Reshaping the Global Economy Through Constructive Engagement By - - PDF document

1 Reshaping the Global Economy Through Constructive Engagement By Jeffrey A. Sheehan Associate Dean for International Relations The Wharton School University of Pennsylvania Delivered to the International Business School Shanghai Conference November 4, 2008

2 Good morning. Before I start, I would like to express my appreciation to the Antai College not

• nly for inviting me to speak today, but also for organizing this conference.

One of the reasons I am so happy to be here is that I consider Shanghai Jiao Tong University to be my home school in China. This is because I first visited SJTU twenty-four years ago, in 1984. This was at the time of the re-establishment

• f the School of Management, and the first dean was a distinguished professor

named Yang Xi Shan. We should not forget that without Dean Yang, we would not be here today. Since 1984, I have returned to SJTU many times, and Wharton has cooperated

• n a variety of topics and with many different people. So that is why today, when I

drink the water, I remember the source. It is a great honor to share the speaking duties this morning with such a distinguished group, including my old friend Santiago Iniguez from the Instituto de Empresa; Francis Estrada from AIM; and of course Wang Fang Hua, the dean of the Antai School. Many thanks also to Professor Lu Wei for his chairmanship of this session. Today my topic is “Reshaping the Global Economy Through Constructive Engagement”, and I would like to speak to you for a few minutes about some ideas that my colleagues and I have developed on the topic of the social responsibility of business schools.

3 At the Wharton School, we are mindful of the unique forces that are reshaping the global economy in the early stages of the 21st century, and fully aware of our responsibility to train future leaders who will help solve some of the new generation

• f problems that challenges humanity. In response this responsibility, we are

creating an Institute for Social Impact. This Institute will involve our faculty, students and alumni in research, teaching and outreach. We will address questions ranging from economic inclusion and the alleviation of poverty to the business

• pportunities brought about by global climate change and the transformative

potential of societal entrepreneurship. Under the leadership of a faculty overwhelmingly committed to positive change, the school will seek, through this Institute, to make fundamental changes in the relationship that Wharton has to the problems of leadership and management that plague humanity as well as threaten peace and prosperity. We understand and accept that as academic leaders, we have obligations to our fellow men and women in the United States and importantly, around the world. The Institute for Social Impact at the Wharton School takes as its premise that we can and will accept our responsibility for doing something about the problems. Some of the problems that will be addressed through the Institute are not new. Economic exclusion has been a fact of life since humans organized themselves into

• societies. What will be new in this Institute is the determination that Wharton, as a

global school of management, can make a difference and can train students who will

4 enter careers where they feel and act on a continuing obligation to make a difference in the world, regardless of their chosen occupations. Enlarging the global economy often begins at the lowest end of the economic pyramid, by enabling the most humble individual with an entrepreneurial dream to start the “virtuous cycle” of value and job creation, asset accumulation and realized

• aspirations. Business schools, we believe, can help make this happen.

Other problems are new. The world has never faced natural resource stresses and shortages such as are occurring today. At the same time, the modern world inhabited by humans has never before faced the consequences of global climate change on a scale almost unimaginable. Once again, we are convinced that business schools can be forces for global good, and the mission of this Institute will be to translate this conviction into action. A third group of challenges involves timeless problems that seemingly have no

• solutions. Good government requires not only honest civil servants devoted to the

public good; it also requires leaders who understand how to train and motivate their groups, whether consisting of dozens or hundreds of thousands of members, to succeed in their appointed tasks. Wharton, we believe, can help make this happen in locations as dissimilar as Philadelphia, Johannesburg and Shanghai.

5 Once in a generation, a school and its faculty perceive and accept a new challenge to re-direct their energies and intellectual drive to change the fundamental approach they take to addressing their academic disciplines, their responsibilities to their students, and their obligations as compassionate change-agents of the world around them. For Wharton, this time is now, as we work to make the Institute for Social Impact a reality and begin to do our small part to bring about meaningful change in the world. Although I have spoken here of large and important themes, I do not want to exaggerate what we will accomplish. We are profoundly humbled by the scale and scope of the problems that the world confronts. However, we believe strongly that a new and better world is built one person at a time, engaged constructively. In

• ur small way, we hope to start engaging as many people as we can in the processes

that we understand best – research and education. While the concept of the Institute for Social Impact is new and under development, we already have identified some of the key themes that will guide the work of the people involved. The following three themes, which will undoubtedly be supplemented by many more in the coming months and years, give a flavor of the philosophy embodied in our aspirations.

6 First of all, Economic Inclusion and the Alleviation of Poverty For millennia, the basic organizing principle of most economies was that a very small group of the wealthy and powerful controlled the society’s resources and relied on the inexpensive and submissive labor of a very large group of the poor and

• powerless. Periodically, social engineers and philosophers proposed alternatives

that were based on the equitable redistribution of wealth or the pooling of all the means of production in the name of the “people”. History has shown that these proposals were challenged in achieving their goals. One reason for this complication was that they encountered difficulties in enlarging the economies they were designed to distribute equitably. On the level playing field of the 21st century, we believe there must be a third way, an organizing principle that neither restricts the capital formation of the ambitious, energetic and successful, nor consigns the bottom of the pyramid to endless generations of hand-to-mouth existence. We believe this third way is definable, implementable and acceptable to all. This third way involves not pooling or redistribution, but the creation of new value, new capital, new possibilities, and – most importantly – an economics of inclusion, through which

7 those who previously had little or nothing are brought into the cycle of wealth and value creation. Wharton’s Institute for Social Impact will address this question of economic inclusion from a variety of perspectives, including something we call “societal entrepreneurship”. Societal entrepreneurship, a concept pioneered at Wharton by Professor Ian MacMillan and his colleagues, takes as its fundamental proposition that many social problems, if looked at through an entrepreneurial lens, create

• pportunities for people to launch businesses that generate profits by alleviating

these same social problems. The entrepreneurs then are motivated to generate more profits and in so doing, the more profits made, the more problems are

• alleviated. Through the societal entrepreneurship program, Wharton will engage

in training potential entrepreneurs in the United States and around the world, especially in emerging economies. Second, Global Environmental Change The physical global environment in which we live today is fundamentally different from what it was a generation ago. Never before in the history of humans has the stress placed on the natural environment created such dangers for all of

8

• humanity. We take no position on who is to blame for this stress; our goal is

simply to identify ways in which business schools can contribute to the effective management of these threats that face all nations and all peoples. In fact, we believe that in the creation of the solutions to the problems of natural resource shortages, global climate change and related issues, the world will find plentiful and profitable business opportunities that will contribute to the spread of greater prosperity world-wide. Wharton’s Institute for Social Impact will engage with the many questions involved in global environmental change through a variety of mechanisms. For example, under the leadership of Wharton Professor Eric Orts, the University of Pennsylvania has started an Initiative for Global Environmental Leadership that will address the environmental issues facing businesses today from academic and policy-oriented perspectives. This cross-disciplinary endeavor also includes faculty from Penn’s schools of Arts and Sciences, Design, Engineering and Applied Science, Law and Medicine. By drawing on a diverse set of disciplines, we acknowledge the fact that a school of management is not fully-equipped by itself to address the many problems that are involved in global climate change. Wharton has already convened an international conference, held in Costa Rica last year, to discuss and share ideas on the business consequences of and

• pportunities in global climate change. Faculty, students and alumni are becoming

increasingly engaged in these issues, which are no longer peripheral to the mission

9

• f business education. The Institute for Social Impact will allow us to focus the

energies of the school on studying these issues, devising solutions in conjunction with alumni and others in the public and private sectors, and bringing concern about the global environment into the mainstream of research, teaching and outreach at Wharton and other business schools around the world. Third, Leadership Training for Effective Governance Studies have shown that much international donor assistance to emerging economies is not used effectively. While the assumption has long been that corruption is the principal drain on these resources, in fact mismanagement and a lack of skills among well-meaning government leaders are as much to blame as the dishonesty of those handling the funds. We believe that Wharton, through its Institute for Social Impact, can make a modest contribution to the improvement of government, the effective use of government and aid money, and as a consequence, the overall economic well-being of countries around the world. Wharton’s Executive Education Division has been a pioneer in creating and providing training programs for senior civil servants from countries as diverse as

10 China and South Africa. As apartheid was ending in South Africa, a small group

• f leaders understood the importance of training black South Africans to take their

places in the administration of that country. Wharton, at the request of the African National Congress, created a program for promising young men and women who were members of the ANC. For two years, we brought groups to Philadelphia for leadership training. Today, they occupy senior positions in government and industry. Similarly, at the request of the Personnel Department of the Shanghai Municipal Government, Wharton created a training program in 1990 that has been repeated over a dozen times and has trained hundreds of senior officials in the business fundamentals that are so important to the successful administration of a large city such as Shanghai. I hope, through this program, that we have been able to make a small contribution to the remarkable record of achievement that has characterized the great city of Shanghai since I first visited 24 years ago in 1984. I have spoken before about my great respect for the leadership of the Shanghai Municipal Government, ranging from Zhu Rong Ji when he was mayor and continuing through Madam Zhong Yan Qun, who is currently serving as the leader

• f Shanghai Expo 2010. Shanghai is fortunate to have such talented and dedicated

leadership. One of the missions of the Institute for Social Impact will be to reach out to countries in the emerging markets and developing world and to identify ways in

11 which Wharton can make a real contribution to the ways in which the cities and countries of the world are managed. K.P. Chen Before I conclude, I want to make brief reference to an individual who, I believe, is an excellent example of the type of person we would like to identify, train and encourage. Chen Kuang Pu was born in Zhe Jiang in 1881, coincidentally the same year that the Wharton School was established. He earned his undergraduate degree from Wharton in 1909, coincidentally one hundred years ago next May. It is difficult for those of us living in 21st century America to understand and appreciate the complexities of China in the early 20th century. But these difficulties are an important backdrop to Mr. Chen’s life and achievements. Soon after his return home to China, Mr. Chen established the Shanghai Commercial and Savings Bank. It was remarkable for many reasons, but I will list

• nly three:
• First, Mr. Chen was the first to apply Western banking principles and risk

control to banking in China. Instead of lending to warlords and bureaucrats, and instead of speculating on risky stock and futures markets, he strictly followed rules of deposit provision and collateral lending. This brought stability and reliability to a previously chaotic system.

12

• Second, Mr. Chen felt strongly that banking and banks should serve more

than the rich and powerful. He saw asset accumulation as a way out of poverty for the Chinese people. As a consequence, he created the so-called “One Yuan Account” to encourage even the poorest person to begin saving. In this way, he was a true pioneer in the economics of inclusion that remains so important even today.

• Third, in the mid-thirties, at a time of desperate economic uncertainty for

China during the war with Japan, Mr. Chen was instrumental in negotiating with the U.S. Government for a large cash infusion that replenished China’s foreign reserves, stabilized its currency and helped the country survive its economic difficulties. K.P. Chen was not only an altruist. His bank was hugely successful and he became a wealthy individual. But this is precisely my point – namely that here was a man who reshaped the economy through constructive engagement, and made a fortune in doing so. Wharton is proud and honored to count K.P. Chen among its worthy alumni and will draw on his example in designing the Institute for Social Impact. In Conclusion

13 At Wharton we have a vision for taking the school to a new level as a force for global good. Some of you may know that Wharton was the first collegiate school of business in the world. Business education has changed significantly on a number

• f occasions in the intervening 127 years, and today we stand ready to enter another

new era in the history of our school. We believe that we have an obligation to do

• this. We are very aware of our limited resources and knowledge. But this is,

after all, the mission of education worldwide, namely to create new knowledge and disseminate it as widely as possible, while training future leaders to respond with courage and humility to new challenges. We also need to test these ideas with our colleagues at business schools around the world. We cannot say with any certainty that our proposals are correct or that they will be effective. This is why I am so happy to be here today and to present my thinking to such a distinguished group of educators from around the world. None of our problems can be confined to a single country or contained within a single region. Each challenge is now global in scope and we must work together to find new solutions. I invite your comments and your involvement with us as we undertake the most important journey of our generation, which is to make the world a more peaceful and prosperous place for all the world’s children. JAS/November 4, 2008

14