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However, we don’t talk about the fact that capital costs differently to different group of people. They might be charged higher or outright denied because of their race, country or socio-economic status. Blacks in America were redlined by banks, denying them mortgages to buy properties. Cheap capital in Taiwan and China pushes up property prices in Malaysia, outmuscling locals. Apply for deposit assistance from government and banks will charge you a higher interest rate. People who are rich enough to open private limited companies enjoy tax deduction for their interest payment - effectively lowering their capital cost.
The Myth of the Inevitable DisruptionThis also begs the question whether the Post-Industrial revolution that is underway are really driven by technology. The technology created didn’t really defy physics to warrant such a rapid pace of change. Is it actually more a form of arbitrage - financial engineering to exploit access cheap capital to buy market share?
Hypermarket killed small mom and pops store by out-pricing them. They also bully their supplies by demanding lower price and paying later. Giant online retailers seemingly just scale up this pattern to a larger scale. They even went as far as discounting their supplier’s goods without their consent and subsiding the price difference. Nothing is too expensive in their quest to dominate the market.
Uber also kills taxi by subsidising each ride. Buying market share with other people money, delivering service with other people effort yet absolving any responsibility from the services sold.
The software that run these ‘platform’ companies could be duplicated within days by a highly motivated team of developers. Compared to the size of the company, the technology is relatively skin deep. But the sheer scale of their operation made it easy to tout Big Data as their secret sauce to their success. It also helps that the financial sector is head over heels on Big Data - hailing it as their next weapon for continued growth.
Lost?How do we end up here? More importantly, what is the new path we should take?
The Big Data techno-babble is just an outgrowth of the obsession to quantify and control risk. Big Data to analyse investment opportunity and taking advantage of price fluctuation. Also getting into the head of consumers to ensure they keep on buying stuffs yet still pay monthly mortgage instalment.
Every aspect of finance and business are being digitized in order to feed the Big Data machine. Yet, more noise than signal is generated by the machine. Up and coming trends are still hard to spot and sure-fire investments turns sour. The brief bitcoin bubble is a grim reminder that human made machine are still blind.
Banks are hard-wired to ensure the amount of their profit. They’ll do anything to secure it and get paid first. Whatever happened to their borrowers is beyond their care, as long as the interests due are paid. Student loans need to be paid regardless whether the graduate can get a job or not.
Thus their logic is of risk management. They fret about safeguarding their set profit. This inadvertently leads to certain bias. Loans are only given to ‘safe’ industries, properties in certain areas and to people of certain kinds. This behaviour also extends venture capital firm albeit manifested in a slightly different form.
Whatever had worked before, they want to put their money again. No wonder banks favour big established firm as opposed to new entrepreneurs. Venture capital firms meanwhile are hell bent to pattern match the next Mark Zuckerberg.
A generation before we celebrate the captain of industries, now we celebrate startup icons. Fan boy-ism and personality cult arise because deep down people realize that they need to act like those icons to get capital.
This create a distorted image that only an elite few should shape the market while the rest just work under them or be mere consumers and users. Local geniuses who saw how to lift his community through business are left out cold. All in the name of banking the giant global profit machine.
Invigorating InnovationThe risk management mentality only leads to concentration of wealth to the few. All are clustered to a handful of sectors and type of people. In short, local maxima that is hailed as a global champion.
Obsessing over managing risk as a probability of loss create few winners and many losers. It is interesting to note that the word risk came from the word rizq that convey the opposite meaning of probability of profit. As long as effort is expended, sustenance is guaranteed by God but from where and how much is by his grace.
Rizq nurturing should be at the forefront in kickstarting the economy. Risk management leads to dead end. Just look at Japan offering negative interest rate in a desperate bid to make capital flow and grow their economy.
Take note that rizq nurturing is not a version of gospel of prosperity which blatant donation will bring about miracles. God had prescribed a financial instrument in the form of Qardhul Hasan (interest-free loan) but it is still up to us to dispense with it wisely.
The interest-free nature of Qardhul Hasan serves at least two purpose; first it provides proving ground for new entrepreneurs and secondly encourages experimentation. Thus it will open up possibility to achieve the global maxima in business potential.
Many Muslims and non-Muslims alike are perplexed - where is the return of investment? Qardhul Hasan is actually can be regarded more as a form of pre-investment to validate and vet promising entrepreneurs and ventures. Only then the benefactor becomes investor through Mudharabah or Musharakah agreement to drive productivity and profit.
Granted, this model seems vague and messy compared to the neat spreadsheets used by financial institutions. High level of human touch are required - computers can’t be left to crunch numbers to pick winners. One need to be benefactor and mentor first before reaping the reward from investment.
This path is not to save big global banks and financial institutions. Instead is is for the local communities and common people. Instead of relying on elite global leaders, talents of local geniuses are to be unleashed in every community.
One Two PunchChanging from risk management to rizq nurturing will profoundly affect education as well. Mass schooling came with the Industrial Revolution. ’Normal Schools’ train teachers to create cookie cutter graduates. These cookie cutter graduates in turn are easily turned into fungible human resources and consumers. They also faithfully pay monthly mortgage instalments. Profit is secured.
On the other hand, developing local economies demands a different class of graduates. More leaders and proactive initiators are needed because profit can only be realized through human qualities instead of sheer financial prowess.
Perhaps it’s a bit jarring to remark upon education in this manner. School in particular had always been perceived as altruistic - a virtue by itself. In fact, most people respond to carrot and stick of financial incentive. The current system rewards producing robot-like graduates so that is what being produced. To produce wholesome graduates requires the support of a system that rewards wholesome education.
Bottom line is, people matter. Or to be exact, each individual matter. Both the market and education must address the dignity and potential of each individual and not just a number among trillions of statistics.