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Countries which have large reserves of oil are usually considered to be rich. Barring a few exceptions like Venezuela, Iran, and Nigeria, most oil-producers in the world have a thriving economy. Socialism caused the economic collapse in Venezuela whereas Iran has been plagued by radical Islam. Nigeria does not seem to have any obvious problems. […]
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Lessons for the Indian BPO Sector from the Standard Chartered and HSBC Scandals
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The city of Seattle, Washington is one of the most prominent economic centers in the world. It houses companies like Microsoft and Amazon which are some of the wealthiest and most powerful companies in the entire world. However, this prosperous city in the most prosperous nation of the world has become a victim of its own success.
The success of big tech has created a class of highly paid individuals that inhabit the city of Seattle. Even starters get six-figure salaries in this tech hub. As a result, the rents and housing prices are sky high. This means that the original inhabitants of Seattle, i.e. the firefighters, teachers, etc. cannot afford to stay in the city any longer. They are continually being relegated to distant suburbs. As a result, they have to go through long grueling commutes to get to their workplaces.
Some of these people cannot afford a vehicle or a commute. As a result, they end up in homeless camps. It has been estimated that every 5% rise in the city’s rents created about 16000 homeless citizens!
The homeless crisis has become a big talking point for politicians of Seattle. The public expenditure on health, safety, and de-addiction has gone through the roof because of the homeless crisis.
The crime rates have also gone up. Hence, the government has to spend a lot of money on law enforcement. To raise some of this money and to prevent homelessness, the city of Seattle had proposed a headcount tax. As per the provisions of this law, companies were asked to pay a certain amount of tax for every employee they hire. Amazon became the poster boy for opposing this tax. As a result, it was soon repealed.
Ever since the tax was repealed, the homeless situation has only worsened. This has prompted many companies to undertake philanthropic measures to address this problem. Some of these measures are as follows:
The actions being undertaken by the czars of the tech industry bring back the memories of the gilded age when the Rockefellers and the Carnegies used charity to cement their position and prevent a popular uprising against them.
Firstly, it needs to be understood that not all the money being spent by Microsoft is for philanthropic purposes. In fact, only a mere $25 million or 5% is actually being donated to tackle the crisis. The rest of the money is in the form of investments that will be made below the market rate.
It is true that Microsoft will not earn what it otherwise does on its investments. However, it will not lose money either! Although to be fair, Microsoft has clearly stated that it will reinvest the profit from this philanthropic investment back into the venture. The idea is to make the fund self-sustainable in the long run.
Secondly, it needs to be understood that charity isn’t really a long term solution to any problem. Today, companies like Amazon and Microsoft are at the top of their game. This is the reason why they are able to afford multi-million dollar charities.
In the event of an economic downturn, this is one of the first places where these companies will try to cut costs. Hence, these charitable endeavours are only quick fixes that will work for a short period of time.
In reality, Seattle requires a self-sustaining mechanism which is not dependent on the financial health or the benevolence of a handful of other entities.
Lastly, it also needs to be understood that hand-outs often do more harm than good. For instance, Microsoft is going to handpick developers to whom it will offer loans at concessional interest rates. It is true that lower interest rates will lower the cost of the apartments being constructed. However, this lower cost will only favour certain real estate developers.
The others will still have to borrow money at the market rate. This means that they will be at a disadvantage and will not be able to compete against the developers backed by Microsoft. The shareholders and employees of the other developers will also face a financial loss. The ripple effects of those losses may end up nullifying any gains made by Microsoft’s charity.
The bottom line is that Microsoft’s and Amazon’s charitable endeavours have more to do with public relations and less to do with actually solving the homeless crisis. Governments and lawmakers need to put their heads together in order to prevent further distortions in the real estate market.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
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