December 2, 2016 6:30 pm JST
Globalism under fire

Global community will have to take on Trump

To do so, it must seek out and implement new market mechanisms

RYUSHIRO KODAIRA, Nikkei senior staff writer

TOKYO -- In mid-November, shortly after Donald Trump's victory in the U.S. presidential election, about 300 asset managers from around the world gathered here for the annual conference of the Asian Corporate Governance Association, a nongovernmental organization dedicated to improving corporate governance as an integral part of capital market reform, mainly in Asia.

One of the much talked about subjects was Japan's Government Pension Investment Fund. That was because Hiromichi Mizuno, chief investment officer of the world's largest pension fund, made it clear that the institution would do more "ESG investing." That is an industry acronym for environment, social and governance. Essentially, Mizuno was saying that the giant river of money would be flowing toward companies that try to be good stewards of the environment, society and their communities.

His words came right after Trump's election aroused concerns that the U.S. will turn its back on international efforts to try to slow global warming, protect human rights and solve regional conflicts.

ESG investing goes back to 2006, when Kofi Annan, then United Nations secretary-general, launched the U.N.-supported Principles for Responsible Investment. The basic philosophy behind these principles is to pursue both investment returns and solutions to social problems and to see these as compatible goals. The approach may be viewed as an effort to explore new market mechanisms not intended to benefit only a few investors.

In 2013, then British Prime Minister David Cameron announced plans to promote "impact investing" -- an extension of the U.N.-led initiative -- at a Group of Eight forum. Impact investing schemes are designed to bring private investors into public services, to raise funds by selling bonds or other financial products to investors, then investing the money in social welfare or regional development projects. Government spending that would have gone into these areas can then be redirected toward interest payments on the bonds.

Globally, there is an increasing number of cases in which impact investing schemes are used, for example, to finance the education of prisoners (to help them lead new lives upon their release), or pay for power generation projects in emerging economies.

In Japan, the same approach attracted publicity when it was used to raise funds to rebuild parts of the country that were leveled by the 2011 earthquake and tsunami.

The exploration of new market mechanisms, as seen in these initiatives, is an attempt to sustain capitalist economies.

After the Berlin Wall fell in 1989, it became clear that different types of capitalism were distinguishing themselves. In his book, "Capitalism Against Capitalism," published in the early 1990s, French economist Michel Albert noted an Anglo-Saxon model of capitalism that he said puts great store on market mechanisms and is typical of the systems in the U.S. and U.K. The Continental model of capitalism, known as Rhine capitalism, Albert said, attaches importance to common social concerns, a trend evident in Germany and Japan.

Soros alarm

Amid the accelerated globalization of markets since the turn of the century, the Anglo-Saxon model became dominant in corporate management and many other areas. This seems to have widened the gap between the winners and losers, causing larger societal distortions. The question is where and who to go to for the power to solve the problem.

In a recent interview with an American newspaper, legendary investor George Soros said, "We must do something to push back against what's happening here." In November, he pledged $10 million to civil society organizations to combat increasing racial discrimination.

If setbacks triggered by the Anglo-Saxon model of capitalism are to be overcome, it is crucial to build a mechanism to redistribute society's wealth -- a necessary step toward the maturity of capitalism.

Nations become inward-looking and close themselves at times. To get capitalism to stride forward when this happens, the international community has no alternative but to enhance the power of diverse markets.

The search for and implementation of new market mechanisms will be a perpetual process.

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