Category Archives: Social Enterprise

Rare Insight into Solutions for Afghanistan

In 2007, Clare Lockhart gave an amazing talk at the Aspen Ideas festival. You can view the talk from the festival website. (Clare starts her talk at 4:45 of the video.)

I first saw this video several years ago, when I knew a lot less about international development, and I was duly impressed. I have to tell you that even now I still reflect on and return to this talk regularly.

Lockhart speaks with extraordinary clarity about her experiences in Afghanistan, and skillfully relates several surprising stories of success—and failure—of international development efforts.

They include:

  • How they efficiently switched Afghanistan to a new currency, in a very creative way, much more quickly and cost-effectively than if it had been done using a traditional UN frame.
  • How they got mobile phone service, for somewhat less than the originally quoted corporate price of $1M, PER PHONE.
  • How $100M of aid money literally went up in smoke.

The talk is related to the book Fixing Failed States. Although the book has a lot of good ideas, I found it to be a dense read. The video is fantastic, though–check it out.

How Understanding Market Power Can Multiply Social Impact

How can we prepare workers in social enterprises to continue to get good wages going forward, when they enter the open job market? To me, skills-based market power is the way to go.

So just what is this market power? It could come from a coordinated group action to limit competition and maintain higher wages. Or it could come from skill, where the workers have an uncommon ability to deliver value to the market.

Let’s consider this case of worker-based market power more carefully. If the worker’s skill is uncommon and valuable, then there’s truly a negotiation to be had with the employer. The employer needs the worker to deliver the product or service, and it isn’t easy to find enough qualified workers, thus workers are able to demand higher salaries, and the employers know that finding replacements will be tough, and so they value the working relationship more highly.

Now look at the case of employer market power. If the worker’s skill is easy to find then the employer will have a lot of people to draw on, and this will drive down the wage. To make matters worse, if the skill is not particularly valuable, the employer will tend to invest even less in the working relationship, and be more likely to engage in short-term employment arrangements. In other words, workers get the short end of the stick.

Consider the case of Friends International, that among other things trains disadvantaged youths to be cooks in restaurants. Being a savvy organization, they are acutely aware of the challenges that their employees face when they look to find their next job after working for Friends. And thus they strongly encourage their cooks to stay with Friends long enough to master both Cambodian cuisine, as well as Western cuisine, because they know that cooks who are competent at both are in much higher demand in the market. Rather than simply flooding the market with more “run of the mill” cooks who will lack market power, they create much greater social impact by training employees to that higher, harder to achieve level of skill.

Thus I propose that smart social enterprises must be aware of the dynamics of market power. They should consider how to orient their training and job opportunities towards professions where hard-working people who invest the time and effort can develop market power, and enjoy the benefits.

A Hidden Gem: the Ashoka Social Enterprise video series

an Ashoka gathering

About four years ago, Ashoka filmed an extraordinary set of 16 interviews with pioneers of the social enterprise world, including Grameen Bank’s Muhammad Yunus, the World Social Forum’s Oded Grajew, and of course Ashoka’s Bill Drayton. I’ve watched several of these interviews and have thoroughly enjoyed them.

The sessions are very thoughtfully produced, and at 40 minutes and up, get to a meaningful level of insight that just isn’t possible in the five-minute video clips that you commonly find  these days on social enterprise.

Although the interviews were originally available on DVD, they can now be found online at low to no cost:

My favorites thus far include:

This is a very engaging series that I highly recommend for anyone looking to better understand the social enterprise world.

De Soto on how and why institution building works

Photograph of Hernando de Soto, which he had t...

Hernando de Soto

Hernando de Soto is a very intelligent economist from Peru who has had a great positive impact on development in Peru, and around the world. Building from his cornerstone book The Other Path (to contrast with The Shining Path), he advised the government of Peru on over 178 institutional reforms related property rights, democracy, and constitutional reforms for freedom.

In this nicely produced video interview with de Soto, he eloquently describes his major ideas about how to best support the healthy growth of a developing country.

Early in the interview de Soto shares an interesting “metric” of how he knew he was having an impact on Peru, saying “If we hadn’t been shot at, it would have been an indication that we weren’t having an impact. We had an impact.” Talk about standing by your ideas.

Was it worth it? Consider that Peru’s GNI per capita PPP grew 37% between 2005 and 2009, compared to 6% growth for the United States. I bet institutions played a key role in Peru’s rapid growth. Watch the interview to learn more about de Soto’s ideas—definitely food for thought.

Egypt: Democracy is interesting, but ownership is critical

Egypt: Register your land in just 14 years and 77 easy steps!

Don’t get me wrong—I’m excited and optimistic about the historic events of the past several weeks in Egypt, and the potential for the country to get onto a real path of renewal. And furthermore, I think that democracy can be an important force for bringing about citizen engagement, transparency, and hope to the people.

However as many people have pointed out, history tells us that Egypt’s success is far from certain. The book At War’s End by Roland Paris makes a strong argument for first investing in strong state institutions, before rushing to hold elections. He makes the point that democracy and freedom of speech are often held out as a panacea for transforming a society, although too often historically such an approach hasn’t worked.

And so it was with great interest that as I watched online as the government of Egypt fell, I happened to be reading Hernando de Soto’s classic book The Mystery of Capital. Much of De Soto’s work revolves around the power of capital, and shows how in many developing countries people are hamstrung by how difficult it is to officially register their land. As a result of this lack of official ownership, they are not able to use their land as leverage for investing in business or education. His work has led to reforms—and progress—in Peru, among other places.

In Egypt, however his team found that it takes anywhere from 6 to 14 years to officially register a piece of land for building purposes, navigating 31 agencies and 77 procedures. Wow.  Furthermore an Egyptian who goes ahead and builds a house, and then tries to register it after the fact, faces large fines and even demolition of the house. Not surprisingly, a lot of Egyptians live on “illegal” land, and are left with property that they can’t leverage. De Soto calls such land “dead capital.”

Consider that in many countries, home ownership is a common path to not just building wealth, but also to “dealing people in” to society. In fact in Lee Kuan Yew’s book From Third World to First he talks about how in the 1960’s Singapore decided that it was critical to bring home ownership to as many people as possible, as he put it “to give every citizen a stake in the country and its future.”

Incidentally, Singapore’s per capita income as a percentage of the USA’s per capita income has gone from 18% in 1965 to 82% in 2010. Apparently they are doing something right.

And thus it’s fascinating to note that the protesters in Egypt have taken pains to clean Tahrir Square, saying things like “For the first time, we feel now that this homeland is ours.” There is clearly something powerful about ownership.

Democracy is interesting, but feeling like a true stakeholder of your country? Now that’s powerful. And remaking Egypt’s institutions, such as land registry, is a critical step towards progress.

Talented leadership drives great social enterprises, but how to afford it in the developing world?

GDP (PPP) Per Capita based on 2008 estimates h...

GDP bites back

It is fantastic to see “first world” entrepreneurs bringing social enterprise to new fields in the “developing world,” especially fields that are complex, global and competitive. Assuming that such a social enterprise can find it’s place in the market, the employees are sure to receive world-class skills and training that will give them fantastic career options. But there’s an inherent challenge to leading such an enterprise from an expensive “first world” country.

But consider this scenario: You’re running a US-based social enterprise that competes for customers globally with for-profit companies. Your main competitors are in India. Although your ground-level folks, who actually do the hands-on work, are in a developing country with similar costs to India, your leadership staff is in the US.

To run this business, you’ll need a great management staff. You’ll need leaders who understand your industry globally, who can guide your investment strategy, and who can land big sales contracts.

In the old days, to do that at a world-class level, you often needed “first world” expats—and the large salaries that went with them. But these days the world is changing. In some fields you can get management talent for $40K in India that would cost you $120K+ in the US. It’s a big advantage for these Indian firms.

Granted, it’s an advantage that’s been many years in the making. India’s education system has done a good job of preparing people in English skills, as well as technology and leadership skills, to compete on the global stage. And that talent pools makes a lot of things possible for Indian companies.

Consider now the global competitive landscape: You’re competing neck and neck with an Indian competitor to land a big contract. The customer knows that there are several viable options, and pushes you hard on price. You lower your price, as does your Indian competitor, until you get to a point where you just can’t go any lower. But they go lower, and they win the contract.

How do they do it? They are able to deliver a comparable service to you, but because their senior management salaries are 1/3rd of yours, their overall costs are quite a bit lower.

So what can you do? One route is to find that much more efficiency from your business because your management staff is that much better. In this case they’d need to find 3x the efficiency—challenging, although not out of the question if you can leverage technology in a way that your competitors can’t. Another route is to go into more complicated, higher-end services that the competitors are unable to provide, thus leaving them unable to compete with you, at least for now.

Whatever the strategy, though, the key point is that through head-to-head competition, if you don’t have a competitive advantage to outweigh the disadvantage of higher management salaries, you’re going to lose.

Those folks in India who have access to this talent, they have a lower cost structure without greatly impacting the quality of work they’re getting. So they will set the pricing for the field. Yes, getting sales is more than just price, but when you have two companies with comparable service, comparable output, then price is a real factor. Those lower cost-basis folks will be able to bid down much lower than you, and still be making a comfortable margin. Furthermore they may have a significantly lower tax rate.

Now if you’re going to compete with them, and have a US based cost structure for management, that’s going to be really challenging. Those more expensive US people need to add that much more value than their less expensive Indian counterparts.

And so this becomes a challenge for a social enterprise that wants to attract great leadership talent to work in the “developing world”. Ideally they’d be able to find local candidates, but those people are in such short supply that they can make a lot more money in the for-profit sector.

On the flip side, a social enterprise can attract expats who will work for local salaries, but they tend to stay for two to three years at most. My instinct says that while getting top-notch expat talent is of great benefit to an organization, the turn-over that is created by low salaries is disruptive to the organization’s success.

So what to do? I think it would be really interesting to see a pool of money from organizations like USAID go to funding high-level management talent—expat or local—for top social enterprises. The goal would be to support the world-class scaling up of such enterprises, while creating a pipeline of local leadership talent to fill those positions.

The challenge is that establishing such a pipeline won’t happen overnight—it’ll best be served by improvements throughout the education process to identify and nurture talented locals and encourage them to pursue social enterprise careers. Thus it would take a coordinated effort, and a patient effort, to build such capabilities locally.

A great Social Enterprise reading list from UC Berkeley

Campus of the UC Berkeley in Berkeley, Califor...

UC Berkeley

Every Spring UC Berkeley’s Blum Center offers a very interesting course called Selecting Successful Strategies to Reduce Global Poverty. Although I wasn’t able to take this course, I was lucky enough to find the course syllabus on the Internet.

To my delight, I discovered that the syllabus includes a fantastic reading list on poverty alleviation and social enterprise, with a mixture of free web articles, popular press books, collected works of scholarly articles. I’ve made it available here:

Syllabus for Berkeley Global Poverty and Enterpreneurship Course

It’s a great way to get a guided overview of the field.