Adam Posen, the corrosion of the economy and crowdfunding as a solution for global redistribution of wealthJanuary 14, 2019, 2:02 pm,
Economic disruption or an equalization of wealth?
In his recent speech on Anti-Trade Attitudes and the Corrosion of the Global Economy, Adam Posen takes on the question of what's happening to the global economy in light of worldwide responses to trade and globalization due to the 2016 election and other factors.
Posen rejects terms such as "economic dislocation" and "economic disruption," arguing instead that we are simply seeing an equalization of wealth. The shape of today's global economy is shifting. A large portion of wealth is being taken out of the hands of the privileged white males who have heretofore controlled the economy, and redistributed to groups that were historically underprivileged, such as women or visible minorities.
As Posen puts it, "We need more, not less, disruption, because over the last 20 years, the excessive privileges and protections of less-educated white males are finally getting challenged. The excessive protections of people in rich countries are finally being redistributed to poor countries."
Referring to the idea that trade is undergoing a period of corrosion, Posen points out that we have been seeing an increase in organic growth of global value chains and informal knowledge networks, as opposed to more traditional investment pathways. It's not necessarily a bad thing, but since we've never seen the kind of organic growth we're currently seeing, people are understandably nervous. What does this mean for investment quality and resilience?
Crowdfunding allows money to cross borders like never before
Into the gap left by the increasing refusal of nation-states to provide funding across borders (both national and demographic) enters the concept of crowdfunding. Crowdfunding is the epitome of this redistribution of wealth. It allows anyone to invest in any project, without discriminating against investors based on their net worth and without discriminating against entrepreneurs based on their demographic (although studies have shown that this is not always as true as we would hope).
By linking investors and entrepreneurs via online platforms that are available around the world, crowdfunding democratizes investment on a global scale and helps rearrange the distribution of capital in unprecedented ways, bringing it to previously underprivileged corners of the world. This is especially attractive for projects that use artificial intelligence for ethical means, such as improving clean energy infrastructure, access to healthcare, etc.
Advantages of crowdfunding: specific targeting of diverse groups of investors
In her article, Crowdfunding and Diaspora Philanthropy: An Integration of the Literature and Major Concepts, Shawn Flanigan suggests crowdfunding may be used as a way of attracting and organizing donations from the members of diasporic communities who feel a connection to their homeland. Many people who move away from their homeland already send money back to their family and friends in their home country. With the availability and ease of finding crowdfunding projects online, these people may also be encouraged to support projects in their native country, for which they feel an affinity.
Another advantage of opening up funding to the public is that different groups have a unique perspective of what's most needed in their countries, such as clean water, healthcare or access to education. Citizens in developing countries may not have access to the amounts of capital that are needed to jumpstart a project. But by connecting them to a network of people all around the world with specific knowledge and resources, the project becomes much more viable.
In addition to providing opportunities for minority groups to get funding without having to apply to prejudiced banks and venture capitalists, formats such as equity crowdfunding open up the possibility for citizens in developing countries to earn huge returns on their investments. Whereas before the possibility of earning significant returns on investments was limited to qualifying investors, the exciting new reality is that anyone can invest in a project they feel confident in.
Will crowdfunding smooth out the wrinkles in international trade?
Of course, there exists the undeniable risk of registering losses, as with any investment. Posen voices concerns to this effect and recommends implementing guidelines around international tax, currency manipulation and other aspects of global capital flows.
As crowdfunding is inherently cross-border, it's difficult to calibrate the laws of different nation states so they concord with each other and are fair to everyone involved. However, studies like The Global Significance of Crowdfunding: Solving the SME Funding Problem and Democratizing Access to Capital by Alma Pekmezovic and Gordon Walker nevertheless argue that crowdfunding presents an attractive way of redistributing wealth to small and medium-sized businesses in developing countries.
Thanks in large part to the rise of crowdfunding, we are no longer letting a handful of rich privileged people decide what our world will look like. Crowdfunding levels the playing field and will undoubtedly play a major role in the success of ground-breaking ethical artificial intelligence projects.