GoodGeist
A podcast on sustainability, hosted by Damla Özlüer and Steve Connor, brought to you by the DNS Network. Looking at sustainability issues, communications, and featuring global guests from a wide variety of sectors such as business, NGOs and government.
GoodGeist
Investing in Political Inclusion, with Dr. Hermann J. Stern
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What if the secret to national wealth isn’t faster growth or smarter tech, but a fairer invitation to participate? We sit down with Dr Hermann Stern to unpack the Prosperity Gate—a striking pattern in World Bank data showing that most countries grind along a poverty “brick” until they expand political inclusion enough to trigger a steep rise in income per capita. Once through the gate, each step toward broader participation correlates with bigger gains, reframing prosperity as the outcome of social invention and open institutions rather than luck or resources.
Together we trace the evidence: how universal schooling, healthcare access, labour standards and the right to start and scale a business create the conditions for innovation to spread. Hermann explains why outliers like oil states can mask the rule, and why countries without resource windfalls—think the Baltics—outperformed larger, richer neighbours by betting on inclusive rules instead of extractive control.
And as if that wasn't enough... for sustainability and ESG, Herman offers a candid diagnosis. Expecting firms to act like saints collides with fiduciary duty; the real lever is the societal framework that aligns private incentives with public goals.
The takeaway is clear and hopeful: inclusion is not charity, it’s a growth strategy. Countries can backslide when participation narrows, but they can also surge ahead when people feel secure enough to learn, spend and build. Have a listen!
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Welcome And Guest Intro
SPEAKER_00Goodgeist. A podcast series on sustainability. Hosted by Damla Eusler and Steve Connor. Brought to you by the DNS Network.
SPEAKER_01Hello, hello everyone. You are listening to Good Guys, the message on sustainability, which is brought to you by the DNS Network, the global network of agencies dedicated to making the world a better place. This is Damlo from Mina Agency Istanbul and This is Steve from Crazy Concern in Manchester.
SPEAKER_03This podcast series explores global sustainability issues, how they're communicated, and what creativity can do to make positive change happen.
SPEAKER_01So in this episode, we're going to talk to Dr. Harmon Joseph Stern, the chairman of the board of directors of Obermat, a nonprofit organization based in Zurich, aiming to promote general financial literacy through education, financial research, and regulatory advocacy.
SPEAKER_03Brilliant. I don't get distracted, Damla, but I really like Zurich. Anyway, um Dr. Stern is an NCoard alumnus and a lecturer at the University of St. Gallen Board School. He holds a doctorate in ethics from the HSG and has worked at Compaq, the Swisscom, and UPAC. He is passionate about economics and philosophy, and he serves boards with better pay performance pay since 2001. So Dr. Stern, thank you so much for joining Damner and myself.
SPEAKER_02Yeah, thank you for being here. You know, the doctor is always funny, isn't it, for Anglo-Saxon people? You know, but in Switzerland, you know, we still have this old-fashioned way of writing a dissertation and being then addressed as doctor, but not often anymore. So Herman, but do you prefer a Dr. Stern for a five? I prefer Herman. I prefer Herman. My mother prefers Doctor, Dr. Stern, but I prefer Herman.
From Markets To Ethics
SPEAKER_03Yeah. Okay, we're gonna go in. We're gonna run with Herman. So let's let's find out more about you. So, first of all, tell us, we love to find out where people have how people got to where they are and stuff. So tell us about your journey that led you to focus on economics and ethics. Tell us about that.
SPEAKER_02That focus came at the business school I went to, this University of St. Golden, abbreviated HSG in Switzerland for Hochschwurz-Kal, now we was used to know. And I was I was what you would call today a libertarian student. So really into the hard facts of the markets. And by the time I reached third year, it became a little boring. And I happened to come across this new professor. He just got his first chair in economic ethics or ethics of economics. There's not really a good English term because in Switzerland the term Wirtschaftsethik, which you would translate as business ethics, is not about compliance, it's more about philosophy. And he, you know, he pointed out that all the things we learned in economics are actually based on quite shaky grounds of philosophy. The economists they like to call themselves something close to natural science, you know, where you can really count things and be objective about what you say. But they completely forget that this is all based on really, really strong normative assumptions, you know, basically norms that we live by. For instance, that wealth is distributed as it is today, and we're not changing that. This is one of the assumptions of economics, which is really difficult to defend against anybody. And then I got really fascinated. I decided to write a dissertation with him, one of the first dissertations on economics and ethics. And what I found was most passionate about is how can we bring more democracy into companies because the foundation of his school of thought in economic ethics is that you have to discuss things between all the parties impacted by the decision.
Institutions As Engines Of Wealth
SPEAKER_01Oh my god, Steve, I'm not going into where I always go, and I will not dismantle capitalism much in this episode, but this is really, really provocative for me, Herman. You are great. I mean, what you said was defying the general acceptance of what we know today. That's also that was also an issue we talked about with the good money lab from Japan. They were also proposing different approaches to what we conceive as money. So I think this episode will go forever. I have to get my us back in line. Today's highlight why we're doing this episode is the latest report you've highlighted actually, the prosperity gate, why 66% of countries are trapped in a poverty brick. And the key findings contradict the common belief that as a country gets richer, it naturally becomes more inclusive. And it emphasizes a key concept of political inclusion, is the gatekeeper of wealth, not merely a consequence of it. That's very important. So, can you walk us through the data a little bit? How are those findings to be read?
SPEAKER_02So, when I was in one of those ethics classes 30 years ago, you know, the idea came up that maybe it's not so much the free markets that made us prosperous. It's much more the institutions that you know ensure access to wealth for everybody at arm's length, which means everybody has the same chances of becoming rich. And that basically means that social inventions like public school, public health care are extremely important for prosperity in nations. At that point, we were pretty much alone in St. Gallen in the eastern part of Switzerland. Nobody really thought about that, that this could actually be the reason or the source of our wealth. But then, you know, this all changed about 15 years ago when the Nobel Prize winner, Atsy Mogro, and his uh co-authors published the book Why Nations Fail. And he pointed out that prosperity always came after important social inventions. He could even prove that when there's a technology invention, that it doesn't spread for quite a while, sometimes centuries. The windmills didn't proliferate for centuries because they were kept under close supervision by the ruling class. And only when there was a law allowing everybody to run windmills, you know, wealth could actually start and and and and prosper. So this was this was for me quite quite a reaffirmation of what we speculated 20 years earlier. And then I went to INSEAT for a degree, and I realized that the former dean of INSEAT published research in a similar direction using actual current World Bank data. And I came across data that I found fascinating because I could now correlate prosperity and whatever it takes to make everybody participate in the wealth of an economy. And I call this political inclusion.
Prosperity Gate And Poverty Brick
SPEAKER_03Amazing. And I'm we're gonna get into some of the kind of numbers in all of that, Herman, because I it's fascinating, it's absolutely fascinating. And I think we make so many assumptions, don't we, about growth and prosperity, as you say, normative assumptions. I love that sort of framing of it. And we've very recently on our on the podcast, we were looking at the latest Oxfam report that stated that billionaire power is heavily influencing politics and deepening some of the inequalities that we see across the world and almost dismantling some of that political inclusion that you're talking about. And your report, I think really powerfully. I love the idea of the prosperity ceiling and the idea that 66% of the world's nations are trapped by the prosperity, poverty brick that you talked about. And if a country hasn't passed the prosperity gate, the title of the report, then they haven't just they're not just seeing their economic prosperity stall or their economic performance stall, they're actually hitting against a hard limit. And in one of your articles, you stated though, while nations like Switzerland and Ireland, and quoting directly, are breaking that prosperity ceiling, the US is drifting leftward towards the poverty brick. So this is a lane that works both ways, where the ceiling is not really unbreakable, but also you can actually slip back and you can see people like the US. I think you said that it was heading into a difficult piece of territory. So tell us more about the key factors in play here.
Data, Methods And Exclusions
SPEAKER_02So the key factor that we looked at was political inclusion, you know, think of it as democracy. We really know about democracy, it's more about is everybody part of the game, basically. Or do you exclude, like, you know, all women from economic activity, which would then mean we have a very exclusive society, just of 50% men, basically. So we call it political inclusion. So the more people are participating in the economic process, you know, let's let's let's assume this is the horizontal axis. We then correlate that with wealth, you know, how much income per capita. It's a very straightforward number. And we found out that, you know, countries that are very inclusive politically, so that are more here on the right side, they are much wealthier than those that have little inclusion. And the interesting thing, it's not linear, it's not like you know, you do more political inclusion and then you get more wealth. No, it's actually goes quite flat for a while, until you're about in the middle of all countries. And we call this the prop the poverty brick because it's kind of a brick where everybody's not down there, just can't get out. You know, I mean, they're growing, China is growing from a very low base, but they're not really getting anywhere close to the wealth of Western nations. And what we then see is that when you when you hit that, what we call a prosperity gate, we call that the gate where you have to have at least, you know, you need to be at least as exclusive as the better half of the world. And at that point, it really goes up. At that point, if countries are more inclusive, they're a lot wealthier. And this is what we've been able to prove with World Bank data. So this is hard data. This is not anymore a wishful thinking of a business class of some students. This is really the World Bank 24, you know, almost a quarter century of data that they collected themselves, they just changed the way they they they collected data, so it's even more accurate. And with that hard data, we found, you know, if you were down there where the the half, you know, the worst half of the population of the countries of the world is, you have no chance of ever getting rich. And this is in stark contrast to to a hope, a wish we had when we let China into the World Trade Organization. Because the wish was China gets rich, and by that they get more inclusive, they get more democratic. And let's, you know, just you know, do is you know, let the political forces work. China will get where we are if you just let them trade. And it happens that nobody ever was able to do that. As a matter of fact, the Nobel Prize winners have shown for centuries you cannot get there if you don't innovate socially by including more and more people into the economic process.
SPEAKER_03That's meant to means. But just for one quick follow-up. So sorry, Damla, I know it's your turn, but I just wanted to ask Haman. So I'm sure a lot of people will be listening and thinking, hang on a second, there are some very countries with great wealth, uh such as, say, for example, Saudi Arabia, where there isn't great political inclusion, they're probably miss mistakenly thinking that income is more evenly distributed than it might be in those countries. So, from your analysis, that political inclusion line on the graph you've just painted for us with words. Is there a similar piece of analysis that looks like uh inequalities in income and and almost sees that tracking a similar line?
SPEAKER_02So we didn't look into inequality, we really looked at average income and we excluded the oil-rich countries that are well, yeah. So we had to exclude that. Of course, if China were an oil-rich country, you know, theoretically it could, you know, become wealthy without being inclusive, such as just the way you know some of the smaller Gulf states were able to stay very autocratic and still become wealthy, then you have a distribution issue. But that's not really the important thing, is most countries don't have oil wealth, and they and they cannot, you know, play with some resources and and then distribute that wealth to everybody. And we were more interested in a normal country, a normal country like European countries with little resources. China has little resources, Japan has little, and you know, also a lot of other countries worldwide don't have that much resources. And we were asking ourselves, what do they have to do in order to prosper? And we believe, based on the data, that they first need to innovate politically and not necessarily technologically.
SPEAKER_01You mentioned you mentioned oil first, so I'm gonna go from there. One of your articles has a title that really touches our core values as a sustainability podcast. Political inclusion is a better investment than oil. So, in that article, you dive into the breakup of the Soviet Union as a real-world economic experience and compare it to the compare its low political inclusion path with the Baltic states like Estonia, Latvia, Lithuania, because these Baltic states have high inclusion paths to war. So, can you deliberate the results of this comparison for us?
China, WTO And The Inclusion Trap
SPEAKER_02Yeah, so this is a fantastic comparison because when the Soviet Union broke off, everybody, including myself, was betting on Russia. Because I mean, such a huge country, so much wealth, mineral wealth, resource wealth. This is going to be great. Russia's gonna you know develop now with all the freedom of the Western markets. But actually, something very, very different happened. You know, the Baltic countries that were not even on my map, you know, I mean, I still had to look up where they are and what their names is, and is it Latvia above Estonia or the other way around? So I was really of these countries. After 25 years, since the oh now it's it's 35 years after the breakup of the Soviet Union, have become a lot more wealthy, a lot wealthier than the Russians and Belarus, even though they have no oil wealth, you know, virtually zero compared to Russia that has a lot. And here you can see that without social innovation, without that political inclusion of everybody in the country, there's very, very little room to prosper, actually. And Russia had to had had to learn that lesson the hard way. They became very autocratic, even more than they were at the beginning when the rot when the Soviet Union broke off. They became more and more autocratic, so which means they went left on the scale, which means there's no way that they can go up. There's a prosperity ceiling, it's not a hard ceiling, but I mean nobody ever you know went across the it's more like a glass ceiling, I would say. So they're basically trapped there, Belarus is trapped there, all the BRIC countries are pressed there, right? You know, I China, Brazil is trapped there, South Africa's trapped there because they all didn't innovate politically. They didn't innovate, they didn't include their society into the into the freedom of the economic process, and that means they cannot prosper.
SPEAKER_03Fascinating. So they honestly, this is this is a slightly mind-blowing conversation, Herman. And I think it's very important when you when you've been thinking about these things for so long, to get these fresh perspectives is really powerful. I hadn't totally hadn't thought of it. And I also, in another podcast on another day, I would love for us to dive a bit deeper into your framing around political inclusion and social innovation. Those are two phrases that you've used that I think are really interesting. Because I think I imagine that that you're talking about both political inclusion and greater democracy, exactly. But but also that social innovation piece takes more than just political forms, doesn't it? It's it's how do we have social bonds? How much do we have to do?
SPEAKER_02Minimum wages, it's minimum retirement insurance, mandatory health insurance. These are all social inventions, you know, limits of of weekly work hours, daily work hours. I mean, these are all social innovations, and you can really see that after that happened, after you had these innovations, prosperity, you know, went through the rock, and not before.
SPEAKER_03Go on, Damn, you come back in.
SPEAKER_01Yeah, I I want to circle back on this political inclusion and social innovation thing because, and this is kind of advocating for the devil. So, not what I really believe, but when we're talking about social inventions, they do not always happen to be in the good for all. So, when we are giving the example of China, they did have some social inventions like scoring the citizens and making the public services accessible according to your scores. Is there any chance that will work?
Oil States, Inequality And “Normal” Countries
SPEAKER_02Yeah, yeah, of course, it's a neutral term, social inventions or innovation. I mean, of course, it depends how you innovate socially, and it's really it has to be more political inclusion. And there's very, very little political inclusion in China. There's hardly any. As a matter of fact, Chinese governments decided that people should stay poor until the entire country is rich before they should start to consume. This is this is the trap they're in right now, and this is also probably the reason why China is not going anywhere, because it needs the entire population to feel safe so that they start spending. And the Chinese don't spend because they don't feel safe. So the political inclusion in making sure everybody's part of society is not left behind is the important thing. And not that you have new technologies being able to supervise the people more. That's less political inclusion, that's more political exclusivity for the ones in charge.
SPEAKER_03Yeah. No, I think if I'm being if I'm being overseen by an AI bot, I'm not feeling more politically included. I'm feeling very disenfranchised right now. So let's broaden the view, Herman, out from just political inclusion to sustainable development. And you have a distinct view here, and and we haven't really touched on it, but you've worked a lot with business and corporations and investors and looked at triple bottom line approaches, ESG practices, and you always drill, I think, in your practice into the question of what is the true impact there. And so, as an advisor and expert in that space for both corporations and investors, where do you see the the weak links are, particularly in the ESG space, and where are their areas for improvement?
SPEAKER_02I think the weak link is to assume that people will be 100% altruistic. I think people are altruistic up to a certain point. Our customers stay done, they want to do good, but there is always a limit. At one point, you have you have obligations towards shareholders. So the weak link is really the consensus of the uh on the on the basically ramenordnung we say German, the societal framework, the economic framework that defines the terms and conditions for you to operate. If these restrictions are too narrow for you to be able to really do what would be best for society, then you have to start there. And we have really weak links there, because at the moment we don't yet have the consensus that we need to steer markets towards a more sustainable uh situation. So in Europe, that means we need to steer markets towards more energy autonomy, you know. We don't have oil we can put into the into the atmosphere, but we do have lots of space, you know, for for and sunshine in the south, we have wind in the north, and becoming energy independent is something that society in Europe should do. That would then be a lot safer for everybody.
Baltic States Vs Russia Case Study
SPEAKER_01So approaching to the end, and I'm not happy about it, but we have to. Could you share us a future look? I mean, how do you think the economic systems that great resets will result in the coming decade, considering both the climate crisis and the geopolitical unrest around the world?
SPEAKER_02I'm an optimist. I realized, you know, it's something you give is given by birth, and I'm really an optimist. I love people. It's just who I am, and I realize this is actually a quite lucky situation. And my optimism is really for information to educate a lot more people than before, so that people learn, you know, about what is best for us all, and that they will eventually do the right thing. Now, it might be not as fast as we all wish, because we might be quicker in seeing problems than others. But I'm very confident that when problems are large enough that we as a society are able to turn around the wheel. And I started in, especially in Switzerland during the COVID crisis. And I always expected the Swiss consensus system, you know, where everybody has to agree on everything. How direct democracy, you know, will not be crisis proof. And in COVID, I realized it actually is very crisis proof. Because especially in crises, you need the perspectives of everybody. And we had all these discussions in Switzerland about what to do. And at the end of the day, I think we really did quite well during that pandemic because we allowed many people to express their opinions, and that just gave a better result.
SPEAKER_03Brilliant. So the future look is an optimistic look, Samler. There you go. Our podcast isn't called Good Geist by Accident. We're we're we're optimists too, Home. It's pretty obvious, actually. You don't need to scroll through the episodes to see us searching for solutions that will bash all those problems right back where they belong in the whole. So we have run out of time, but we have one more question for you, uh, which is our network of agencies is ironically called Do Not Smile, because we know that we need to make sustainability a subject that brings happiness into the world. So what object, place, or person always makes you smile?
SPEAKER_02Looking out of the forest, you know, just at border Zurich, but it's really, it really is the lake, actually. I I I got a sailboat when I was 14, and now for almost 50 years, I've I'm on the lake every day, every every summer, not every day, every summer, and uh this really makes me smile every time.
SPEAKER_03It's playing. I know. I think maybe you should aim for every day.
SPEAKER_02I'll try for that. I try I bought a rowing boat actually. This yeah, I bought a rowing boat, and I think I'm gonna now spend the winters also on that.
SPEAKER_03Do it. Do you go swimming in it? Yes, yes, we do that too. Yeah, I don't know about you, but yeah. Over here in the UK, cold water swimming is like the most fashionable thing anybody can do. Not for you, Damler. I've sadly this is an audio only podcast. But if anybody could see Damler's face right now with the prospect of cold water swimming in Late Zurich, it's not working, is it, Damler?
SPEAKER_01Agent to the end, baby.
SPEAKER_03Well, listen, Ham, it's been such a delight meeting you and and chatting about the Prosperity Gate. And I'm sure we will have to come back together again because there's a lot more for us to discuss. But thank you so much for spending some time with us. Damla, over to you.
SPEAKER_01So thanks to everyone who has listened to our Goodgeist podcast brought to you by the Do Not Smile at Work of Agencies.
Social Innovation Beyond Politics
SPEAKER_03And make sure you listen to future episodes. We'll be talking to more brilliant people about how we can work together to spread a more sustainable future. So, Herman, Damla, see you soon.
SPEAKER_00Bye. Goodgeist. A podcast series on sustainability hosted by Damla Eusler and Steve Connor. Brought to you by the DNS Network.
