Why the Swedes go for high taxes?

Why the Swedes go for high taxes?
An American academic in Stockholm
Why do low income Americans hate taxes so much while wealthy Swedes don’t mind paying higher taxes. Both groups are supporting an economic system that seems to violate their own self-interest?
That’s the question Carnegie Mellon researcher Christina Fong explored in a recent project. Americans work from Jan to April to pay taxes. Swedes work from January to August to pay taxes.
“If only income mattered and beliefs about fairness didn’t matter at all, then you should expect to see the world that traditional economists expect you to see, which is that poor people demand redistribution (of tax revenue) and rich people oppose it,” she writes. “The fact that we don’t see that requires some explanation, and a big part of the explanation is that these beliefs about fairness matter a lot. So if you’re poor but you think that the rich people really deserve to be rich, then you’ll accept having less.”
She says Americans believe in the idea of fairness – that you will earn more money if you work hard. They are more concerned with fairness than the actual degree of income equality or inequality.

She said both Swedes and Americans would give up 20% of their annual income to achieve a world that was fair if they perceive it as unfair. Some studies Dr. Fong and others have done illustrate that people will fork over money to ensure fairness. (Click here to read recent studies by Dr. Fong and her collaborators).

Sweden remains a fascinating study in political economy. P.J. Rourke’s book “Eat the Rich” (which now sells for .01 cent on Amazon used) was a good first introduction for me to the Swedish economy when I was an undergrad. He used Sweden as a chapter example of “good socialism” and showed the woes the Swedish economy faced. I’d be curious what readers think of future growth prospects and issues for Sweden’s economy and whether the U.S. should consider aspects of its model or not?

Will we see a Carl Icahn of Socially Responsible Investing?

Veteran retires from the Catholic SRI investing cudgel:
Will we see a Carl Icahn of Socially Responsible Investing?
Call them the socially-conscious corporate agitators.

The director of socially responsible investing at Christian Brothers Investment Services Inc., John K.S. Wilson, is moving over to TIAA-CREF in a corporate governance role. In February, he spoke to a class of MBA candidates at his alma mater, Columbia Business School, and noted some of the challenges related to socially responsible investing. When he discovers concerns in companies his firm has stakes in, he often writes nonbinding shareholder resolutions, meets with company executives and lobbies for change in corporate strategy.

CBIS has $4.3 billion in assets under management for 1,200 clients, who want to follow socially responsible management and investment principles that do not violate the teaching of the Catholic Church. He has had successful dialogues with Coca Cola, Nike, Wal-Mart and other multi-nationals. “Some companies have open cultures. Others are not and are very insular. Those cultures are not amenable to talk to us. Many companies don’t see socially responsible investing as integral to their corporate strategy.”

➢ The Social Investment Forum, a nonprofit group dedicated to promoting responsible investing, reports that socially responsible investing assets in the U.S. surged 18% to $2.71 trillion in 2005 and 2006 and up 324% from the $639 billion in 1995. There were roughly 154 socially screened mutual funds in the U.S., managing $159.2 billion in assets at the end of 2006, compared with 151 funds and $148 billion in assets two years earlier. It claims SRI assets grew at a faster rate -18%- than the broader market of investments, which grew at 3% from 2005 to 2007. It reports that roughly 11% of assets under professional management in the U.S. – nearly $1 of every $9 – are now involved in SRI. New types of funds are allowing for more applications of socially responsible investing. Beyond mutual funds, these include exchange-traded funds, closed-end funds, alternative investments and other pooled products. These funds and shareholders are also forming new types of advocacy efforts. The total number of shareholder resolutions filed by socially responsible investment funds increased from 360 in 2005 to 367 in 2006.

Mr. Wilson believes that SRI and other factors are having an impact on managers and boardrooms of public companies large and small.

“Companies can’t just give a speech, take out an ad, or attempt other public relations tactics to imply corporate social responsibility,” he said. “I think they are starting to realize they need to have real solutions to offer. There is still a lot of PR and talk but things are starting to change.”

Over the years, Mr. Wilson has found himself digging into Pope’s encyclicals and theological works to determine positions he should take up with companies in which Christian Brothers invests. With 2,500 stock holdings, he doesn’t always have time to take up issues of concern with all companies so he shares the workload with other socially responsible investors in the Interfaith Alliance. He said the leverage of ideas and relationships as a shareholder is more valuable than threatening to divest holdings or to publicly embarrass a company.

The relationship approach with companies and proxy filings Mr. Wilson took at Christian Brothers is not as aggressive as activist investors such as James Goldsmith, T. Boone Pickens and Carl Icahn of years past. They are also not as aggressive as the players in private equity’s leveraged buyouts or in modern hedge funds, which sometimes increase shareholdings and then call for specific action by management.

As the socially responsible investing industry evolves, will we ever see a socially responsible corporate raider on the level of Carl Icahn?

“It could happen the stronger the business case becomes (for socially responsible investing),” said Mr. Wilson. “We haven’t yet seen the Carl Icahn or T. Boone Pickens in this space. Ten years from now? You never know.”

- Paul Glader

M. Yunis at the Skoll World Forum 2007

Dear Readers,

I will be writing several posts about the origins of Micro-Finance and one of the early leaders of this industry: Muhammad Yunis, founder of Grameen Bank in Bangladesh and Nobel Prize winner. Here is a good introductory video of his work from his appearance at the Skoll World Forum in 2007. It is a good primer to the concept of micro-finance. More videos and posts to come.

-Paul

High fences in Micro-Finance?

When does micro-lending become usury?

That’s a question the entire industry is wrestling with as it becomes a larger phenomenon in the banking world and intersects with local NGOs and governments around the world.

Many experts point out that interest rates of 15% to 35% on loans of $100 to $2,000 in places like India and Latin America are the norm. They point out that while those interest rates are higher than typical loans in Western markets, they are not much higher than credit card loans in developed markets. They say the higher rates are required because of the higher default rates and higher administrative costs.

“Young micro-finance institutions often need all that high interest margin to be able to implement their model,” said Brad Swanson, a partner in Delaware-based investment bank Developing World Markets, speaking to a recent class at Columbia Business School. “You can’t start off and be successful from one day to the next. You have to start up with bricks and mortar, sales, client base etc. it is a high-cost business on the operations and administrative side.”

In Mexico, some banks are charging as much as 80% to 100% to make loans to customers. Experts in microfinance point out that these loans are often not micro-finance loans at all but are consumer loans. Micro-finance loans are intended to help locals launch start-up businesses. They often involve applications, interviews and accountability with either a loan officer or a group of neighbors. Consumer loans with higher interest rates – by contrast — are similar to predatory lending practices in America. They don’t care if people are using the money to start a business or buy a TV.

The microfinance industry grows frustrated with media portrayals – such as a recent Business Week article http://images.businessweek.com/ss/07/12/1213_mexico/index_01.htm – that confused consumer lenders in Mexico with microfinance lenders. The consumer-lending bank gave the Micro-finance lenders a bad name. The key, they say, is communicating what Micro-Finance is all about and explaining how it works.
“The high interest rates are important in the early stages but it unwinds in later stages,” said Mr. Swanson, noting that an ongoing portfolio begins to return more equity and attract more entrants to the market. “As more people lend to the clients, competition will drive interest rates down for clients.”

Hello world!

Welcome to my blog, Virtue Capital. We will explore the world of how to make money, spend money and give money in responsible and redemptive ways. I welcome your participation! -Paul