succeed, it relies on equally critical partnerships with various government units to ultimately eradicate these health problems.

We are gradually witnessing the replication of these massive collaborations. I am very interested in the on-going effort for an environmental clean-up and transformation of our very own Pasig River.

A river that was once a source of life, a central feature of the city, a means of transport, and a center of economic activity has been denigrated into a dumpsite of human and industrial waste after 80 years of abuse. The Kapit Bisig Para Sa Ilog Pasig Project is a huge effort that only a multi-sectoral collaboration can manage because it needs a full range of solutions, from housing, livelihood, clean water, to health services, education, sanitation, and waste management.

The Pasig River represents an opportunity for a new approach and thinking towards such a critical resource. I have decided to get involved both personally and through the companies that I work with, in the relocation effort for the people living on the banks of the river. Through Habitat for Humanity and other partners we will help relocate all the families to new sites.

I am fully convinced that under the leadership of Gina Lopez and the ABS CBN Foundation and with everyone’s committed assistance, we can bring this river back to life again. Its success will show our capacity as a nation to solve problems of this magnitude in our country. It will invigorate our confidence to work together for a common cause.

These three trends show that businesses and capitalism can be harnessed for greater positive impact in society. They can become a force for change as they have the tools and solutions at hand for the problems we face today.

Across the world, societies clamor to put an end to the irresponsible use of resources, an end to environmental degradation, and a beginning of a new and better standard of living for itself and for its children. I have absolute confidence in this unfolding movement. Societies have always demonstrated a unique ability to adapt, adjust, and create solutions to problems at every critical juncture in history. But these solutions ultimately rest in all of us, individuals, who make up and chart society’s course.

If we do not have the individual willingness and capacity to work together and make a radical change in our ways, if we do not demand a higher standard for ourselves and from our leaders, if we do not reject apathy and mediocrity, we are doomed to muddle through, feeling frustrated and impotent to change our lives for the better.

But if we do, even our own individual modest efforts, replicated and multiplied a thousand fold, can save our country from the slippery slope to economic failure and social dislocation.

In this room tonight are some of the most creative minds in our country. You have the power to fuel the passion, the hope and the desire for every Filipino to transform our country into a vibrant, entrepreneurial and caring nation.

Let us all play our part in rebuilding our country today.

(Keynote speech at the opening of the 21st Philippine Advertising Congress on Nov. 18, 2009 at Subic Bay.) –Fernando Zobel De Ayala, President and Chief Operating Officer Ayala Corporation (The Philippine Star)