Are “Soft Issues” the growth path

It has long been the practice of most developing countries, especially in Africa, the Caribbean, and Central America (ACCA) economic zone, to focus on “Hard Issues” when assessing financial performance. Hard indicators include Gross Domestic Product (GDP), Foreign Direct Investment (FDI), Median Income, and per capita income. Improved performance on these Hard Issues (Indicators) appears to indicate economic progress. These indicators fluctuate over time. These indicators are essential, but do they tell the whole story, and do they accurately indicate future growth? To a large extent, the answer is no; instead, they should stimulate further investigation into how to achieve sustainable economic growth. What are the underlying factors necessary for stable and continuous economic growth? At the moment, less time and emphasis are being devoted to this issue.

Understandably, Hard indicators are useful for financiers and investors to determine investment decisions, assess investment risks, and benefits. These decisions are made to achieve returns within a short timeframe, given the project’s complexity. Unfortunately, they do not provide an accurate picture of the underlying growth drivers that are critical to sustained economic growth. They are remarkable for their simplicity, tangibility, and ease of measurement. They amplify short-term performance, which in some cases can be misleading, and ignore long-term fundamentals. In short, they obscure the underlying developmental drivers. Economic growth is only relevant if it enhances people’s well-being.

The key underlying issues necessary for sustained economic growth are the “Soft Issues” or intangibles. These are Culture, Leadership, and Civility. Greater emphasis must be placed on understanding and identifying the Soft Issues. They enable the identification of complex issues and their impact on people’s lives. Economic growth becomes relevant when it improves a nation’s Human capital.

There have been discussions about how the growth of countries in Southeast Asia aligns with the beliefs and practices of Confucian teachings. In Confucius Lives Next Door – 1999 by T. R. Reid, he alluded after speaking to Asian experts that the Asian spirit of discipline, loyalty, hard work, rather than inheritance, as a key entitlement among other qualities, was fundamental to Asian economic success. This teaching, they explained, influences family, marriage, education, crime, family esteem, concern for collective harmony, and control over one’s desires. The Soft Issues they added have provided empirical evidence of the massive economic transformation of countries in Southeast Asia. Other factors, such as political influence, helped direct focus and energy. Countries in Africa, the Caribbean, and Central America need to dig deep into their “guts” to identify the Soft Issues that will support sustainable economic growth. Overemphasizing the hard indicators to justify economic growth primarily leads to a simplistic, short-term approach. They satisfy financiers at the expense of long-term, holistic economic progress. This is, in some cases, detrimental to ACCA economies.

As countries in the ACCA economic zone embark on new growth strategies, buoyed by significant economic changes in Southeast Asia and parts of Latin America, and by China’s growing influence as a new global investment partner, these countries must place greater emphasis on Soft Issues. They are the underlying fundamentals necessary for economic prosperity.

What are the soft Issues?

Culture –It involves a nation’s beliefs, attitudes, practices, and values, which means the “gut” of a country. Religious, traditional tribal/group rites, work attitudes, identification and recognition of achievements, family and community practices are all aspects of a nation’s culture. Culture is ingrained in society and nurtured over time. David Landes, in Culture Matters, described it as the inner values and attitudes that guide a population. ACCA countries must conduct a cultural audit to identify cultural factors that support modern economic growth. It must address issues that everyone can support and resonate with in their daily lives. Some aspects of current culture may need to be modified, rejected, or, where possible, transformed to support long-term economic prosperity. It must encompass everyone, without regard to ethnicity or region. The nation’s gut must contain the proper enzymes applied at the right time. Daniel Patrick Moynihan suggested that culture, not politics, determines societal success.

Countries in Southeast Asia have leveraged their cultural heritage, including Confucianism and Buddhism, to drive economic growth. Their current financial performance is a reliable indicator. There are numerous examples of tried-and-tested practices worldwide that support economic growth. They need to be copied and applied with modification. Some cultures share similarities, but they must be adapted to the country’s context.

In some countries, tribal differences have been a significant obstacle to economic growth; however, this cultural diversity can be leveraged positively, as each group brings its own strengths. Instead of emphasizing negatives to gain an advantage, countries and communities must identify cultural strengths and leverage them for the benefit of all. A country’s economic performance must be measured by how its cultural practices enable growth in human capital – performance of its gut!

Leadership –Leading in every facet of society. This role does not only apply to the formal governmental structure as it exists in many nations. Qualities such as integrity, accountability, consensus, tolerance, meritocracy, transparency, determination, courage, hard work, and selflessness are needed in all aspects of community life. These qualities become increasingly important at higher levels of government, as they influence a nation’s political and economic progress.

Leadership must apply to every aspect of community life, from small groups and communities to the top – workgroups, sport groups, social organizing groups, etc. An effective leadership practice at a lower level of the community mostly translates to better performance at a higher level. A progressive cultural practice should identify leaders based on merit and avoid traditional tribal succession practices that rely on lineage alone, as seen in some countries.

The skills needed to become an effective leader are most often cultivated in small, informal groups. These groups prepare individuals to undertake complex institutional issues. Countries should foster a culture that encourages individuals to take on leadership roles within their communities. Effective leadership at all levels is essential to the cultural adjustment process. One should not expect effective leadership from high-ranking government officials if the supporting culture does not foster positive leadership qualities.

Investors are more inclined to invest in countries that demonstrate effective leadership across all aspects of business. Effective leadership fosters institutional flexibility and convenience, attracting many foreign investors. The expectation of leadership qualities should extend to top government officials and institutions. When culture and leadership are aligned, it attracts quality personnel who prioritize the nation’s interests over self-interest.

Civility – Adherence to laws, rules, and regulations. Civil performance must be observed and practiced in every aspect of community life. There must be a clear understanding of compliance and consistency of punishment for non-compliance. Fundamental Soft Issues include forming lines at public places regardless of acquaintance, respecting rules & regulations in business and public settings, respecting public and private property, and respecting life. They lead to positive outcomes of Hard Issues.

Practices of informal groups are essential. They provide information to formal groups, including government entities, on how to handle discourse and draft laws. Civil performance thrives when there is a transparent, participatory process for making laws, rules, and regulations, and for ensuring fair enforcement.

International investors monitor this process to encourage FDI into ACCA countries. ACCA countries must ensure that their practice of civility is transparent, simple, and consistent with rules and regulations. A fair enforcement process should be demonstrated at all levels of its social structure.

Countries around the world that have better healthcare, access to education, high literacy, high human well-being, economic prosperity, longer lifespans, and sustained economic growth did not achieve these outcomes by focusing on the Hard Issues. Most of their focus was on Soft Issues. The Ibrahim Index annual reports highlight these Soft Issues—organizations such as the World Corruption Perception Index guide issues of civility. These Soft issues offer the structure that a nation needs to function.

The way Forward

The issue of cultural adjustment must now be undertaken within and among ACCA countries. Economic growth in this zone is lagging behind Southeast Asian countries and even further behind Western countries. The discussion should now begin, possibly with selecting a slogan that embodies the underlying Soft Issues that promote economic growth in that country. Despite its paradoxes, the USA uses the “American Dream” as a rallying call; in the past, China used the “Red Revolution”. Other countries have adopted a rallying call. For countries in the ACCA zone, failure to address the underlying Soft Issues will result in missed economic opportunities, continued economic dependence on developed nations, and missed opportunities to leverage their human and physical resources.

A Soft Issues index should be developed. It must encompass the areas discussed, along with other relevant areas that support assessment of underlying developmental progress. Over time, countries can measure and identify areas requiring resources and focus. It would be appropriate for government agencies to undertake this project with assistance from private agencies, thereby broadening participation.

As an investor once put it, “people don’t eat GDP”. People resonate more with Soft Issues because they affect their daily lives, whereas Hard Issues resonate less. It is the Soft Issues that grow a nation and attract investors. It is the Hard Issues that tell the story.

Countries in Africa, the Caribbean, and Central America need a sound gut with enzymes to pursue real sustainable economic growth. The world order is changing, and countries often referred to as the Global South now have an opportunity to form their own trading bloc, such as the ACCA Economic Zone. A sound structure and effective institutions will build internal capacity to participate in the formation.

ACCA countries must examine their gut! Are you really prepared for tomorrow’s growth?

Desmond Thorpe Chief Strategy Officer, Stafford Global Group.

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Are “Soft Issues” the growth path