Bbefore we discuss what and how we fund, we need to discuss what economic development is, and how we can make it sustainable, while accomplishing the UN’s seventeen Sustainable Development Goals (SDGs).
The definition of Economic Development takes three completely different pathways. One is the philosophy of economic growth, the second is related to social and environmental well being, inclusive of economic growth, and the third is the actual work building infrastructure and growing an economy. Discover which is important and which does more damage than good.
Before we get into those three definitions it is most important to grasp the real reason for economic development as that will help you guide your decision as to how you might treat the subject. There is a purpose for doing economic development work – and that is to improve peoples lives. At this point you might ask why? The answer is, people are on this earth for a reason; it is to fulfill the measure of their creation; to become all that they can possibly become. In order to do this they need as much agency as possible; they need freedom.
Economic Development Delivers Freedom.
The penultimate reason for doing economic development work is to free people from the divisiveness of their circumstances and allow them the greatest capacity to make meaningful choices in their life that will enhance their livelihood and empower them to manifest the person they wish to become. All of the other discussion about economic development is secondary to this grand purpose.
The first and oldest nomenclature is closely related to the philosophy[6] of economics. The term economic development is intimately associated with the science of human behavior within the realm of financial affairs. It is well recognized that humans tend to act with self interest towards their financial affairs. Economic Development is also associated with the philosophy of economic growth, the causation of growth of an economy, which falls under the realm of philosophy because the definition of economic growth is mostly theoretical in substance.
Adam Smith in his classical book , “The Wealth of Nations” described economic development (the growth of an economy) as the action of the “invisible hand” of millions of people all making their own self-interested decisions to maximize the financial advantage and accumulate wealth thereby.
When an economy grows then that growth is identified as economic development. In order to identify that growth is occurring, governments try to find and also invent terms and definitions in order to make themselves look legitimate.
The idea is that somehow good governance has caused economic growth. So naturally those employed in government and financial policy will tweak the numbers and adjust the measurements in order to make themselves appear as though they are the cause of the growth. So there are a number of indicators which we will get into later that are used to identify if economic development has happened.
Recently there have been many that intend to co-opt the language of economic development to mean more than specifically economic growth. Their contention is that economic development should also include social well being and environmental concerns. The justification of this argument is founded on the basis that economic growth which is inclusive of GDP (GDP – an indicator in the measurement of economic change over time), which is often the consequence of industrial development does not necessarily show or prove that peoples lives are improving.
So their intention is to co-opt terminology that was originally an economic terminology and use the term to also include social well being (health and wellness, equitable education opportunities, upward economic mobility, freedom to make choices in their life, access to infrastructure and technological advances, longevity of life, personal security etc.), and environmental concerns, such as carbon emissions, pollution, and degradation of biodiversity.
From an environmental standpoint there is some evidence that when economic conditions improve peoples behavior surrounding the environment tends to be less survivalist in nature and leans more toward caring for their surroundings. In fact biodiversity, air quality concerns and a consciousness for waste management with regard to pollution are all empirically documented as improved when the citizenry have higher per capita incomes. So when there is specific improvement in regional per capita income there is also environmental improvements, even though there is no direct evidence of linkage between income and environment (two separate and independent domains).
With regard to social welfare or socioeconomic improvement the considerations are that economic growth (GDP) or industrialization (growth of industry within a region) does not necessarily mean that people in that region are experiencing better social outcomes. So those with an agenda of social well being want to say that economic development is not the same as economic growth because there may be a growth in the wealth of a region while many are left behind (inequitable growth) and also that the citizenry may not have better health, longer lives, upward mobility, education and many other benefits that should accompany economic growth but are often ignored because of the capitalist profit motive being paramount.
There is also not a single country that has advanced economically that has not also gradually grown their social welfare state. This is not necessarily that social welfare is particularly a good thing or a bad thing, but I believe it is a consequence of the self interest of politicians that need to survive in their chosen profession. In republican style governments, in order to maintain the mandate of the populous, politicians have a need to grow their voter base. The easiest way to look good to voters is to meet the question, “What have you done for me lately?” with the answer, social welfare. It is very hard to vote against benevolence, especially when you or your neighbor is the beneficiary.
So the term economic development is trending towards being inclusive of all three agendas, of economic growth, social well being and environmental considerations.
The third and completely separate definition of economic development is the work done to develop a region which will in turn will cause growth in that region. This work most often takes the form of building infrastructure that improves the efficiency of businesses operating in the region and makes it easier for businesses located there to be more productive. A farmer getting to the market quicker because of a new road will save time, resulting in a reduction of post harvest loss, and then because of additional profits, can buy more seed next season.
This process can manifest a lagging indicator of more profits accumulated by those businesses. Then if the business owners have a growth mind-set they will use that additional revenue to increase the size and scope of their operations, which often means employing more people.
This economic development is usually a gradual process resulting in a greater circulation of capital in the region. That additional capital and greater purchasing power causes peoples lives to improve. This is specifically the kind of economic development that Sovereign Trusteeship Inc is building in the regions where they are doing economic development work.
We ourselves, because of this confusion in terminology are co-opting the term Eco-development to be specifically distinct from economic development because we are primarily concerned with the work involved in the development process, not the philosophy, and regard economic development growth as a consequence of sustainable Eco-development activity.
But we also regard Eco-development as specifically distinct from economic growth and industrialization because the outcomes of our brand of growth generation, our Eco-development ecosystem, is such that what we manufacture is inclusive of all three bottom lines. The benefits are not only for the beneficiaries within the region where the work is being done, but also for the investors that are putting up their money to see all three benefits, including their own profit motive.
So when you see us using the term Eco-development then you can understand that we are specifically addressing the work involved in producing that triple bottom line which socially and environmentally concerned investors want to see inclusive of a return on their investment.
This would be specifically different from what central banks do to supposedly create economic growth, which is to centrally control interest rates in order to get more capital into their marketplace while at the same time devalue the currency, so that government debt owed to others is devalued.
If the interest rates are hovering around zero then strong borrowers will always grab that free money to solidify their wealth, perhaps by executing stock buy backs or buying competitors, consolidating and eliminating jobs. In this way big banks and central banks can become the enemy of the middle and lower class because the capital they are creating through debt benefits no one but them and their friends.
Unfortunately this activity at the same time, destroys the value of any savings that prudent people have accrued over their lifetime. In my life time, if there was $1000 dollars deposited on the day of my birth it would today only be able to purchase 5% of what it could purchase on the day I was born – a 95% currency devaluation.
Governments that have generated a lot of debt use this stealthy method to quickly eliminate debt. All they have to do is flood the market with zero interest currency and the value of their debt declines correspondingly.
The bean counters at the central banks actually believe that they can artificially stimulate economic growth by playing with the money supply while sitting behind a desk. It is kind of like the football team owner sitting behind his desk and saying, “My team will win because I pay my players more.” Everybody would like to take a bow for positive consequences they had no part in, especially if they can fool you into believing it was all because of their efforts.
So, if the economy is to grow then you need some way of identifying that growth. At this point we have now shifted back up to the first definition of economic development – growth. The generally agreed indicators that are used to measure growth and “prove” that economic development is happening are below.
Industrialized Nations Indicators of Economic Status
Gross Domestic Product, GDP, is the is the sum total market value of all goods and services produced by a country or region measures within a specific time. This would include earnings from foreign investment less goods purchased from foreign sources.
Regarding growth, there is a measure called real GDP which is a broad measure of the wealth of a society. We want to know how fast profits will grow because that tends to indicate a measure of prosperity. Every year the numbers are adjusted against changes in prices (inflation). You can use this formula to get to GDP:
GDP = Consumption + Government Expenditures + Investment + Exports – Imports
If government borrows a lot of money and spends it on bad investments (that produce no future value) and then imposes trade sanctions (tariffs) then they can push up the growth number while actually making peoples lives worse. This is one way government wonks “prove” they are growing the economy. They get to carry the banner of growth, and for a season they can fool the people into voting for them.
So the real problem with GDP is that it tends to measure consumption, much of which is not really producing value for people. The emperor has no clothes. It may only tell you that you are going somewhere, without defining the destination.
The bean counters at central banks use this number to inform them how to adjust monetary policy. And then if they can push up the number, they are rock stars for a season and the politicians in power all get to take a bow. But everybody else is looking around and saying, “I’m not seeing any benefits in my house.”
We get quarterly reports by the U.S. Department of Commerce’s Bureau of Economic Analysis. But it really means very little to you an I on the street because because to many parties can skew the numbers by making bad decisions for their own personal gain.
Then there is the money supply. This one is not even funny. It includes a lot of capital in multiple different forms buy only up the increments of $100,000. Which means the huge supply of money the government has approved to flood the market so that the rich can get richer is not counted.
Once again central bankers use this information to assist them in making monetary policy. The economy is the whole enchilada and the money supply is just one little tidbit of tomato. So while government is getting fat(with debt) on all those carbs nobody is really benefiting. The bloated debt of government keeps growing because the bean counters are focusing on a little piece of what really matters. This data is released weekly by the Board of Governors of the Federal Reserve System.
The consumer price index, CPI, measures change in consumer prices. This is what they call the “market basket” which includes retail prices on about 80,000 goods and services. You might say it is a measure of our cost of living. But it is really a measure of how much less your money will purchase today than yesterday. They have this subset number which the labeled Core Consumer Price Index, which doesn’t include food and energy. But if you are not aware those two numbers are likely the most important to consumers.
The Producer Price Index, PPI, measures and tracks the changes over time of the average selling price of domestically-produced goods and services. The number is really just a different version of the CPI. Because it includes the services sector, which sector is the most inflationary. And once again policy wonks use this number to inform them on decision making.
Consumer Confidence Index (CCI), measures how consumers feel about the current and future economic status. It is the public’s confidence gauge. The problem with confidence is that it is a measure of the past, so it should never be an indicator to be used to discern the future except in reverse. If there is a lot of confidence then the good days are behind us. But the real problem with this number is that the sampling is too small, so it is statistically irrelevant.
Current Employment Statistics, or CES, provide data on national employment, unemployment, and wages and earnings across all non-agricultural industries, including civilian government workers. Now we a getting somewhere you might think. Not so fast. The government has made a few adjustments in how they count these numbers so that they no longer reflect to true picture. For instance if you are receiving unemployment benefits, but if those benefits have run out then you are no longer unemployed, statistically speaking. They don’t put this number next to the percentage of people that are receiving some form of government assistance (44%). So if employment goes up, does this mean things are getting better and we should all celebrate?
This pretty much speaks to consumer spending excluding automobiles and housing. You might sat it is a measure of where and how much consumers may be using their money in the future.
Housing starts tells you whether more or less people are buying homes. This number is also very sensitive to changes or proposed changes in interest rates. This size or cost of a home is contingent on how good or low your interest might be. There was a time a while back the the government wanted to increase home ownership and get people in homes that could not afford them. This was the sub-prime mortgage fiasco that resulted in huge foreclosures and people refinancing 100% of their home value just before the bust in the economy where some home lost 80% of the market value. But still had huge mortgages attached. Housing starts were going through the roof. Regardless housing starts are a major indicator of a growing economy.
It speaks to sales and inventory for both manufacturing and retail. Inventory rates provide a clue as to business growth in the future or lack thereof.
S&P 500, or the Standard & Poor’s 500 Stock Index, is a market-value weighted index of 500 of the leading, publicly-owned, American companies that represent over 70% of the total market capitalization of the US stock market. A lot of people confuse the stock market with the growth of the economy. They are not the same thing. Stock prices can rise drastically when no increased value in the business exists. Stock prices are just the perceived value of equity positions. Owners of companies can borrow money and use it to buy back their own companies stock. This action consolidates ownership by company directors and raises the price of stocks while the company could actually be experiencing a decline in net revenue.
With the exception of housing starts none of these indicators provide enough real information for anybody to say that economic development is happening.
The real indicators of the status of an economy
are are jobs, inflation and productivity.
Unfortunately, developed countries are mostly breaking the economic laws by intentionally creating inflation. Central banks are pouring money into those economies, when there is no demand for it except a political demand. Central bankers are supposed to be independent from politics. But they believe themselves to be smarter than everybody else, so they have taken it upon themselves to “fix” the economy by manipulating pricing indirectly. You can not expect the people who are given power over the economy to not exercise that power to keep their friends (those in government) out of trouble.
Government has been in trouble for years. Those in government are not able to be responsible when it comes to spending. After all, spending is how political influence is purchased. Human nature dictates that we are all self-interested. So we can not expect our piers (those in government) to somehow rise above what makes us all tick. It takes a rare breed of politician to step out of the crowd and say, “No more of this nonsense. We have to live within our means.” We have not seen this courage since Thomas Jefferson informed a curious bystander that Untied States government was a republic “if we could keep it.”
Well, we have not kept it. The founding fathers are turning in their graves. You can not keep socialism at bay when most people do not know what it is. Most people think its about free meals. They don’t realize that those free meals have to be paid for by somebody. And it will certainly not be by those in power or the rich, who own everything. All of those “favors” will be paid for by keeping those who are not in power from experiencing the benefits of economic development.
The talking heads will say the economy is booming. But the workers and the producers will see the gradual erosion of their upward mobility as their wage and purchasing power erodes.
Our position is to not be concerned with industrial countries markets. We are creating regional growth in developing countries (by funding development impact projects) so the indicators we pay attention to are the ones our research and the community tells us to keep our eye on. We are in the process of creating an independent consulting and M & E impact accountability company that Sovereign Trusteeship Inc will use to keep us on track in providing real outcomes for the beneficiaries of economic development work. You can read more about how we measure and evaluate impact on our page about Impact Finance.
The type of economic development we are involved in is Intentional Eco-development.
This work can take many forms other than construction of infrastructure. It could be the work surrounding financing development projects, improvements in any of the thirteen synergism pillars, such as trade education, government improvements in service delivery competency, youth activation programs, setting up financial systems that are more inclusive and available to all levels of business, improvements in property rights and the rule of law. But for the most part, we are funding development impact projects and are involved in the entrepreneurial aspect of financing the startup or growth of businesses and infrastructure which are all privately owned. Thus we are not that involved in what government is supposed to be doing.
But the distinguishing aspect surrounding the definition of Eco-Development work is the affected outcome, which embraces proactive inclusiveness, and access to systems, tools, and infrastructure in order to affect change in social outcomes, environmental outcomes and economic outcomes that are enduring – thus sustainable.
The key to this Eco development success is in setting up an ecosystem where these outcomes can nurtured and made permanent.
We are intimately involved in funding development impact projects and creating an ecosystem of support to support these new developments.
Business has its own needs in order to grow. Businesses need to (1) increase production or productivity while experiencing (2) increased efficiency of operations which naturally results in more profits, allowing the potential for increased employment.
So the ecosystem you build to accomplish this improvement has to address those two businesses factors (productivity & efficiency) that directly affect the possibility of sustainable growth of businesses or economic activity surrounding that project.
Now that we have a foundation of what economic development is, We can begin to discuss how we can make development sustainable and how we deliver outcomes which manifest all three outcomes we are aiming at.
In our Eco-Development practice of funding development impact projects we utilize synergism pillars which are support structures and infrastructure that make possible these business improvements. These Synergism pillars interact synergistically in ways such that the “whole” (the ecosystem), is self-sustaining. We utilize a hub system that is larger than most development projects, where entire communities are born.
This results in three different economic outcomes, distinct and separate from the investors return.
The three of these economic outcomes manifest long term economic sustainability.
We also enhance big infrastructure projects with smaller SDG impact projects that address the deficiencies and voids in social and environment conditions. And this gives us the complete picture creating healthy self-sustaining communities where prosperity is enhanced and peoples lives improve.
These are the outcomes our institutional investors want to see. While we do not specifically need those investor’s capital to do the work we are involved in, we have opened the door for institutional concerns to be able to ride our train to guarantee their clientele all three benefits. That is, sustainable social benefits, environmental responsibility and an economic return for both the community and the investor.
It is easier for institutions involved in the financial sector to co-invest with a company already doing the work, and who separates the ROI from the development projects profits, than it is to try and get a return on investment where they are taking an equity position in development in an early stage least developed economy. Early stage economies are notorious for not meeting profit deadlines and businesses often going belly up when debt is involved.
We can give you a specific example. A telecommunications company went to a group of thirteen banks and borrowed two billion dollars to grow their company. Because of the difficulty of growing a business in a nascent economy, they then defaulted on the loan and walked away leaving the banks with a telecommunications company to sell at distressed rates. The banks got ten cents on the dollar for their investment, this when you consider telecommunications to possibly be one of the best investments available.
Sustainable economic development growth is manifest and nurtured in a ecosystem inclusive of seven elements: synergism pillar building, SDG enhancements, stakeholder engagement, an investment inclined culture, hub building, finance and ecosystem support. We call the process and work to create this ecosystem Eco-Development.
These are the ecosystems we put in place in order to cause measurable outcomes that impact peoples lives. This is our version of economic development – what we specifically identify as the Sovereign Trusteeship Eco-development Ecosystem®.
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Funding development impact projects improves the welfare and economic status in the community.
Sustainable Development Delivers Freedom.
Message from Sovereign Investment Trusteeship Founders