ARCC as a new model for economic development
The 19th century French diplomat and historian Alexis de Tocqueville wrote “I think it may be admitted as a general and constant rule that among civilized nations the warlike passions will become more rare and less intense in proportion as social conditions are more equal.”
Social conditions, or to use the vernacular du jour ‘inequality,’ rears its ugly head during times of crisis. The Covid-19 pandemic has, rather predictably, dragged into the spotlight the unpleasant reality of inequality, both within and between states. Of course, this is not the first time a natural crisis has highlighted the extent of inequality. The impact and effects of similar natural disasters, such as earthquakes, has varied hugely between countries and regions. For example, 100,000–160,000 people died in the 2010 Haiti earthquake, with a further 890,000 still displaced and impacted several years later. Conversely, the 1995 Kobe earthquake, measuring the same as the Haiti earthquake on the Richter Scale, killed between 5–6,000 people and affected 250,000. The comparison is crude but it speaks to a wider truth that, similar to other natural disasters, Covid-19 will disproportionately affect poorer countries where inequality is more accentuated and where public infrastructure such as hospitals, food banks and the welfare state are less well developed.
As governments across the developing world gradually face up to the reality that the effects of Covid-19 will be felt for months, if not years, the challenge will be how to provide financial support to millions of people who have no savings, do not receive a pension, live pay cheque to pay cheque, and are unable to find work as casual labourers due to the extensive travel restrictions currently in place. In the Philippines, for instance, 20% of the population live below the poverty line. According to government data from January 2020, 35% of Filipino workers are employed by the informal sector, such as taxi drivers, delivery men, street sellers, beauty workers, barbers, restaurant workers and textile workers. This scenario is reflected across the South East Asia region where the pandemic has revealed an unnerving fragility in the entire economic system.
Over-reliance on cash has highlighted the fragility of developing countries’ economies. Travel restrictions have not only barred people from being able to go to ATMs to withdraw money but it has also prevented ATMs from being restocked with cash. Government health officials, fearful that Covid-19 can be transmitted via the paper on the notes, have also called for the circulation of cash to be minimised. Outside of Southeast Asia, pensioners and veterans in Iran have been unable to collect from local bank branches their weekly cash-denominated pensions. Despite high levels of penetration across Southeast Asia, smartphones still only account for around 5% of financial transactions; this number is even less in rural areas. With limited savings, no income and an inability to access cash, the economic fall-out for poor communities across South East Asia is especially acute. The current system is not working.
The economic challenges facing Southeast Asia present an opportunity for ARCC to validate and highlight its unique value proposition. While many people in the developing world have their own businesses, in most cases they do not extend beyond the ‘mom and pop’ shop model. Despite the entrepreneurial energy and resourcefulness of the owners, most businesses remain small with shallow cash reserves for emergencies because they are unable to overcome the hump of accumulating assets, growing overall returns, not just marginal returns, and hiring staff. The current economic development model, whose shortcomings are being exposed by the pandemic, encourages microloans to business owners. While a microloan may help a shopkeeper to buy upfront inventory to fill his shelves, it is very difficult to grow the business further, let alone scale it. The cost of paying the loan principal as well as the interest leaves little remaining capital to invest in growth. With investment closed off as an avenue to growth, and saving not an option due to the sheer time it will take, most businesses are restricted to a zombie-like cash-strapped existence once they reach a certain ceiling. In short, microloans may help in the initial set-up of a business, but in truth, they are a barrier to growth, asset accumulation and financial independence; ultimately they are another form of centralised financial exploitation in a different guise. We see this sad fact being borne out right now across Southeast Asia. Despite the high number of business owners in the developing world, only a tiny fraction of them have sufficient assets, cash and savings to tie them over during a crisis. ARCC is offering a better, more inclusive way.
ARCC is proposing a novel solution to this perennial problem that has blighted economic development for decades. By creating a decentralised information network, a Public Mandate Network, users are rewarded with ARCC. By being positioned as a macroeconomic regional crypto-reserve currency and microasset, ARCC will represent debt-free capital for entrepreneurial investment. Rather than being tied to exploitative loan repayments, users will benefit from the value accretion of ARCC which will be subject to a 3-year vesting schedule. In short, ARCC is not a prohibitive microloan but rather a gateway to wealth creation on the wings of a new economic model that is underpinned by debt-free capital deployment, development and productivity.
Our fundamental premise for a new model of economic development is underpinned by the power of decentralised networks and financial inclusion from the bottom-up. D.Acemoglu and J.Robinson astutely argued in Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012) that good economic institutions encourage citizens to invest, accumulate, innovate and develop new technology, and only when these factors come together, does society prosper. The reality, however, is enacting this prescription within the confines of the top-down centralised economic structures has not worked. Only now, with the emergence of blockchain technology and cryptocurrencies, is a new solution to the economic development problem possible.
Society needs to prosper. Society must prosper. Citizens deserve financial security. The first century Greek philosopher Plutarch ruminated how “an imbalance between rich and poor is the oldest and most fatal ailment of all republics.” Technology has accorded us with a new way to avoid the ‘fatal ailment;’ it is up to all of us to seize this historic moment.
1 April 2020
Research of IBMR.io & ARCC
Editors: Eric Tao, Head of Media IBMR.io & Sinjin Jung, Managing Director IBMR.io.
