Sustainable Capitalism in Emerging Economies

Hi Mike and thanks for raising so many issues. I've recently been involved in several multi-sector international/local partnerships to catalyse micro-energy businesses based on alternative energy products in rural sub-Saharan Africa. We did exactly what you described, by engaging with people in rural areas without electricity as consumers, entrepreneurs and above all as partners in the projects. We've learned a lot and have much more to learn. Experience tells me private enterprise has a major role to play in fighting poverty and that every day we spend arguing who should do what on the basis of old-world ideologies is one day less devoted to actively reducing poverty here and now. I think profit is fine - especially when that profit is shared between all players - and that we have to bring an end to projects that, however well intentioned, end by increasing the economic differentials between haves and have-nots. I'm deeply against leaving things to public sector and NGO's alone, even though I value the role they can play, because I just don't think we will ever end poverty that way. NGO's I have partnered with are still learning to develop a more entrepreneurial and customer-focused approach themselves toward those they serve. Private enterprise can provide essential R&D, technical solutions to basic services, plus an understanding of what it takes to get a product or service to market, as well as the focus and drive that comes crucially from having learned to survive on your own merit and meet payroll at the end of each month. NGO's often know their local people and have excellent networks in the community/ marketplace that can be mobilized for enterprise. I'm least clear about the role of public sector in the story, but I think that we should look to governments to create the legislative infrastructure within which enterprise can floruish, and that large-scale infrastructure like transport and communications needs a strong public sector presence. Bottom-line, I think partnership between public and private sector is key, and that our attitude is all-important - we all win when each part of the whole is willing to dialogue and learn together and stay committed to the common good.

This is an interesting Diary in the way that it addresses the issues at the heart of our current form of Capitalism even now breaking down around us.

BTW: For my take on that - from a background as a former director of a global energy exchange - see here

http://www.slideshare.net/ChrisJCook/credit-crisis-in-30-slides-presentation

When we talk about "Public" and "Private" we actually mean

"Owned by the State" and "Owned by a Corporation" respectively.

I am pointing out that in fact there are other legal and financial frameworks or "enterprise models" beyond the Corporation. eg "Unitisation" based upon Trust law frameworks, and more recently new types of unitisation using partnership-based frameworks.

In the UK we may use the LLP for this - the closest cousin to the UK LLP in the US is the LLC, and there have already been several references to innovative uses of LLC's here.

I don't actually think we need to look at the moral issue of making money from the poor, whether it is from debt eg microcredit or by stockholders of Corporations in the field. We only need to observe that the current enterprise model of Debt and Equity is all too clearly sub-optimal.

Simply put, it is inefficient to pay returns to shareholders merely for the use of money, or to banks for the use of credit created ex nihilo, when it is actually possible to raise investment quite straightforwardly from stakeholders directly through selling production forward.

It is this freedom from paying returns to "rentiers" that the Cooperative movement calls the "Cooperative Advantage".

I believe that it has only been the absence of a workable enterprise model which has held back the Cooperative sector from "out-competing" conventional Capitalism.

My thesis is that such an enterprise model - essenatially a "Cooperative of Cooperatives" - is now possible, through innovative use of LLP's and LLC's as "Capital Partnership" frameworks.

This presentation,

http://www.slideshare.net/ChrisJCook/equity-shares-a-solution-to-the-credit-crash-presentation

in Dublin last week, outlines how tsuch a partnership financing model through a Capital Partnership works in the property sector, and this could essentially make possible a new form of quasi Equity as an alternative to mortgage debt.

The point is that there is no "profit" and no "loss" within a partnership: merely the creation and exchange of value in all its forms - and IMHO money created as debt by credit institutions is not one of them, although banks do have the potential for a valuable role as service providers.

I was totally blown away by Chris Cooks presentation on SlideShare.net - I urge everyone who interested in ending world poverty by inclusion of the people as investors in their own sustainable futures...

Chris I am working on a value proposition for Bluefields, Jamaica. I would like to contact you directly to solicit your assistance...

I was totally blown away by Chris Cooks presentation on SlideShare.net - I urge everyone who interested in ending world poverty by inclusion of the people as investors in their own sustainable futures to view his presentation...

Chris I am working on a value proposition for Bluefields, Jamaica. I would like to contact you directly to solicit your assistance...how can I do that?

Hi MidiBerry,

A couple of reactions to your post informed by an panel held last night at UC Berkeley on this topic. The panel included Moses Lee from the William Davidson Institute, Katie Schmidt from WaterHealth International, and Israel Moreno of Cemex's Patrimonio Hoy program.

First off, the fact that you engaged the end-users as partners resonated with what Moses Lee talked about as one of the key aspects of successful BOP models, namely, co-creation. It's a different mindset and skill-set that it takes to run a BOP venture in this way. In fact, Israel Moreno spoke about how they look for very different qualities in a recruit for Cemex's Patrimonio Hoy program than for potential staff of Cemex itself. The ability to "get" the social mission and the person's social values are paramount for the BOP venture.

Your question about the role of government is an interesting one. Certainly infrastructure as you point out is one key role. Another is in providing subsidies. It seems that subsidy is a bit of a bad word in the social enterprise space as it indicates something that is not financially sustainable. However, as Katie Schmidt pointed out in our session, all countries, developing and developed subsidize the provision of basic services like water. We here in the US don't pay the full cost or providing clean drinking water and it's difficult to expect families and communities in the developing world to be able to do the same.

But I think this question is a good one: In countries where local and national governance can often be dysfunctional, what is the role of the public sector in support BOP - style economic development?

Mike,

I think we must move away from thinking of ‘The Poor’ in the context of those living below what’s generally considered outside the margins, in humanitarian terms, for an acceptable standard of existence. The objective is to move them up within those margins and ‘sustain’ them there.

An exploitative business may choose to target the poor to their disadvantage. Profit maximisation with inferior materials we’d once have called shoddy, or it could find ways to reduce the costs of production and achieve sustainable levels of profit, as for example Grameen have done with Danone.

Above we have examples from Midi and Chris of ways in which business may allow for effective community participation, by means of either adopting a model which re-invests in the community, or creating the means for labour and capital assets to be invested collaboratively for shared reward.

Corporations and government alike have been slow to recognize that it’s not in our interest to create and preserve extreme poverty, as we may remind ourselves from 90 years ago when reparations forced on Germany created the seedbed for extremist ideologies.

So what can the public sector do where national governance is dysfunctional? I offer an example that goes back to the Clinton government, when Russia’s economy collapsed in 1998 and P-CED’s founder having put forward the case that funding these types of enterprises were in our interest, followed it up with a case study in investment. The result was his recommendation for microeconomic development in a Siberian city.

Over a 4 year project, with a fund of $6m, equivalent to $10/per inhabitant it was possible to create 10,000 new businesses with close to 100% survival rate. This was catalysed by microfinance of the moral collateral form and achieved full cost recovery for the US government. With the improved forms of funding Chris describes, we might do even better.

http://en.wikipedia.org/wiki/Social_enterprise#Social_enterprise_in_Russia

Move on a decade and there’s now a case to be made for investing in more than full cost recovery, combined with social objectives of less than full cost recovery to recommend the nil overall cost approach. This time, rather than the President, the target was the Senate Foreign Relation Committee where in 2006, the President Elect (himself a microeconomic advocate) was to be found. Though still early days, the response from US government so far has been the Davos launch of the East Europe Foundation, seed funding sustainable community enterprise in Ukraine. Now there’s a continuous stream of initiatives that were unheard of a year ago.

A small point, but not all the developed world subsidises the cost of water. Here in the UK we saw charges ramped up a few years ago as the precursor to privatisation which has become yet another profit maximization scenario. Imagine this imposed on the developing world with no state benefit infrastructure, like ours. Some may say that others should have no right to profit and speculate on a common wealth which is fundamental to life.

Consider also the implication of water supply on the Palestinians in the West Bank where aquifers have become the property of the Israeli State. Palestine can’t subsidise what it doesn’t own within its own territory.

Jeff

Great topic, Mike. You ask "In countries where local and national governance can often be dysfunctional, what is the role of the public sector in support BOP - style economic development?

By definition, none, at least currently. Allow me to react from the perspective of someone who has lived in Chad and Mauritania

two extreme examples, I know, but still, around 15 million call those countries home so I don't want to ignore them (and the Somalis and Nigeriens and Zimbabweans and Congolese of the world).

I waited a frustrating 18 months while living in a small town in Mauritania for the government's inept scheme to bring running water to my neighborhood. It kept getting closer to my street, but never arrived, and I never was able to figure out how to request it. So the young boys on donkey carts siphoned my water by the 200 liter drum, and that was that.

With that perspective in mind, I'd say that the question of exploitation seems rather exaggerated most of the time. I mean, if I had the choice to get running water in my house, would I care if it were from a government or a private source? The question would be, can you do it, and how much does it cost?

Given the abominable service provided by government run utilities (I can vouch for its awfulness in Mauritania and Chad, n=2... with near constant cuts in water and electricity), I say give the private sector a chance. If they exploit people, then it's practically par for the course, but in many cases at least the consumer should have a choice.

I say that slightly tongue-in-cheek as no one deserves to be exploited, ever, but our definition of exploitation should be sensitive to the fact that the alternative to paying what some may consider a high price may be lack of access to that product or service, which leaves us at square one.

Thanks, Mike. Also, hats off to Jeff and Chris and other folks commenting with some very interesting ideas. It very well could be that in a world prone to tunnel vision, "third ways" are viable, and I'd love to see them proven and gaining acceptance.

Thanks to Luke, Jeff, and Mike for some very interesting posts. I will share a few insights from my experiences working with enterprises in small communities in Africa and India, as well as the Capitalism Next Seminar held at Berkeley on Monday. Regardless of whether it is the public or the private sector who is providing services, it is important to distinguish which segment of the population we are truly targeting. The term “Base of the Pyramid” has gained popularity for both private and public sector funds. World Resources Institute identifies the BOP as those households making $3,000 or less per year. (about $8/day) Although in India the average household size is 5 people, not all of those are income generators. The United Nations has always considered the very poor as those making less than $2 per day (in PPP). I often find BOP ventures to draw a fuzzy line around who they are truly targeting. When we target customers are we targeting the BOP, or rather mislabeling those who are indeed lower-middle class? If it is the latter, what then happens to the true BOP? Are they marginalized even further? For the true BOP, once the most basic needs are covered, such as food, water, fuel for stoves, and cooking basic health needs, it is very difficult to generate substantial savings. Most of India’s BOP population lives in rural areas – 500 million people – where income is heavily dependent on farming. Farming incomes are highly cyclical, making the steady payback periods required for long-term financing very difficult. Given income cyclicality, it is rare to find microfinance institutions, the only institutions providing financing to the BOP, providing loans that are longer than a few months, and over 90% of all micro loans go for business needs that are quickly paid back through sales. Two types of products in BOP markets perform well outside of the most basic categories such as food and fuel: 1) products that increased earning potential and 2) aspirational products. The first category is straightforward: if a product can increase the productivity or income potential of a BOP consumer, such as farming equipment or goods for a small shop, it has a natural and accepting market. The second category is more controversial, but important. Some companies, such as Proctor & Gamble and Coca-Cola, sell products in very small quantities that are considered luxury items for BOP consumers. However, a very small packet of detergent that may be used to clean clothes is not as controversial as selling an unhealthy product that may displace more important nutritional purchases. While permanent shelter structures can be both income generating – such as mixed use business/home structure – and aspirational, it is still very difficult to scale down a permanent building structure to a cost level where it makes sense to invest for business or purely pleasurable reasons. Government subsidy or slum improvement programs could alleviate the gap in the market between cost and disposable income, but government projects are problematic for multiple reasons: • Government money/subsidies are typically available on a project-by-project basis; • Government money/subsidies are not consistent; • Various governing bodies require that construction dollars are allocated to the lowest bidder, regardless of quality; • The building industry is characterized by high levels of corruption, particularly around government project schemes.

In contrast, the lower middle class have characteristics which make them an attractive opportunity for solutions that both do ‘good’ and are good business. This group is repeatedly identified by microfinance institutions, builders, NGOs, and research reports as the low-income group with the greatest potential for private sector services. A typical worker in this segment holds many of the jobs that support the higher income brackets such as drivers, in-home maids and cooks, and office servers and. This group is benefiting greatly from the rapid economic expansion in India, and its people are upwardly mobile.

It may very well be that private enterprise is most suited to serve this lower-middle class segment. However, there is a danger in mislabeling this group as the BOP, thereby channeling further marginalizing those very poor.

Most of the economic growth that I have seen in India in the last 5 years has concentrated on the lower-middle class rather than the real BOP. While the real BOP lacks ,perhaps, the economic fundamentals, it still is a large plausible market just by its sheer size.

As Mira rightly points out, the BOP has been quite insulated from the otherwise much-required transformation that has happened in the MOP (middle of the pyramid). The BOP is still catered mostly by the NGOs and government subsidizes.

What we require is an eco-system and not a few disconnected players servicing the largest market in the world. On the one hand where the mushrooming micro-finance institutions are providing access to credit, we require more players who design products and services suited for the BOP to economically spend this credit. This is a bigger challenge than catering the lower middle class who have some credit-worthiness in terms of a regularized income and savings. However, I strongly believe that the outcome of a large number of such connected eco-systems servicing the BOP , around the world, would make a much larger economic sense.

The governments and the private-enterprises across the world, I am sure, are looking for alternative ways of utilizing their available finance, especially to minimize the risks of global slowdowns, one of which we are witnessing currently. If lessons are rightly learned from the current crisis, then creation of local markets and focusing on the real-needs of the people would become obvious.

I find the whole discussion rather interesting in light of the world financial crisis where we are on the verge of bailing out Car giants like GM & Ford. Instead we should be in emulating Tata Motors as the article mentions and find out how to build those $2500 cars here rather than the behemoth Trucks and SUV's that have been on the US Market for years past their expiration date. Can I leave you with a couple links that give good food for thought on the very nature of "Capitalism" in the new normal we are in regarding this world credit meltdown? What we need to take a serious look at is "participatory economics" or parecon for short.

Here is link: http://www.zmag.org/znet/viewArticle/7678 & http://www.zcommunications.org/znet/topics/parecon & also

http://www.akpress.com/2001/items/movingforward

It may sound radical, fanciful, unworkable to some but we seem to be traveling in this direction.

Thanks for the great posts. I want to synthesize what I’ve taken from the posts and throw a question or two back at you.

First, the importance of getting our terms right. Mira and Ankur point out that many examples of “BOP” initiatives aren’t actually serving the base of the pyramid. The distinctions between the poorest of the poor, the working poor, or the lower middle class are important distinctions to be sure. Mira talks about the risks of further marginalizing the poorest of the poor when we lump all of these groups into the BOP box. I’m in principle a strong supporter of being precise in our terms. Yet, I’m curious how big of a risk this is? Are the poorest of the poor getting marginalized now by this confusion in terms? Is private enterprise not well-suited to fighting poverty at the real base of the pyramid? If so, then what hope is there for the poorest of the poor given the weakness of the public sector?

The other fascinating thread in the discussion is that together, they start to give us a picture of the many different shifts that need to occur in order to truly fight poverty – whether it’s in financing models, our legal structures, governance, or even our economic frameworks. The complexity of poverty requires a whole-systems approach, one that meets the problem with a bevy of tools rather than just a hammer. I’ve personally become very interested in the role of design and design thinking as one fo these tools. You see firms like IDEO working with social enterprises and multinationals to develop BOP ventures through a human-centered design process. But what about other tools? What do you see as the other systemic changes that are needed to truly address these challenges in a meaningful way?

You'll hear this from President Clinton as well as others including myself. Microfinance works when delivered in the moral collateral form pioneered by Grameen. We find little evidence of this in Eastern Europe, where often loans are available only to existing businesses and therefore don't serve the poor.

One of the greatest tools which rarely makes itself available is mainstream media. I offer an example of a recent entry in something called Social Enterprise Magazine. Reading of a venture capital initiative to deliver microfinance in Russia, I wrote to inform of the social enterprise origins which led to the creation of the Russian Microfinance Center. I was ignored as was my colleague, the instigator. I offer links to the article and our history below.

http://en.wikipedia.org/wiki/Social_enterprise#Social_enterprise_in_Russia

http://www.socialenterprisemag.co.uk/sem/news/detail/index.asp?id=678

In the same vein, some weeks ago I read of Oxfam's research into launchin social enterprise initiatives in the same country, so I wrote as a small business owner, with little disposable capital, offering to donate intellectual property in the research and results of our own work.

The offer was turned down flat, which I presume means that Oxfam intends to re-invent the wheel, at the expense of their donors.

This above all is what we need to fight poverty, for those involved to actually collaborate rather than imprinting their own brand. None of us, individuals or NGOs are going to eliminate poverty on our own.

Jeff

Jeff: You hit the nail on the head about NGOs. Of course Oxfam would re-invent the wheel! As you point out they have a brand to sustain - a driver which has little to do with or at least detracts from their stated mission. I hate to generalise but in my country, Sierra Leone, there has been rabid NGO activity to relatively little impact. It seems that many of them just want to plant their flag for donor support in the home countries. accountability is lacking - either from within these organisations or from the government which is often so desperate itself that it accepts every NGO proposal without question or demands that they coordinate their activity. In my neck of the woods one answer to development is private sector activity which engages the BOP at some level (entrepreneurship) but to talk about the BOP as consumers is almost a non-starter. As the most socially excluded group, what they want is the basics - clean water, reliable energy and a decent shot at providing for themselves. Fostering the development of BOP entrepreneurs focussed on adding value for products consumed by the more endowed is a good way to go IMHO. Those from LDCs who are living abroad have the most potential to fight poverty in their home countries - with their combination of local knowledge, and access to developed world consumers and knowledge - all they need is to muster up the moral capital. We can no longer afford to wait for another development model from the west to save our own hides. But, having said that some genuine partnerships won't hurt.

ayo

I agree that the complexity of poverty requires a some whole-systems thinking and that these ideas might be visualized to create new understanding of problems and possible solutions.

I've been creating a library of links to visualization web sites because I'm trying to find volunteers, possibly from groups like NetImpact, who would help me incorporate these tools in my own work. The links library is at http://www.tutormentorconnection.org/LinksLearningNetwork/LinksLibrary/tabid/560/rrcid/13/rrscid/25/rrpid/1/rrepp/20/Default.aspx

The link below goes to a place where I use concept maps to outline the strategy of my own organization, the Tutor/Mentor Connection: http://cmapspublic.ihmc.us/servlet/SBReadResourceServlet?rid=1178301962705_378512451_14531&partName=htmltext

Are you aware of any places where visualization tools are being used to define some of the ideas that are being shared in this forum? It might be valuable if one of the blogs on SE were just devoted to sharing links to such sites.

Thanks to Ankur and others for inspiring me to take a much mocked concept (trickle down economics) and apply it (in a way) to the BOP. I think with the BOP we make the mistake of ignoring any product or service not specifically targeting the poorest of the poor. I made the same mistake when I was reading Mike's post, as he mentioned Tata's Nano and I said "A $2,500 car! Pshaw! That's almost four years salary for someone earning $2 a day! It would be like asking the average American worker to buy a Porsche 911 Carrera!

But then I thought more about the way cars are used and the huge ripple effects. In countries where few people own cars, even the smallest car becomes a taxi, a cargo van, a fork-lift, an ambulance, a wedding limo, etc. If I'm Mr. BOP walking on the side of the road towards town with my produce on my head and only 10 cars pass per day, then I only have 10 chances to stick my thumb in the air and get a ride to town. But with a $2,500 car on the market, maybe now I have 20 chances. More people will use this vehicle to move goods and services around the country, to the benefit of everyone.

Except for perhaps the environment...hmmm. Maybe we need another post on that. :-)

In short, some but not all products targeting middle income and lower middle income will help the BOP. But interestingly, some but not all products targeting the BOP will help the BOP. I remember a comment from the head of an economic development NGO saying with exasperation "If I hear one more reference to single serving sachets of shampoo!" You can talk about hygiene, empowerment, morale, etc, but I'm sorry, shampoo just isn't what the BOP needs most. It's like companies never learned that you can make your own soap out of fat.

But that doesn't mean shampoo and Life Buoy shouldn't be on the shelves; they just shouldn't be getting such a huge share of the air time when talking about the BOP. Hopefully in time, it will be one of thousands of products/services.

Luke

I am sure that the BOP wants more than just the miniaturized versions of everything the TOP uses like 0.5 cents worth shampoos, soaps and detergent powders. These are good but not enough.

Having said that, I also believe that the BOP as a consumer market still needs to be researched a lot because perhaps they themselves do not know what they want. All they probably could aspire for is cheaper versions of the same stuff they see on TV and the so called and rightly addressed above - main-stream media.

There lies a bigger responsibility on us to create BOP specific products and services that are not just scaled down versions of the products the TOP have been using, but are completely new products that the BOP really requires. Find markets for existing products and create markets for new products.

I like Anthony's idea of using participatory economics at the BOP. A whole system approach includes politically and culturally as well as economically. With the principle of one having a say to the degree in which they are affected by discussions and decision making, it's a human right that people should be able to control their own economic lives. Given the weaknesses of free market capitalism, instead of the BOP being further marginalized, participatory economics primary principle would reward people for their efforts and sacrifices (rather than working all day for $2.) Free market capitalism argues that participatory economics will provide weak incentives for innovation and blur the value of products and services, but the free market forgets what a community's cumulative creativity can achieve. It also requires a minimum of hierarchy and maximum of transparency, which women tend to be more comfortable with in the absence of power. Since micro finance tends to empower women, it's a natural fit.

A holistic or whole system approach is indeed desirable, which is the point also of people-centered economics, in which the economic and social rights of communities are addressed, ie economics and business focussed on the needs of people.

Here, Ramla Aktar another advocate in Pakistan offers an illustration

http://www.triplebottomline.com.pk/response.asp?id=1&sub_id=7

What we observe now is a paradigm shift in which many models are appearing with similar aims, parecon being one of them.

Hi all,

I'm at the Net Impact conference in Philadelphia. Net Impact, for those that aren't familiar, is an international organization composed primarily of business school students and graduates, who are interested in changing the world through business. Today, I sat in on panels on social entrepreneurship as the new international development tool, healthcare delivery in the developing world, and finally, food insecurity and the role of business. Lots of interesting food for thought.

Some of the takeaways for me: -there's a growing group of social entrepreneurs - organizations and individuals supported by funders like ashoka, endeavor, skoll, and the draper richards foundation - that are fostering economic and social development through business. Ironically, since we are on Social Edge, We haven't talked specifically about social entrepreneurship yet but this movement is clearly a big part of the question we posed - can private enterprise fight poverty. In fact, one observation I've had is that social entrepreneurship has taken hold more quickly in places like India, Brazil, and Kenya more easily than in the developed world. Accustomed to a bright line distinction between profits and social impact, we citizens in the west tend to have a harder time fully grasping the possibility of an organization that has both social and economic ends. In much of the developing world, this seem less problematic.

• Big multi-nationals are increasingly partnering with social entrepreneurs to enter these new markets, access distribution networks, and test new products. One could point to Cemex's Patrimonio Hoy program as an example. Lisa Nitze, Ashoka's global partnership director, cited BP and Hershey's as well. These partnerships are only going to increase. See Volans, John Elkington and Pamela Hartigan's new ventures, as an indication of where this trend is going.
• Finally, there's been a proliferation of investment funds in the SE space. From micro-finance to the growing emphasis on SME financing (root capital in the agriculture sector is a good example), capital is following the wave of innovation in the social entrepreneurship space. This is a good sign and points to the potential for scaling up successful models.

To be sure, social entrepreneurship still represents a movement greater in potential and excitement than results. The field is still looking for the next Grameen Bank and the next model that combines business and social value in a way as compelling as the microfinance model did. But it seems to me to be a situation where a thousand flowers are blooming. And even if none have reached full maturity, the potential leaves me hopeful.

At least I am Mike. But let me first examine the definition of social enterprise as one participating on Social Edge for the last few years. I run what we describe as a profit for social purpose business in which all profits have gone toward advocacy for SE and activism to raise awareness of childcare conditions in Eastern Europe. We are entirely self-supported beginning in the US in 1996 and the UK in 2004.

http://en.wikipedia.org/wiki/Social_enterprise#Social_enterprise_in_the_North_American_context

In our concept of SE, social enterprise leverages business to lift communities out of poverty. The theory being turned into practical application in 1999 following Russia's economic collapse after the failed Harvard (HIID) Defense Enterprise Fund trickle down approach.

Proof of concept delivered within 5 years with 10,000 businesses and > 99% survival rate and loan repayment. Since 2004 as a UK business we've focussed most of our attention on a microeconomic Marshall Plan which 2 years ago was delivered to the Senate Foreign Relations Committee, where it found some interest among other microeconomic advocates.

http://en.wikipedia.org/wiki/Social_enterprise#Social_enterprise_in_Russia

In my experience multi-nationals who represent several of our customers wants to distance itself from social enterprise, while all we ask it to be paid, on time, for our services.

I don't have any problem grasping these concepts but I see rather the opposite trend. Multi-nationals who shrink away from social enterprise, presumably because their brand isn't ideally represented.

Gordon Brown this year, in a speech which drew upon the same ideas delivered 12 years earlier called business to action to deliver showcase projects. Social enterprise or P-CED differs in that the commitment is 100%, it exists for the benefit of people.

http://www.p-ced.com/info/se/

Jeff

I've enjoyed how this dialogue developed since I first posted. I want to respond to a couple of things. First, Chris Cook: I found your slide presentation on Capital Partnership exciting - feels to me like the kind of win-win thinking that takes us beyond outdated models of how the world works. I liked the way the pyramid got inverted and also loved the sharing internet medium through which you presented, Chris, as well as your humor, which has value all of its own! Second, I passionately agree with those who advocate whole systems approaches and am hopeful that in the USA we are at last about to have government that operates out of systems awareness. Yeah to Obama and friends!!! Third, Mike you ask: "What do you see as the other systemic changes that are needed to truly address these challenges in a meaningful way?" Choosing just one systemic change here, I advocate that, at all levels of our pyramid and across all countries, we take every opportunity to redefine value and profit in a holistic way. We MUST adopt measurement systems that take wider and deeper account of the many facets of wealth and wealth creation. Historically, the value of the rural energy projects I managed would have been measured and reported only in terms of the return to the private enterprise from sales of their products ( a foot-powered generator; LED lights etc), and/or the earnings per micro-enterprise from sales of their energy services (cell-phone charging; lighting hire etc), and/or the direct savings to customers of cheaper cell phone charging and lighting. Such direct financial returns are important yet limited. So many other indirect returns accrue within a whole system perspective: R&D learning by private enterprise engineers in the field results in better understanding of their customers' needs, which leads to improved next generation products, and shorter time to market; increased community entrepreneur skills and experience offers a bankable track record for future loans and leads to new and more robust community business ventures; reduced customer travel to point-of-service for cell-phone charging releases time and energy for other activity; reduced risks of accident and illness from using LED lights instead of kerosene lamps improves community and individual health; better lighting creates increased education / work productivity. And beyond those indirect economic returns, a whole set of social benefits must be recognized and factored in: the value to a community fractured by civil war, genocide and disease of co-creating a community business that acts as a focal gathering point in a remote village and that, by its very existence and success, offers people hope for the future; the increased status and self-confidence of a previously marginalized community member who now finds herself in demand, through offering a valued community service; the benefits to family and friends of being able to sit together in the light safely, securely and comfortably at night; the learning between partners about how (and how not!) to partner, the list goes on... It is such an honor and privilege to serve the BOP, not least because what matters in life and needs to be measured can be seen so clearly and simply. Some time ago in Europe, I was charged with developing learning systems for disadvantaged and disaffected youth. My colleagues and I didn't know what to do, so we asked the kids themselves what they needed, and co-created with them the learning experience they judged fit for their purpose. It was exciting to see how motivated they became in learning and, beyond that, how the product and process of the learning models we developed was increasingly adopted by mainstream learning institutions. I believe we will see a similar effect as the BOP progressively informs and educates the whole and helps lead us into a wealthier future. Thanks so much to all contributing here and to Mike for facilitating. Best regards, Midi Berry

MidiBerry's experience developing a learning system for disadvantaged kids is spot-on from my experience. I applaud the Net Impact folks for their enthusiasm, but I've yet to see a successful initiative develop which didn't emerge out of the needs and desires of whatever local community it was designed to serve. In the BOP communities I work with, cultural values must be the foundation of the initiative if it going to be sustainable and of lasting benefit. Additionally--and I presume this is the case for many others in the BOP space--those foundational values are sharing and cooperation, not the individual benefits of entrepreneurial enterprise, social or otherwise. Chris Cook's organizational contribution strikes me, tho, as a potentially viable framework.

On another note, one question for you all regarding our attempts to define BOP...are its members static or mobile? I'm imagining that various life circumstances--marriage, divorce, sickness, environmental or economic circumstance. etc--has people moving in and out of that status all thru their lives, and that there might even be some patterns in that movement, but I don't know. If the numbers are significant, however, and patterns are present, how does that effect any approaches we might explore? Any observations? Another Mike

Very good comments! thanks Mike and all.

Government provides the services that we cannot afford to pay for individually (the common good), for example; school, health, infrastructure systems, etc. In some instances families and individuals are not able to care for themselves, for example; mental health issues. I would suggest that providing means for the BOP to lead better lives helps all citizens by reducing costs associated with poverty such as, security, emergency services, etc. However, the role of government is often defined by culture and values as opposed to pragmatic perspectives.

Philanthropy also depends on government. Without government policy to support giving as a tax incentive I doubt that many donors would in fact donate. Philanthropy cannot meet all of BOP needs as there is not systemic approach and is mostly driven by donors preferences and values.

SE businesses can exist in the between space of government, philanthropy and market needs. SE businesses leverage knowledge and resources to meet the needs of consumers that businesses concern solely with profit do not address or do not address fairly, for example credit. SE businesses try to find market positions that increase their sustainability by charging for services. In other words they need to find a viable transaction in the BOP market. They can achieve this by leveraging government policy, philanthropic funds and market expertise and capital. For example; Latinos send billions of dollars back to their country of origin. However, they are charged about 20% for such transactions. An SE enterprise could cut these costs down and help improve the cashflow to families in both countries.

In a global capital world a local living economy is necessary. SE entrepreneurs play the role of cultivating a local living economy.

For SE enterprises it is critical to develop a community investment strategy. The investment framework I suggest should focus in creating a healthy community with a strong local economy. Within that space there is opportunity for the SE businesses to pick and coordinate the use of gov't and philanthropic capital and resources.

Personally, I have my doubts that you can successfully legislate helping the poor. In reality the challenge for SE entrepreneur is to develop offerings that are packaged as life giving consumable products and services in order to increase their market share, which hopefully would eventually eliminate poverty. For example fair trade coffee.

Hi,

I thought you might be interested to hear about Pioneers of Prosperity.

I represent PoP, an award programme which brings together top African businesses, investors, presidents and NGOs to celebrate and recognise torch-bearing companies in Africa.

Today, our 2nd ever event has started in Kigali, Rwanda, and I thought you would be interested in learning about it and perhaps getting information about the winning announcement due tomorrow. In the mean time you can visit our site www.pioneersofprosperity.org or find information about us on Facebook, YouTube and African Village.

PoP is a fantastic cause that aims to create powerful role models that will inspire the next-generation of African business leaders.

The event sees ten finalists, which include four female entrepreneurs, compete in a ‘Dragon’s Den’ style pitch to four well-known judges, for a life changing Grand Prize of $100,000.

Talk to you soon!

Poppy

www.pioneersofprosperity@bell-pottinger.co.uk

I hope everyone had a wonderful thanksgiving break. My sincere apologies for the long delay in between posts. This has been a wonderful conversation and I hope we might be able to get it started back up or at least continue it a little longer. Thanks to MidiBerry and Carlos for your posts. Both very interesting.

I think MidiBerry brings up the important issue of measurement. How do we begin to measure and value things that aren’t easily measurable but are really important? Midiberry’s experience offers great examples of some difficult-to-measure benefits – increased skills and confidence, moving down the product learning curve, improved resources for education, and better health. In my previous work for LaFrance Associates, a boutique consulting firm specializing in impact measurement for social sector orgs, I worked on measuring the benefits of social programs and what I learned is that most organizations either spend too much money on measuring success or not enough. Very few do it just right.

I would point to a couple of resources that I’m aware of that speak to this importance – first, the concept of blended value pioneered by Jed Emerson, who came to speak at Berkeley this past fall (http://www.blendedvalue.org/publications/additional.html). Second, I’d point to work being developed at the Oxford Poverty and Human Development Initiative (OPHI) to develop a new economic framework that measures more than GDP growth. Sabina Akire, the director of OPHI, has pioneered research on operationalizing Amartya Sen’s ideas on human capabilities as the best measure of development and freedom. If successful, she and a group of other scholars would help us redefine “development” and how we measure it.

To be sure, these developments are in their early stages, but they illustrate that the dominant legal and economic models that we take as given (e.g. for-profit vs non-profit, economic vs social vaue, development as GDP growth) are in many ways historically contingent and subject to change. They offer promise of a different way of seeing the world and valuing what transpires in it. But what do you think? Could these new frameworks really take hold? How relevant are these ideas to the actual work of fighting poverty?

The economy in the US and abroad is in for its slowdown. Historically, rising unemployment has placed the greatest pressure on capitalism

both in the United States and abroad. Hence, it's in stakeholders’ interests to reform the system and support programs that strengthen it, such as fiscal stimulus and other programs that stimulate demand and create jobs. Not only is it bad for Americans, but lousy U.S. economy hits the whole world hard. The U.S. bailout measures are good for everyone worldwide, if the cash advances being made work like they're intended to. However, some are insisting that the bailout is going to wreck the budget and make the deficit explode. Obama and others insist there will be cuts made that will make up for it. Regardless, let us hope that the short term loans we're making will help to bring back the U.S. economy.

Sustainable Capitalism:-

There are unanswered questions in the web of poverty redactions strategies through multiple institutions-governments, non for profit, private, multilateral, bilateral institutions, and a combination of one and more of the above.

In the African context, please educate me; how multiple institutions with different rules of engagement of their own, outside, admittedly incoherent national economic policy of a given African country’s central government can coordinate free market activity at a micro and macro level to create a sustainable enterprises to engage entrepreneurs in order to create wealth and employment for the poor?

It seems a breakdown occurred when many interest groups do their own things as if there is multiple functioning market infrastructures in a given country, not to mention governments have no clue of what policy to adapt, beyond barely self sustaining the population.

if the objective is poverty redaction in a traditional sense as it has been for centuries, then finding poor people in a given geographical area, and supporting them in the form of handouts, small enterprise development, building them the basic services of life, like clinic, schools, clean water etc.one village at a time has been tried and did not seem to produce much and sustain for long.

The new model of converting aid in to small enterprise development might show some short term sign of success in a given locality until the limited opportunity, mostly based on self-subsistence economy is saturated, and fierce competition drive down price, and suck the profit margin down to go back in to the same old trap.

If the objective is wealth creation, the most important thing all can collectively do is building the marketing infrastructure at macro level to equip entrepreneurs to take advantage of the liquidity created in the market.

In my limited experience running a small business in Africa, the biggest obstacle has always been the lack of market infrastructure at all level. The most important of all is market information to figure out what is going on around me.

With multiple activities going on, especially from Aid agencies at any given time, the inability for any business to assess demand and supply, and the market risk to involve in any business venture is a guess work, and often deadly, not to mention a breeding ground for corruption.

I fear the free market system would be undermined because of the misunderstanding of how it suppose to work for the lack of coherent policy on the part of the central governments, and the Aid agencies quick fixes by constantly interfering, and destabilizing a given market with free goodies, and free capital in uncoordinated manner.

My question for all is, how can all the different interest groups can come in the same page to coordinate and collaborate building market infrastructure in a given economy?

Though I have my own unconventional idea of how, I appreciate your input and perspective how you would coordinate with multiple interest groups to build a national or regional market infrastructure in a given economy.

God bless

Until the early 19th century in the industrialized world, the loss of a breadwinner often translated into financial devastation for the family left behind. Private insurance gradually began to be seen as a means of alleviating this problem and putting a financial safety net into place for the consumer, thus showing a positive role for the private sector in solving social problems. Today, the opportunity for insurance to play a similar role exists in much of the developing world.

While most countries do have healthcare systems in place, there are often substantial limitations on access. WHO statistics show developing nations bear 93% of the world’s diseases, yet have only 11% of the world’s health spending. This translates into restricted access to care and often a large percentage of costs that are not borne by government systems.

The typical types of private insurance normally found in developed nations would not be suitable to fill these gaps in government benefits. The means of marketing them are not present, and the benefit levels do not correspond to the much lower income figures found in developing nations. The penetration of private insurance in developing countries is consequently very low. The use of microinsurance – small insurance policies to protect lower-income clients - though, can be an effective solution.

One common problem with microinsurance is the high level of policy lapses or cancellations, largely due to loss of employment by the insured. While typical rates of cancellation in traditional insurance in the US are around 7%, the rates are much higher in microinsurance. For example, in 2003, Serviperu, a microinsurer in Peru, had a 36% level of cancellations. This not only makes it difficult to successfully underwrite this type of risk, but it obviously leaves cancelled policyholders without coverage. This is the area in which targeted insurance donations can help.

While some aid currently goes to microinsurers, it is not targeted toward the assistance of individuals, but rather is aimed at the overall financial well-being of the company. By sending targeted donations specifically intended for individual policyholders, donors can keep coverage going for those having financial difficulties. This type of donating allows customers to maintain coverage, helps stabilize premium coming into microinsurers, and adds to the economic activity of the insurer’s host country. It shows how business can be part of the solution to social problems and that donors in the developed world can help in that process.

I appreciate the poor people who work hard to get themselves out of poverty. However, I've seen some of the poor who are used to receiving help, then always wait for help by not trying to make their conditions better. Many corporations in my country go to the poor communities, give them some money, donate food, or other necessary facilities. But the corporations forget to give the tools for them as to how to sustain their lives with the stuffs given, those poor people are not well educated. Actually, what they need most is not only money, but also knowledge that will help them develop themselves, and have the skill for their jobs.
I believe that education is the most sustainable aid corporations can give to the poor, the good result may not happen within a short period, but it will be beneficial for that communities in the long run.

I will address your questions in reverse order:

a.) Social and private enterprise have the same fundamental objectives (surprisingly). Only slightly adjusting our perspective allows us to align their contexts. This begins in defining 'profit'. Both exist to maximize profit. Private enterprise (PE) seeks to maximize financial profit, while social enterprise (SE) seeks to maximize 'social' profit (which = financial, education, health, ecological, chronological 'profits', and more)

Social enterprise assumes (or implies) that a coordinated system of its varying profit factors exists. You cannot truly separate financial profit from social profit in this view, because i.e. the worker who gets sick w/o health care lowers the overall productivity and wealth of the system via their absence.

Private enterprise, in alignment with the materialist philosophy from which it emerged, evaluates financial profit as intrinsically separate ('in a bubble' persay) from the outside. Evaluating it in accordance with other factors (social effects, meaning, etc) is a choice, not a requirement.

Just as with the average adolescent, I believe it reflects a time in the evolution of human collective consciousness where we were still establishing our independence from our 'parent' (nature), and somewhat a necessity. As we have rapidly (and non-linearly) matured, like most young adults, we must and are experiencing the growing pains learning to perceive our subtle connection to everything around us, as well as take responsibility for it. (Re: Its A Wonderful Life)

b.) Identity sows the seed of responsibility. It is important as social entreprenuers for us to remember that PE's share the same values (we are all human), only expressed through a limited paradigm.

It sounds unorthodox, but if you ask private enterprise, they to will see role as fighting poverty, only individually (or for their company) rather than collectively (for society in general). For some, this may also mean not causing it. For them, poverty exists relative to their position against other private enterprises. The secret of an athlete's strength or talent in any sport is their ability to coordinate their body as one whole, integrated piece; not multiple systems just arbitrarily attached.

In the same way, the alignment of perspective will allow us to leverage the benefits of private enterprise, without compromising the integrity of social enterprise. The expansion of the collective mind demands it. Just as anything else 'organic', it may take time.

To facilitate this process, social business and enterprise must come into being that exists to educate private and corporate enterprise of this qualitative shift (A More Convenient Truth), and the implications and instruction of how to seize its opportunity (among many other things).