Category Archives: Community

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.

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.

There’s hidden talent in those rice fields

Given the chance, what might he be capable of?

I recently wrote about DDD Battambang which is bringing IT jobs to rural Cambodia, a place traditionally known for farming. In response to this business, one could reasonably raise a concern about the talent pool. Will the people really be there to make such a business work, and furthermore will they have had sufficient experience and education to get up to speed?

These are certainly valid questions, and they bring to mind an important but relatively unknown book about talent written by a gentleman named Elliott Jacques. In his book Human Capability, Jacques makes a point which is of great interest to social enterprise. He states that one’s talent trajectory, for instance how far ability-wise one can get as a manager, is as intrinsic as one’s eventual height. That as long as a person isn’t malnourished or abused, their leadership talent will develop as they age, whether or not they have had education or leadership opportunities.

Thus in disadvantaged areas, we can expect that there are a number of undiscovered, under-leveraged people who could be doing great work on the global business stage, if they just had the opportunity. That even though they may not have had great education or work opportunities, their innate talent lies ready and waiting for action. This is great news for social enterprise, which faces a variety of challenges in competing with a normal for-profit company. The ready availability of such a talent pool can really make a social enterprise competitive in the market place.

When I was in Cambodia, I had the pleasure of meeting several people like this, who are talented, who hadn’t had good work opportunities before DDD, and who are very happy to have the opportunity to do global work in a rural setting near their families.

I believe there is great potential for a variety of other service delivery businesses to base in rural locations. It will take dedication, problem solving, and knowledge sharing to help move these efforts forward.

btw If you’re interested in learning more about the book “Human Capability,” check out my Amazon review that describes his unique way of identifying leadership talent.

Attitudes for Success Run in the Family

Today I had a very special opportunity to visit one of Digital Divide Data’s computer operators, Bunthy. He was hired by DDD out of CIST, which runs an IT training program for disadvantaged youths, and given further training by DDD in order to become a successful digitization operator at the Phnom Penh office.

Bunthy’s parents, like many people of their generation in Cambodia, had to move a lot in order to stay safe during the Khmer Rouge regime. As a result they ended up with no clear place to be, and no land. After living in a slum next to Boeung Kak Lake for several years, they were forced to leave when the land was sold to a developer. Fortunately they were eventually given a cash settlement to purchase land elsewhere and start over.

Now this is where it gets interesting. Bunthy’s father is a visionary. He could see the talent in his son, and he knew that in order to get ahead, he had to support his son through finishing high school. So in spite of the hardships, he took that long term view, and allowed Bunthy to continue studying rather than leaving school early to make money for the family.

And this investment has really started to pay off. After graduating from high school, Bunthy was accepted into CIST’s training program, and after that he was hired on by DDD to be a computer operator doing digitization work. And in just a couple of weeks, with DDD’s support he’ll be attending university to study business.

What’s even more fascinating is that this cycle of education is continuing in the family. Bunthy’s sister (seen in the picture holding a young neighbor) is being supported by Bunthy to stay in school, at his insistence, rather than going away to take a factory job as his relatives have suggested. “I want her to get a job where she uses her mind” he told me, “I don’t want her working in a factory.”

Bunthy has plans to help the family finish building their home, and then to start a side business from the home, selling consumer goods. He also has an idea to make soap for sale locally. His father works in construction, and his mother works across town selling beef kabobs that she makes. This is an enterprising family with a bright future.

What was so uplifting for me in visiting Bunthy’s home was seeing the hard work, smarts, ambition, and vision that Bunthy’s whole family holds. They “get it” as to why they should keep their kids in school, and they have the core attitudes for success. Indeed this is the type of family that I aim to support in my social enterprise work.

Sustainability for social ventures–is it OK to take grant money?

I was chatting today with a friend who is a very high potential social entrepreneur. She’s had grant funding in the past, but has thought about it as a “hand out.” She told me that she really wants to stop taking grants, and just focus on building revenue streams towards a fully self-sustaining venture.

I think she’s has absolutely the right idea in the long run, but may be several years early in pursuing this path.

My experiences in the conventional business world tells me about the importance of seed capital and startup funding towards bringing a business to profit. There are few if any businesses that can bootstrap from nothing and quickly develop into substantial enterprises. Although it’s true that there are pitfalls to taking capital, it’s also true that it takes a certain amount of capital to properly set up a business for success. Ultimately, I don’t know that social ventures are any different.

In fact, several of the most interesting social ventures that I’ve researched use a combination of earned income and grants in order to build their enterprise, and develop scale and expertise that brings them closer to financial sustainability.

This notion of financial sustainability is a key point on which the grant discussion hinges. In that way I think my friend is right on the mark. She’s in effect saying “I don’t want my mindset to become one that relies on handouts.” At the other end of the spectrum, if an organization never takes in any grants or other forms of financing, it could artificially limit the growth and impact that would be possible otherwise, with funding.

Thus it seems to me that there is a healthy balance to be struck between a financial self-sufficiency mindset, scaling up, and being smart and selective about taking on grants and other funding *with the goal* of achieving self-sufficiency. This is what I see successful players in the field doing, and I think it’s important for the talented young social entrepreneurs to understand this balance.