Stanford Social Innovation Review

Moral Hazard

Today I was fortunate to enjoy what has become an annual ritual: listening to young people from the LA Conservation Corps talk about where they have been (hell, in too many cases) and their hopes for the future. The Corps’ annual Russell Kantor Scholarship Luncheon, and the annual celebration of an independent living program for emancipated foster youth sponsored by United Friends of the Children, are to my mind the best, and most consistently excellent, events of their kind because of the chance to hear stories of redemption directly from young people. Without fail, it is inspirational and very emotional to hear them.¹

With the economic slide accelerating, expect to see a lot of worry among philanthropy watchers about likely declines in giving by individuals and foundations. Those concerns will be very valid. Programs like the LA Conservation Corps will need to weather some tough times, especially if they receive government funding. But the energy we spend focusing on grant dollars in our corner would be better spent attending to the bigger picture of what investment priorities we set as a nation. 

When the financial crisis first received a lot of attention last August, many commentators invoked the concept of “moral hazard” to argue against protecting homeowners from the expected flood of foreclosures. Now that the Fed has injected $30 billion into a workout of Bear Stearns, and put billions more into circulation to preserve liquidity (and there will surely be much more to come), we don’t hear it so often.

According to Wikipedia, “moral hazard² is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.”

So, what is the threat to nonprofits and social entrepreneurs in this financial crunch? A significant, but likely temporary, drop in private philanthropic support? Or is there something more at stake?

The real risk we’re running is the possible dissolution of our hopes to expand opportunity for the young people like those who spoke today. The money that taxpayers (and mostly those not yet born) will foot to work out this mess – and the $2 trillion Iraq fiasco – is money that we could have spent instead to better equip our children for the future. Perhaps even more importantly, the harm posed is yet another cut at our shared belief that the U.S. is committed to at least trying to be a more just. As we have so many times since 1987, what the rest of us may learn from these bailouts is that it is indeed a rigged game – those with more financial and political assets are “more equal” than the rest of us. This increases the pull of cynicism, and that ultimately is very bad for nonprofits who depend on the faith and good will of Americans, much more so than their dollars.

Foolhardy and contradictory as it may sound, though, the main point I want to emphasize here, as I have in previous posts, is that we will still be able to pay these costs AND make investments in our people and infrastructure. It is a question of will; we can do it, if we choose to do it. And for the sake of our children, we can’t afford not to make these investments. It would be immoral not to step up to pay both the cost of those investments, and also the cost of paying the debt we already have shifted to future generations. “Serious” policy people will tell us that we’ll need to live within our means (buckle down, tighten our belts, or other metaphor of your choice) – anything but increase our means. And the temptation to shift the pain to the future, again, is the true moral hazard we need to resist.

1. Bias alert: I am on the board of United Friends of the Children and the Los Angeles Education Corps, a nonprofit that operates the three charter schools sponsored by the LA Conservation Corps.

2. Whatever you think of Wikipedia, its definition was the best of over a dozen dictionary or glossary entries I reviewed. The second paragraph of the definition really was a cut above (see how it works when you plug the finance industry and taxpayers, or the current and future generations, into it): “Moral hazard is related to asymmetric information, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.”

Peter Manzo is the director of strategic initiatives for the Advancement Project, a civil rights advocacy organization, and a senior research fellow with the Center for Civil Society in the UCLA School of Public Affairs. Previously, he was the executive director and general counsel of the Center for Nonprofit Management. 

Posted by Katie Harrington

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MicroEnergy Credits Corporation: Catalyzing Clean Energy for the BoP

It is impossible to argue against the need for reliable energy at the BoP. Energy drives every facet of society, from nourishment to communication. According to the UNDP, at least 1.2 billion people suffer from energy poverty, which has profound impact on health, education, and livelihoods.

Increasingly, people are calling for the new energy models in developing nations to be “sustainable” and drawn from “clean” and renewable sources. The accepted belief is that if we can get developing nations on a path of adopting clean technologies, they can completely leapfrog the dirty, self-perpetuating system we have created in the west. However, there are barriers to establishing renewable energy projects at the BoP, on both the supply and demand side. One recently-launched for-profit social enterprise that hopes to revolutionize financing in this field is MicroEnergy Credits Corporation (MEC), and I had the wonderful pleasure of conversing with its founders, April Allderdice and James Dailey, last week.

Allderdice and Dailey both have impressive resumes, from Peace Corps to Columbia Business School to McKinsey and Grameen; they have the research and the on-the-ground experience to move this field forward.

MEC realizes that even though clean technology pays off in the long-run compared to conventional sources, very few BoP consumers can afford to pay high up-front costs when they are concerned with day-to-day survival. According to Allderdice and Dailey, BoP consumers “cannot afford to pay extra for environmental or even social benefits, and therefore adopt traditional energy.” And let’s be honest, who are we to tell others that they should sacrifice their meager income to save a planet which we are primarily responsible for destroying? In addition to the high up-front cost, there has not traditionally been a local broker to provide financing to the poorest and the most remote clients who do want to adopt clean energy projects. That is where MEC hopes to create change.

MEC’s solution is to use existing Microfinance Institutions (MFIs) and the recent developments in the carbon credit markets on the supply side to facilitate the adoption of clean energy at the BoP. According to Allderdice and Dailey, “Putting a significant portion of the world’s population on a clean energy path could have a huge impact in the long term, and is an opportunity that should not be wasted.” Their idea has been well-received, by both the Tomberg Family Philanthropies and the judges at the Global Social Venture Competition.

To provide financing on the ground, MEC will go through the MFI network, since MFIs are embedded in the community, especially rural off-the-grid communities that need decentralized solutions. This is a very timely post, as Derek’s post last week highlighted in CGAP Senior Advisor Katharine McKee’s article on microfinance and climate change, which said that “A number of respected MFIs and networks – including ACCION, BASIX in India and Equity Bank in Kenya – are exploring products to respond to climate change.”

MFIs have expertise in structuring deals, establishing appropriate loan repayment schedules and interest rates. According to Dailey, “MFI field officers meet with millions of households every week; they are a channel to market for financial services, and financed energy services are a natural outgrowth.”

MFIs such as ACCION and Grameen have also proven to be incredibly scalable, and they can spin off renewable-energy focused businesses; the most notable example of this has been Grameen Shakti, a member of the Grameen family that provides renewable energy technologies for rural households. Allderdice recently worked for Grameen Shakti, and says that it is “currently scaling faster than Grameen Bank was at year eight.”

The other piece of the puzzle on the supply side is to provide incentives to the MFIs through the evolving world of credits for renewable energy projects. Carbon finance is a valuable source of capital, yet it is a complex and evolving field that is difficult for the traditional on-the-ground MFI to tap into. In order to reduce the transaction costs of carbon financing,

“MEC provides MFIs carbon revenues on a per unit basis for each system they finance. This gives them near term access to finance for the seed costs of starting an energy program. As their program scales up, they can pass on the subsidy to end users which enable them to achieve greater volume by reaching poorer clients.”

Allderdice and Dailey have developed two credit instruments, Microfinance-originated Carbon Credits and Millennium Development Goal (MDG) credits. With the first, MFIs can receive revenue when they lend for energy systems that create verified carbon emissions reductions, such as solar PV systems, improved cookstoves and biogas digesters. With the second, MFIs can receive MDG Credits when they lend for an intervention that enables an MDG household to meet all or part of an MDG. According to Allderdice, “There is no established market in MDG credits yet, but MEC is building the infrastructure to enable it.”

When I asked the founders about the possibility of using Kyoto-established Clean Development Mechanism credits, which I wrote about last month, they said that “MEC’s unique approach will create extremely high quality transparent, and verifiable carbon credits that will first be sold on the voluntary markets and as CDM policies evolve, MEC will be among the first to tap the CDM markets.” Well, I guess that there is my answer for the possibility for CDM credits in the short-term.

The hope for the future is clear – to put households and communities on a clean energy path that allows them to be owners of their own reliable and renewable systems. This is what Allderdice was able to see first-hand during her work with Grameen Shatki in Bangladesh:

“some villagers now use solar for electricity, light, tv and radio and biogas for cooking and heating. They are full owners of their own energy generation, without being susceptible to the price of oil, or the fallibility of the electric grid. And they enjoy the environmental benefits of clean, silent, reliable, continuously renewing energy. As their income increases they are demonstrating a preference to buy another solar panel for a fan or a color tv — rather than switch to a diesel genset, or pay a high connection fee for unreliable grid connected service. Once they are on the clean energy path, there is less incentive to get off it.”

Grace Augustine is a research associate with the William Davidson Institute, an educational institute focused on researching and supporting organizations in emerging markets. She writes for the NextBillion blog and has an interest in economic development and clean technology for the world’s poorest citizens.

Posted by Katie Harrington

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Micro-Innovation: Bringing Billions into the Conversation

Base of the Pyramid (BoP) strategy has a few key tenets, one of which is the power of aggregated demand. Those living at the base of the economic pyramid may have little buying power on their own, but when they are pooled together, their consolidated demand amounts to a viable market.

Companies are increasingly aware of and planning around this aggregated demand approach, as we have seen through such examples as the William J. Clinton Foundation’s ability to bring down the prices of AIDS drugs through a guaranteed high volume of sales.

That said, there is a need for not only existing products and services, but even more so for innovation at the BoP – so what about aggregating demand in those cases? How do you assess the ability and willingness of the poor to pay for products and services that do not already exist, and how do you convince companies to take a risk on such a vast and fragmented market?

I asked myself this question while researching the myriad of innovative water filtration systems designed for the BoP. As I was getting ready to critique a few of the designs and business models, I realized that I wasn’t qualified to make those judgments. I have only had to use a water filtration system a handful of times, and I don’t know the numerous local realities well enough to criticize one design over another. However, the targeted population for these systems is geographically scattered, linguistically diverse, and resource-intensive to reach, so who would decide which innovations would move forward?

While many in the base of the pyramid movement have hoped that innovations to serve both developing and developed markets will come from BoP communities themselves, co-creation has been lengthy, intricate, complex and time-consuming. Hart and Simanis have invested countless hours in the field practicing their embedded innovation model, and although they have had numerous success stories, the businesses that have been created through this model are still primarily community-centric versus globally-reaching. As Al Hammond’s recent writings on transformative sector scaling have pointed out, “A number of community-initiated business models have produced good results, but they aren’t easily replicable and don’t scale.” Going from community to community and engaging each in participatory design may be the ideal for embedded innovation, but it is certainly not at the scale that is necessary to reach efficiency gains and profitability through aggregated demand.

So, how do we engage with and understand the needs of millions of geographically dispersed people? Part of the solution may come from the model of Internet-based networks that consolidate demand – which I was first introduced to through Pop!Tech’s curator Andrew Zolli.

Zolli spoke recently at Columbia Business School about forces shaping our society. One of the key determinants that he laid out was the power of networks. Zolli, who is known as an expert in global foresight and innovation, said that understanding networks will be an increasingly invaluable skill, and the power that networks yield will also grow in enormity.

He was not just referring to social networks or to personal networks, but also to technology-based demand networks. These are online communities that have been created to aggregate the demand of multiple users in order to attract events, boycott businesses, and even design new gadgets. He cited Eventful and CrowdSpirit as two leading examples of these technology-based demand networks. Thanks to the Internet, individual actors who would normally not yield much power on their own are able to connect virtually with people with similar demands and make something happen.

CrowdSpirit, though very much a start-up, is the type of platform that I feel could help bridge the divide between innovation and high-volume demand at the BoP. It was launched to “co-create” electronic gadgets through an online design community. In essence, innovators from anywhere can submit ideas to the site, and numerous people vote for their favorite designs and aspects and then agree to purchase the device if the producer adopts their preferences.

The inventor decides to go forward with the idea if he or she sees that there is sufficient demand. CrowdSpirit is built on community-based and participative design, and takes some risk out of the equation for the producer/inventor, since there’s an advance purchase commitment at the end of the R&D pipeline.

Although it is built for high-end electronics, the model is fascinating. The Internet is enabling people to overcome traditional boundaries and bringing together the voices of millions. In 1983 Pierre Bourdieu, an early economic sociologist, realized the power that could be created through networks of relationships, “enabling numerous, varied, scattered agents to act as one and overcome the limitations of space and time.”

That sounds like exactly the type of model that would work for the BoP, and with technology that Bourdieu could not imagine only two decades ago, it may be possible. In C.K. Prahalad’s latest book The New Age of Innovation, the author notes that “we have finally reached the point where the confluence of connectivity, digitization, and the convergence of industry and technology boundaries are creating a new dynamic between consumers and the firm.” He continues by observing that “today, instead of a small group of people sitting and thinking about innovation, you can have three billion people not only being micro-producers and micro-consumers, but micro-innovators…everybody has an opportunity to contribute to innovation.” I am certainly not saying that the ideal of participatory design and on-the-ground co-creation or the marrying of resources and shared risk should be scrapped altogether in favor of a tool such as CrowdSpirit, but perhaps more individuals could be brought into the conversation over a shorter period of time if we can use technological advances to enable these numerous, varied, scattered agents to act as one and have a voice in innovation.

An example of this more democratized design platform may be the collaborative competition put on by the Global Water Challenge and Ashoka’s Changemakers to find disruptive technologies and solutions to the water sanitation challenge. By sourcing design ideas from all over the world and opening up the judging to anyone with an Internet connection, Ashoka’s Changemakers may prove to be a leader in demand consolidation and technology-enabled participatory design. In a recent MIT Press article, Charlie Brown, Executive Director of Ashoka’s Changemakers, wrote that
“democratizing the processes of finding social solutions and judging their worth creates a market place where beneficiaries can spell out what they need and how they think those needs can be met, and where investors can play a more active role in selecting, refining, replicating and scaling up projects.”
As cell phone and broadband Internet penetration rates increase around the world, countless individuals are being brought into this vast network. But it is up to BoP-minded innovators to creatively ensure that this connection brings those people not only online, but also puts them first in line.

Grace Augustine is a research associate with the William Davidson Institute, an educational institute focused on researching and supporting organizations in emerging markets. She writes for the NextBillion blog and has an interest in economic development and clean technology for the world’s poorest citizens.

Posted by Katie Harrington

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A New Way to Respond to Natural Disasters

There are two approaches to advocating international development: the old (international aid = top-down) and the new (market-driven = bottom-up). At the end of the day, international development calls for a combination of the two; yet the old approach – world bank, government-run programs, international NGOs, etc.— is still far too prominent. The good news is that the pendulum is swinging; Kiva, for instance, might turn out to be the World Bank of the 21st century.

IDE Myanmar has been a quiet but compelling leader in the new market-driven approach. IDE and organizations such as Kick Start have successfully lifted hundreds of thousands of farmers out of poverty on a relatively small budget. I predict that one of the leaders of these organizations is likely to win the Noble Peace Prize in the next decade. Their success hinges on their ability to build reliable distribution channels while manufacturing and marketing products their customers really want and need. As a Stanford graduate student, I have been fortunate enough to work with IDE Myanmar over the last three months to design an affordable rice thresher, which will be introduced to Burmese rice farmers within the next year. It’s been a wonderful experience, throughout which I’ve been thoroughly impressed by IDE Myanmar and its compassionate capitalist culture (business-like, but driven by mission).

I want to get people thinking about better practices in disaster relief. IDE Myanmar has emerged heroically in the aftermath of Cycle Nargis. IDE has no political agenda, and over the years has convinced the regime that it is solely interested in market-driven development. IDE is one of the only foreign organizations that has permission to operate freely in the affected region. I won’t get into the depth of the humanitarian disaster, but it is unbearable to think about the misery of the country’s 60 million citizens.

IDE is successful because it is locally based and has the distribution channels, manufacturing capacity, operations expertise, product design capacity, and social mission. IDE reaches 25,000 victims every day, helping to satisfy their basic needs of water, food, and shelter. For example, IDE figured out how to combine three of its products, the WaterPump, WaterBasket, and WaterGuard ($40 for a combo package), to bring clean drinking water to 145,000people per week. IDE Myanmar never thought about these issues before the cyclone. Instead, its daily operations were geared toward commerce: selling low-cost farming products through a nationwide retail channel. Even though that was a far cry from emergency aid work, IDE transformed literally overnight.

Katrina, Asian tsunami, Nargis, and most recently the Sichuan earthquake: natural disasters seem to occur every week and clearly nobody knows how to respond effectively. It is not a question of money. Most critics are upset with the institutions in place (think FEMA) but do not offer any realistic solutions.  We should take a hint from IDE’s successes in Myanmar and support market-orientated nonprofit organizations, or social-mission-orientated, for-profit companies, playing a more prominent role. Governments and international aid agencies should respond, but they should also let local organizations have the protagonist role whenever they deserve it. Just as the new approach to international development has increasingly become bottom-up, so should disaster relief efforts.

Do you agree?  How would you incorporate the IDE Myanmars of the world into the relief system?

Lloyd Nimetz founded the online giving market HelpArgentina.org. While pursuing his MBA at Stanford Graduate School of Business, Nimetz has focused on for-profit business models that address social challenges. This summer he will launch a payments platform for India’s bottom billion.

Posted by Katie Harrington

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Do Companies That Engage in BoP Markets Outperform the Market?

Thanks to Dana Krechowicz, Associate, Markets and Enterprise Program at WRI, for providing the background on Socially Responsible Investing.

In April of this year, The Opportunities for the Majority Office of the Inter-American Development Bank (IDB) and Innovest Strategic Value Advisors (Innovest) announced the completion of a groundbreaking project – to create the Opportunities for the Majority (OM) Index of publicly traded national and multinational firms operating in the Latin American and Caribbean (LAC) region that are engaged in BoP activity.

In Latin America and the Caribbean, more than 70 percent of the population lives on less than $3,260 a year (about $9 per day). The Opportunities for the Majority program was launched to engage the private sector in addressing the needs of this population. According to the IDB, in Latin America and the Caribbean, this market represents a combined purchasing power of $500 billion USD per year.

The IDB’s partner in creating this index, Innovest, is a financial advisory firm with substantial experience in what it calls “sustainability-enhanced” and “community investment” indices.

Although the new OM Index is not a fund that you can invest in today, it attempts to create a benchmark for comparing large-scale companies that claim to be serving and engaging with BoP markets.

The index is in its initial phase, but its eventual goal is to generate awareness around those companies that are heavily involved in BoP markets, determine a framework for what it means for them to be truly serving and co-creating with the BoP, and then measure their financial performance to see if there is a correlation between BoP market engagement and financial success.

These initial steps are very similar to the beginnings of the Socially Responsible Investment movement, which has taken off over the last decade. According to the Social Investment Forum, SRI assets in the U.S. have risen more than 324 percent from $639 billion in 1995 to $2.71 trillion in 2007. During the same period, the broader universe of assets under professional management in the U.S. increased less than 260 percent from $7 trillion to $25.1 trillion.

The OM Index is trying to capitalize on the changing demands of many in the investment community. According to the OM report, “Global sustainability indices such as the Dow Jones Sustainability Indexes (DJSI) and the FTSE4Good Index have proven effective in shifting capital flows into more sustainable companies…The DJSI has resulted in a shift of USD 3 billion to companies rated as ‘sustainable’ in the index.” This index aims to similarly shift capital into companies in the LAC region with BoP strategies.

In selecting companies for inclusion in the OM Index, seventy-five companies were interviewed and then analyzed within the OM framework to benchmark their performance. This index is clearly targeted only at large multinational and national companies involved with BoP. The top companies are listed here:

Those companies that scored in the top tier (above 4.0) from the OM Leadership Index:

Number, Company Name, Country, Sector, Overall Score
1. Bradesco (Banco Bradesco, SA), Brazil, Finance, 4.85

2. Grupo ACP, Peru, Finance, 4.80

3. Paralife, Mexico, Finance, 4.70

4. Unibanco (Unibanco-Uniao de Bancos Brasileros S.A), Brazil, Finance, 4.68  

5. CEMEX S.A.B. DE C.V., Mexico, Homebuilding, 4.62

6. Caja Rural de Ahorro Y CREDITO DEL SUR S.A.A. - CAJASUR, Peru, Finance, 4.43
 

7. Desarrolladora Homex S.A.B. DE C.V., Mexico, Homebuilding, 4.38
 

8. Grupo Nueva, Chile, Homebuilding, 4.33

9. Farmacias SIMI, Mexico, Consumer Goods/Retail, 4.12
 

10.Unilever, Mexico, Consumer Goods/Retail, 4.07
 

11.Promotera Ambiental, S.A.B. DE C.V., Mexico, Infrastructure, 4.02

When looking at the list of companies that rose to the top, I first thought that these were probably companies that simply employed a “selling to the poor” mindset. However, after reading the in-depth final report on the index, I realized that Innovest and the IDB were really speaking the language of BoP practitioners. They had sought feedback from numerous BoP experts, including those at the recent Business with Four Billion: Creating Mutual Value at the Base of the Pyramid conference in Ann Arbor, MI, to refine their framework.

Despite the rigor that went into creating this initial index, it is certainly the first of hopefully many versions. The IDB realizes that the eventual goal is to create an investable OM Index to:

…maximize investment flows to superior performers while simultaneously incentivizing laggards. An investable OM Index could prove extremely attractive to institutional investors already strongly interested in emerging markets and seeking an “information edge” and differentiated approach. Innovest and the IADB are currently planning this next phase.
The outcome of this first step is readily available to the public, and the data set, which includes a BoP benchmark framework that attempts to compare apples to apples in terms of BoP activity, can hopefully be used by researchers and analysts who are looking further into the correlation between serving the BoP and financial success.

While it is important to seek out this correlation, we have to consider that if a correlation is found, and funds are developed to invest in BoP enterprises, other companies may then haphazardly adopt BoP programs to attract capital.

As money has moved into SRI, while much good has been done, there are certainly companies that have tried to cover their tracks with glossy CSR reports and campaigns that can be called little more than green-washing. Hopefully the OM Index will continue to keep the standards high, and be very discerning about what constitutes a true BoP engagement. In turn, hopefully investors will realize that simply adding a BoP initiative to an exiting business model will not result in better financial performance, just as adding a social or environmental initiative may not affect the bottom line.

It is the forward-thinking companies who take BoP as a serious market, and give it adequate visibility and resources within the company, that deserve to have the distinction of this and subsequent indices.

Grace Augustine is a research associate with the William Davidson Institute, an educational institute focused on researching and supporting organizations in emerging markets. She writes for the NextBillion blog and has an interest in economic development and clean technology for the world’s poorest citizens.

Posted by Kelsey Walker

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Multiplication Beats Division

Here’s an intriguing development in the ongoing process of trying to connect residents of deep-poverty nations with the resources of the Internet and, thus, the world economy: a computing device and software that enables up to 30 people to use a PC at one time, as if each person had a computer of his or her own. While this may sound like the sort of triumph only a gearhead could appreciate, what it really means is computer access costing less than $70 per person–all the world’s knowledge in a form approaching the affordability level of bednets and clean water.

The Nonprofiteer is rarely enthusiastic about e-this or cyber-that; but making information commonly available to people who have been deprived of it is an unalloyed Good Thing, and even she’s not churlish enough to withhold her thanks and praise from people who’ve figured out how to accomplish it and make a profit at the same time. Excerpts from the company’s press release appear below.

REDWOOD CITY, CALIF., July 15, 2008– NComputing, the leading provider of desktop virtualization software and hardware, today announced it is working with leading non-governmental organizations (NGOs) worldwide to help reduce the digital divide between developed and developing countries. The company has already deployed successful partnerships with such leading NGOs as U.S.-based Save the Children, France-based Ateliers Sans Frontières (ASF), Bangladesh-based BRAC, Latin America-based Organization for American States (OAS), UNESCO, and India-based Azim Premji Foundation to name just a few. NComputing further announced special discounts and programs to help NGOs on every continent reach their goals for digital inclusion in emerging markets.

The NComputing solution is based on a simple fact: Today’s PCs are so powerful that the vast majority of applications only use a small fraction of the computer’s capacity. NComputing’s virtualization software and hardware tap this unused capacity so that it can be simultaneously shared by multiple users. Each user’s monitor, keyboard, and mouse connect to the shared PC through a small and very durable NComputing access device. The access device itself has no CPU, memory, or moving parts so it is rugged, durable, and easy to deploy and maintain—especially critical in developing nations. The NComputing software and hardware costs as little as $70 per seat. With NComputing, people and organizations around the world are maximizing their investments in PCs.

No other attempts at bridging the digital divide have been as successful. Low-priced laptop solutions, such as the $188 OLPC XO, carry very high hidden costs—like maintenance and support—that far outweigh their benefits.

[S]aid Medhy Davary, director of DSF[,] “The virtual desktops are extremely affordable and durable, require very little maintenance, and use only one watt of electricity. This allows users in even the world’s poorest countries to benefit from computer access and the Internet.”

“Almost one billion users around the world who would benefit from access to computing have been unable to afford it—until now,” said Stephen Dukker, chairman and CEO of NComputing. “It is only by fundamentally changing the economics of computing that our industry can bridge the digital divide. We are going to deploy more than a million virtual desktops in the coming year and are honored to work with such prestigious NGOs to improve the daily lives of hundreds of thousands of people around the world.”

“In response to increasing interest from NGOs, NComputing is developing programs to help them better leverage their skills and funds,” said Ms. Lindsay Petrillose, Government Liaison for NComputing. “We offer seed units and special NGO discounts that multiply the impact of an NGO’s limited funds.” Interested NGOs and governmental institutions seeking NGO assistance can contact Ms. Petrillose at lpetrillose@ncomputing.com;  (650) 454-4991.
————-

Kelly Kleiman, who blogs as The Nonprofiteer, is a lawyer and freelance journalist whose reportage and essays about the arts, philanthropy and women’s issues have appeared in The Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; and on websites including Aislesay.com and Artscope.net.

Posted by Kelsey Walker

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Chinese Activity in Africa, Part 2: The Path of Least Resistance

This post is the second in a two part series exploring China’s role in Africa’s development. Part 1 focused on the breakdown and impact of African exports to China, and Part 2 focuses on the role of China’s investment and imports into Africa.

Investment

It is no surprise that most Africans are welcoming Chinese investment and products. The history of traditional Western aid and investment in Africa is one of a nagging “I correct you because I want what’s best for you” parental-like stronghold over the continent. Tired of “the politically motivated, finger-wagging approach of western governments,” numerous sources quote the lack of political motivation, as well as societal or environmental demands, as one of the primary reasons that Africa is welcoming the Chinese investment.

Sahr Johnny, the Sierra Leonean ambassador in Beijing, was quoted as saying the following regarding China’s projects in Africa:

“The Chinese are doing more than the G8 to make poverty history. If a G8 country proposes a project for Sierra Leone, there is an environmental assessment and evaluation of the human rights and governance situation. The Chinese just come and do it.”

Despite the claims of poverty reduction, the reality is that the aid flowing from China is not designed to alleviate poverty, as opposed to aid from the World Bank and the IMF, which falls under the category of “office of development assistance.” Therefore, it is not subject to social and environmental assessment. The assistance from China is purely aimed at promoting trade and development for China. Therefore, when an issue like the Darfur crisis in Sudan arises, China slyly steps aside and claims that its role is not to police other countries.

While this lack of social and environmental benchmarks may worry some, others praise the fact that much-needed investment has been able to flow freely into Africa. Some of the key areas of Chinese investment, which align with improving the efficiency of resource extraction, are telecommunications, energy, and physical infrastructure. These areas have traditionally been ignored by donors in Africa, who have instead favored social development programs such as education and health.

Although the money is flowing in, Africans have expressed concern regarding whether or not these investments will add long-term value in the sense of technology transfer, education, and opportunities for Africans. At the amazing blog Global Voices, a young Malawian girl questioned, “Am I being idealistic in hoping that they will teach us their unique skills in building and pass the construction mantle back soon after?”

Products and Services for the African Market

Not only has China offered investment in infrastructure, but there has also been an influx of Chinese products in Africa, which has rallied critics from both ends of the spectrum. According to the article “The Strategic Entry of China’s Emerging Multinationals into Africa,”

“…the Chinese multinationals have become adept at identifying so-called ‘market blind spots’, market areas that have essentially been neglected and under-capitalised. These are typically cheaper product lines that may not seem to be money spinners, but which would actually stimulate demand once available.”

Examples of these are Haier’s smaller refrigerators and Lenovo’s C100 laptop, targeting small and medium enterprises. Huawei provided the international market with low-end routers that were 40 per cent cheaper than other products, capturing 3 percent of the global market by 2002.

From that, it sounds as if the Chinese products are giving African people more choice, and filling market gaps. However, there are worries about the safety of the extremely cheap Chinese goods. If an exporter can’t pass FDA inspections, it may still be able to slip its products into African markets.

China as a Model for Development

Lastly, if you look beyond the investments and new products, and consider China a model of development that may provide a tutorial for Africa, it is both exciting and worrisome. A working paper issued by the World Bank in February of this year, titled “Lessons from China for Africa” is focused on the fact that “other developing countries struggling to grow and reduce poverty are naturally interested in what has been the source of this impressive growth and what, if any, lessons other developing countries can take from China.”

For those who are looking solely at economic indicators, China has lifted 300 million people out of poverty with unimaginable speed. China certainly did not achieve this success through a dependence on Western aid and structural adjustments.

Could China do the same for Africa?

The situation that has emerged in China, albeit economically prosperous, may not be the pathway that most would like to imagine for Africa. China may have tackled poverty, but what about inequality? While China has started to embrace the market philosophy from the West, the adoption of the freedoms that are usually associated with a democratic system is another story. You could trip over the number of examples of human rights violations in China, from incarcerated activists to the infamous “great firewall.”

What is happening in Africa right now clearly demonstrates a seemingly simple distinction that we may all sometimes forget to make; poverty and inequality are not one in the same. And, if poverty is addressed, will inequality then follow suit?

* For a more in depth version of this article please visit NextBillion.net

Grace Augustine is a research associate with the William Davidson Institute, an educational institute focused on researching and supporting organizations in emerging markets. She writes for the NextBillion blog and has an interest in economic development and clean technology for the world’s poorest citizens.

Posted by Kelsey Walker

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Kiva Introduces Lending Team Feature

About four and a half years ago, I was on a plane to Kenya, about to begin a new job doing microenterprise development throughout East Africa. The next three months would change my life, as I’d meet more than 100 entrepreneurs whose stories would inspire the creation of Kiva.

Kiva is the world’s first person-to-person microlending Web site, empowering individuals to lend directly to an entrepreneur in a developing country. Combining microfinance with the power of the Internet, Kiva is creating a global community of people connected through lending.

From a handful of friends and family lending $3,000 to seven entrepreneurs in Uganda, in less than three years since Kiva’s inception, the organization has facilitated nearly $40 million in loans from 330,000 lenders to 60,000 entrepreneurs worldwide.

Kiva has had a number of outstanding corporate partners along the way who have catalyzed our work and helped us create a long-lasting Internet public good. PayPal, for instance, provides Kiva with access to technology, research, workplace resources, employee volunteers, and free payment processing (Kiva’s largest variable cost), thus enabling 100 percent of the loaned funds to reach entrepreneurs in developing countries. Oliver Wyman provides dedicated, ongoing support from their consultants, who spend between four to six months at Kiva’s San Francisco office working alongside Kiva staff to tackle pressing business issues. Yahoo! provides free Yahoo! Search Marketing keywords, and several Yahoo! employees are helping Kiva develop a more robust online platform. There are many more. We’re deeply grateful to all of these innovative, socially-minded organizations for their partnership.

And we’ve been thinking more and more about the individuals who make up those companies, and the tools they need to work together on Kiva more easily. Soon, Kiva will make it even easier for any group of individuals—whether a corporation, school, religious organization, family, or group of friends—to get involved as a group, and show organization-level support.

This fall, Kiva will launch a new feature allowing Kiva users to create or join lending teams. Each lending team will have a page on the Kiva Web site to track and summarize the lending activity of all individual lenders associated with that team.

The way Kiva works is not changing. People will still make loans as individuals. But now, they’ll also have the added option of teaming up with like-minded lenders, inviting others to join in and having their loans count towards a team total. Our hope is that lending teams will provide an easier way for Kiva enthusiasts to spread the word at work, at school, and elsewhere. Keep an eye out for this exciting new feature!

Kiva operates on a simple, but powerful premise: A loan of $25 can change a life. We hope lending teams encourage people to get involved and then involve others in a meaningful way.

Jessica Jackley Flannery cofounded Kiva, the first peer-to-peer microlending Web site, and believes that microfinance, relationships, and stories are powerful tools for change. She holds an MBA from the Stanford Graduate School of Business.

Posted by Kelsey Walker

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Heat Wave: Part 1

Bill Clinton’s fourth annual star-studded thinkfest on philanthropy, technology, and cause advocacy—the Clinton Global Initiative—kicked off today in Manhattan with a bang of urgency, rife with references to global climate change, the U.S. financial meltdown, and the need for the next president, whoever he will be, to restore some of America’s standing in the world.

Here are some highlights from yesterday’s sessions:

*Bono blasted the failure of the developing world to make progress meeting United Nations Millennium Goals. He also blasted the Wall Street bail-out, saying: “It’s extraordinary to me that you can find $700 billion to save Wall Street and the entire G-8 can’t find $25 billion to save the 25,000 children who die from preventable diseases and hunger.” Bono, flanked on an opening session stage by Al Gore, Lance Armstrong, Bill Clinton, Queen Rania of Jordan, and Liberia President Ellen Johnson-Sirleaf, said: “Bankruptcy is bad enough but this is moral bankruptcy.” The lead singer for U2 and cofounder of Product (RED) also said the next U.S. president should lead a global effort to tackle climate change, poverty, and other global social ills. This, he said, would “help America to redescribe itself to the rest of the world.”

*Al Gore urged young people to engage in “civil disobedience” to stop the creation of new coal plants. The Nobel Peace Prize winner and environmental crusader said that since last year’s Clinton summit, “the world has lost ground to the climate crisis. This is a rout. We are losing badly.” Gore called on young people to step up and take action. “If you’re a young person looking at what is being done right now, and not done, I believe we have reached the stage where it is time for civil disobedience to prevent the construction of new coal plants that do not have carbon capture and sequestration.” Gore said there are about 28 coal plants under construction in the United States, with another 20 projects near the start of construction. Gore also called on people to stop “buying the lie, the notion” that burning coal is still an acceptable energy alternative. “There is no such thing as clean coal,” he said. “Clean coal is like healthy cigarettes. It doesn’t exist.”

*Bill Clinton told a small group of bloggers that he thinks there is, at least, “a 50 percent chance” that people will give more to those in need during the evolving U.S. financial crisis. He said the meltdown “will make the work of putting philanthropists and organizations together more significant over the next couple of years.”

*Former U.S. Treasury Secretary Robert Rubin, a panelist on an anti-poverty panel, called the current U.S. financial crisis “a really extraordinary situation—by far the most extraordinary situation the capital markets have faced since the 1930s.” Rubin, currently the director and chairman of the executive committee of Citigroup, said the first priority for the country is to “deal with the crisis of confidence that we’re facing.” He recommended quick passage of “some version” of the bailout plan now before Congress, saying that “there are no guarantees in life, but what is being proposed could help significantly, and if it’s not passed, then it will exacerbate” the crisis.

*Former President George Bush (41st) made a surprise appearance to talk about the need for Americans to join him and Clinton to raise money for families displaced by natural disasters in the American South. “People are without homes and without jobs as a result of forces beyond their control,” Bush said. “Just as we Americans gave to the victims of the tsunami four years ago, we must give to those in the Gulf suffering from sudden displacement.”

*Bill Gates, in an on-stage, one-on-one with Bill Clinton, alluded to what he said could be a small drop-off in philanthropic donations by “rich people” during the evolving financial crisis. When asked what advice he’d give to wealthy philanthropists now taking a beating on the value of their investments, Gates said: “Keep giving.” Because the very wealthy tend to give the least as a percentage of their holdings, he said, “even a modest increase in giving” by them to the neediest during these times of “greatest need” will have an impact.

The conference continues through Friday.

Marcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.

Posted by Kelsey Walker

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The Right Measures

I still remember the embarrassed silence that followed when a colleague, over a decade ago, stood up in a room full of foundation leaders at a Council on Foundations conference and asked “What if we all committed to one common goal – to end child poverty in the U.S. in ten years?”  People reacted as if she had made a rude noise.  It was awkward, but beautiful too.  Her question evoked the possibility of collective progress to a vital goal, and at the same time, it indicted everyone in the room, called our commitment and judgment into question.

Our sector is obsessed with the search for measurable impact in specific initiatives, but, as that story illustrates, resists calls to commit to such clear, measurable objectives like eradicating child poverty. 

The American Human Development Index is an important tool, new to the U.S., that could help us resolve that tension. 

The Index measures the three areas that most of us would agree are the basic building blocks of a decent life: health, education and income.  The Index is modeled on the approach taken by the annual U.N. Human Development Report, which has now been instituted in over 160 countries; in fact, the Human Development Report is so well accepted and well known around the world, that some reports on the progress of World Cup soccer teams also highlight their respective Human Development Index rankings, and as Bill Pitkin observes, if the rankings determined the results on the field, the Netherlands and Australia would meet in the finals this June.

The Human Development Index approach was developed by economist Mahbub ul Haq and incorporates the “capabilities approach best articulated by Amartya Sen, the Nobel Laureate economist. (Chapter 2 of Sen’s book “Development as Freedom” should be required reading for all philanthropic and social sector leaders.) I’m not capable of fully describing and advocating the capabilities approach – but in a nutshell, it is akin to what parents want for their children.  If we dig deeper than “I just want them to be happy,” most parents want their children to develop the capacity to choose their paths, so far as they are able.  If we were to survey a wide range of health and human service professionals, chances are they would say they want the same for all the people they serve. (The capabilities approach has many virtues; among others, it employs a strong “informational base” – it is possible to ask people what they want for themselves, their children and their communities and then measure progress in their capacities to achieve it – and unlike other theories of justice, you don’t need to imagine a pre-social contract state of nature or an original position in which people are blind to the advantages they will enjoy by birth.)

In the U.S., the Human Development Index has been championed by the renowned venture capitalist Bill Draper and Ed Cain, the VP of Grant Programs for The Conrad N. Hilton Foundation, who were colleagues at the U.N.  Draper and Cain were driving forces behind the first annual American Human Development Report, published by the Social Science Research Council.  (For more on the genesis of the Index and the American Human Development Report, see the forewords to the report by Sen and Draper.)

The American Human Development Index can be a powerful tool for determining the greatest need, targeting resources to those needs and then measuring philanthropic impact, even when that impact is incremental.  By using the Index in conjunction with GIS asset mapping tools, like Healthy City (launching statewide California service on March 3), philanthropic, nonprofit and civic leaders can see where the greatest needs are in health, education, standard of living. The Index also could help leaders track progress index over time to judge whether targeted investments push the dial upward in a community’s overall well-being. “Successful investments in health care should, for example, result in measurable increases in a community’s life expectancy (which the index shows is lowest in Kentucky’s 5th congressional district, for example),” observes As Kristen Lewis, Co-Director of the American Human Development Project “Successful investments in education should result in fewer drop-outs and higher enrollment rates (these are lowest in Arizona’s 4th). Successful investments in the standard of living should result in well-paying jobs (particularly rare in California’s 20th district).”

Another important tool built on the Index is the Common Good Forecaster, which enables users to estimate the benefits a community would reap from increases in education levels, and a compatible tool is the Self-Sufficiency Standard. ¹

The Index is only sensitive to the variables that it measures; for some philanthropic initiatives, a more detailed index like the Self-Sufficiency Standard, or a custom, tailored index may be preferred (one great, as yet untold story is how The California Endowment used a series of indexes – and help from Healthy City - to select 14 communities in California on which to concentrate under its new strategic plan.) But a composite metric like the American HD Index can enable comparisons across different regions, and even internationally.

The beauty of the independent sector is that everyone can choose which causes to pursue. That can make it difficult to maximize the scale and impact of resources dedicated to a problem, but that freedom is more valuable than the inefficiency it allows.  The promise of ever-improving data leading to smarter philanthropic decisions – pushed by tools like the Human Development Index, the Self-Sufficiency Standard, HealthyCity.org and others – is that a broad range of philanthropic and nonprofit enterprises, acting independently and employing different strategies, will converge toward a shared goal, like eliminating child poverty, as my colleague so rudely demanded over a decade ago.

^{[1] Full disclosure: United Way is a partner with the American Human Development Report in the Common Good Forecaster, and I work for a United Way affiliate, United Ways of California, which also supported the publication of a report conducted by United Way of the Bay Area assessing the proportion of California residents earning less than the standard [. I’ve been a fan of Amartya Sen’s capabilities approach, however, for over a decade (I’ve written about it often, such as here and here), and that may do more to explain how I ended up doing the work I do now than it influences what I write in this post. I also am a proud founding member of Healthy City, a tool I’ve recommended in this space previously .}

Peter Manzo is President & CEO of United Ways of California, which improves health, education and financial results for low income children and families by enhancing and coordinating the policy advocacy and community impact work of California’s 37 United Ways.

Posted by Samantha Penabad

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Giving Girls a Real Start

When I was in Dakar, Senegal a year ago, I met several teenage girls.  They were confident and energetic. I loved Fatimah’s clothes. Bright bold colors with a modern twist to traditional Senegalese dress.  She was wearing her passion for design and sewing. “I had a small embroidery business. Now I have access to credit to buy cloth and can expand my business.” 
Another girl, Lekum, had begun selling coffee beans.  “I learned to check the market before I sell anything.  I asked each vendor how much they would pay for coffee.  I found a way to get quality beans from my town to the venders by motorbike.”

Both girls have long left school.  What they earn either helps their families and younger siblings or is reinvested in their business.  Each girl got her start through a community-based youth savings program set up by PLAN International to serve vulnerable youth in West Africa.
 
What’s impressive is that these savings and loans associations are run entirely by young people, after a short period of training.  Quite simply, a group of up to twenty meets weekly. Each person saves amounts as small as 20 to 40 cents. After a few weeks, the accumulated funds are made available to group members as loans ranging from $5 to $12. Each group sets its own rules about interest rates and repayment terms.  At the end of year, the group “cashes out.”  Members receive their savings plus a percentage of interest earned on repaid loans.
 
In West Africa, close to half of the population is under the age of 25.  Many young people, particularly girls, are unable to complete even the six years of primary education. Options for out-of-school, marginalized youth are dim.  Employment opportunities are limited to low-paying, unskilled work and sometimes dangerous work. Young girls often work as domestic help or in restaurants and bars where there are high instances of abuse. 

These savings groups represent an innovation beyond providing marginalized young people with a safe place to save money.  They are channels to deliver life skills training including financial literacy and health information as well as build self-confidence.  For these adolescents, this was first time they had an opportunity to learn to save, manage money and develop new skills.

What makes this program unique and exciting is that young people play a critical role in the design, management and evaluation of the program.  Both Lekum and Fatimah were not only members of savings groups, but also of the national youth advisory council that PLAN formed to guide the program.

Based on learnings from a pilot program, we are working with Plan to scale up the program in Senegal, Sierra Leone and Niger to serve 70,000 youth over 4 years.  As one participant told us, “This project must go beyond us.  We must spread this knowledge.”

Reeta Roy is president and CEO of The MasterCard Foundation, a private, independent foundation based in Toronto. Its global mandate is to enable people living in poverty, particularly youth, to improve their lives – and the lives of their families and communities – by expanding their access to microfinance and education.

Posted by Samantha Penabad

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Where’s the money?

Two weeks ago, I visited the northern coast of Aceh, Indonesia, curious to see not only how people are faring one year after the tsunami, but also how NGOs are spending the largest pool of humanitarian funds ever raised. On both counts, my report is the same: Not well.

After one day in Banda Aceh, I spent four more driving through the districts of Pidie and Bireun. Even the view from the highway bore witness to the ongoing suffering of the Acehnese. Where thriving marketplaces and traditional houses once stood, tent cities and government-built barracks spread. The skeletons of washed-up boats and cars still sit on the roads’ shoulders as far as two miles inland. Schools are boarded up. Fishing ponds bleed into each other and into the sea. Even in Banda Aceh, the province’s proud capital, 50% of the surviving population is still homeless. In rural villages, that number climbs to 70%.

When is more help coming? I didn’t know what to tell the village chiefs or the boat builders or my generous hosts in Pente Rheng, Kiran Baroh, Beurembang, and Pasi Lhok. Their stories resembled each other: A flurry of NGOs hurried through their villages soon after the tsunami, asking questions, staking claims, making promises. And then the NGOs never returned. Or the NGOs did return, but only to replace demolished houses, not to repair the badly damaged ones. I heard about one NGO that refused to rebuild any schools in one village unless it could rebuild the most prominent ones, near the highway. The village agreed, retracting its agreement with a smaller organization that made simpler promises. The NGO nailed its logo to the schools, and hasn’t been seen since. I heard about another NGO that decided not to build until it has the materials and expertise to meet the highest European standards of earthquake readiness.

The day I returned to Jakarta, an article the New York Times confirmed that many NGOs are indeed taking their time. In her article, “After Tsunami, a Rarity: Donated Dollars Remain,” Stephanie Strom reports that NGOs are resisting pressures to spend-down their windfall, and instead are contemplating how to “build back better” with long-term investments in education, health care, and economic recovery. She also writes that NGOs are spending unprecedented amounts of time and money documenting and justifying their spending to donors. Oxfam, for example, has already spent $1.5 million of its $278 million on monitoring and evaluating its own performance. Many other organizations are likewise providing detailed breakdowns of how and where their money is spent.

Meanwhile, it seemed to me that the Acehnese are stranded in a trough between the first wave of emergency aid and a second, promised wave of reconstruction funding. The tents in which many live were never intended to weather two monsoons, as their mold and holes attest. The camps are filthy with litter and the stink of raw sewage. Scabies is rampant. Without boats for fishing, yards for raising poultry, or ponds for farming seafood, the villagers must rely on the World Food Programme’s rations of rice and vegetable oil and sardines. But the rations are never quite enough. The children are skinnier, and not growing to be as tall as their older siblings. Health care is lacking for everyone because most of the medical teams left a few months after the tsunami.

There are no squeaky wheels here. People mourn their dead in the Acehnese way, bearing their hardships quietly. A man who lost his wife, parents, and three children smiled and said, “I’m just trying to forget the past on move on.” 

But NGOs have the grease, and plenty. Are they withholding immediate aid so that they can optimize their long-term planning and donor relationships? Whose needs are being addressed by this strategy? Whose standards are being met? Which sufferings are being forestalled, and which are being exacerbated? Could NGOs do a better job of addressing both immediate needs and long-term goals?

Alana Conner
Senior Editor
Stanford Social Innovation Review

Posted by Perla Ni

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Your reactions to “A Failure of Philanthropy?”

According to the article “A Failure of Philanthropy,” helping the poor is supposedly a main goal of philanthropy. Yet research shows that most charitable dollars do not go to serving the underserved.  The author, professor Rob Reisch argue that tax incentives and public policy need to change to ensure that more money goes directly to helping the poor.

What are your reactions?

Posted by Perla Ni

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Poor People or Poverty: Charity or Government

Some conservatives have begun to again argue that government should no longer provide for essential social services.  They say that charity can be an adequate and acceptable substitute for government in meeting needs and resolving social problems.  That is a befogging illusion created more in service to ideology than to society.

Charitable resources are dwarfed by government funding for social programs and there’s no sign individual and corporate contributions or social entrepreneurship makes up for even partial cuts.  Even if foundations gave away every last dollar in all of their endowments, that would do little more than cover this year’s federal deficit with a fraction left toward next year’s.

But resource questions cover the real agenda:  it’s about conservatives insisting that problems are much more a consequence of failures of personal responsibility than of any broader societal or economic dynamics.  They contend that the problem is poor people and not poverty, and that the remedy must be approached person-by-person, with little or no attention to correcting inadequacies in governmental institutions, programs, and policies.  In effect, they see poverty as a consequence of bad people making bad decisions and doing bad things; they see personal redemption, education and hard work as the only solution. Liberals, on the other hand, understand that government action is necessary to create the conditions under which individual responsibility can be successfully developed and exercised, including politically. 

In the face of a deluding exaggeration of the scope and power of charity and a continuing assault on scope and power of government, nonprofit organizations need to find new ways to improve and defend government programs while popularizing a sense of public responsibility among Americans as taxpayers, donors, volunteers, and voters. And philanthropic foundations need to fuel those efforts.

An elaboration of this discussion is in the current issue of The Chronicle of Philanthropy.

Posted by Mark Rosenman

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Plus a Change

I see liberal advocates nipping at the heels of local policymakers, winning this or that knick-knack for low-income communities, while the basic condition of the poor remains unchanged.  In my east coast city, there’s been a deepening poverty over the past decade, a widening gap between the rich and poor.  Many low-income people have been driven from their homes by skyrocketing rents.

And yet advocates continue pressing on.  What small concessions  they manage to win for our most vulnerable neighbors are often overwhelmed by the effect of more draconian assaults on the poor at the national level.

In the U.S. Congress we see the spectacle of politicians who don’t say no to foolish tax cuts.  Put into office by powerful political machines, they look to cuts in Medicare and food stamps to make a dent in the current deficit.

As I see it, there have been three basic problems with philanthropy’s attempts to address the issue of persistent poverty in this country:

1. Strategy  The untidy truth about liberal advocacy is that the basic condition of the poor will never, ever change until (1) we get big money out of politics, and (2) the poor vote in far greater numbers.  Local, state, and national advocates might win a skirmish here and there, but without these two changes, the battle is essentially lost.  Many policymakers are convinced, as one of my city council members once said, that “No one was ever elected to public office by being an advocate for the poor.”  If this is the case (and if it isn’t, let’s at least debate it), shouldn’t the greatest number of resources be focused on meaningful campaign finance and lobbying reform, and on voter registration?

2. Coordination  Meanwhile, there appears to be little or no coordination of all this progressive advocacy work.  Local advocates rarely speak with or inform the work of national advocates, and vice versa.  There’s a rally here, a report released there, small contributions to a growing sum that doesn’t appear to have a grand total.  This work is important, however incremental the gains might be.  But I know there must be greater minds out there, people better bankrolled, who can and must give direction to progressive philanthropy’s random walk.

3. Scale  My own foundation’s means are very limited, and our influence on the sector is even smaller.  We support those local advocacy groups that do little more than slow the continuing downward slide of the poor.  But there are tens of thousands of foundations in this country, many of them sharing progressive goals but choosing nevertheless to work in isolation from one another.  I understand the reasons for this, but it still strikes me as a inglorious fact about our sector that we can’t more frequently and more effectively pool our resources to make a real difference in the lives of the poor.

_____

Albert Ruesga blogs on foundations, nonprofits, and philanthropy at White Courtesy Telephone.

Posted by Albert Ruesga

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Charity Versus Philanthropy

In Sonia Nazario’s extraordinary book, Enrique’s Journey, she recounts the odyssey of a young boy who faces unimaginable danger to reconnect with his mother in the United States.  Unable to feed her children, she had left Honduras eleven years earlier to find work in El Norte.  Enrique makes his way north, as many migrants do, by clinging to the tops and sides of freight trains.

It’s a dangerous journey.  The tops of the boxcars are controlled by gangsters.  Bandits rob and sometimes kill the children who hazard the trains.  Corrupt policemen shake down the migrants and frequently deport them.

The trains travel through some of the poorest stretches of Mexico and Central America, and yet it’s common for the people who live along the tracks to throw small bundles to the migrants as they pass:

Families throw sweaters, tortillas, bread, and plastic bottles filled with lemonade.  A baker, his hands coated with flour, throws his extra loaves.  A seamstress throws bags filled with sandwiches.  A teenager throws bananas.  A carpenter throws bean burritos.  A store owner throws animal crackers, day-old pastries, and half-liter bottles of water.  People who have watched migrants fall off the train from exhaustion bring plastic jugs filled with Coca-Cola or coffee.

A stooped woman, Maria Luisa Mora Martin, more than a hundred years old, who was reduced to eating the bark of her plantain tree during the Mexican Revolution, forces her knotted hands to fill bags with tortillas, beans, and salsa so her daughter, Soledad Vasquez, seventy, can run down a rocky slope and heave them onto a train.

“If I have one tortilla, I give half away,” one of the food throwers says.  “I know God will bring me more.”

We’re on hallowed ground here.

I’m reminded, sadly, of the invidious distinction we sometimes make between charity and philanthropy.  By some accounts, charity represents a kind of weak, emotional response while philanthropy gets to the root of a problem and solves it once and for all.

Views like this are fairly common in our field, but we need to shed them and approach, with fear and trembling, the divinity that illuminates the great acts of self-sacrifice Nazario describes.  We can extol the virtues of strategic philanthropy, when practiced well, without also deprecating the acts of goodness that define, in my view, what it means to be fully human.

_____

Albert Ruesga writes about foundations, nonprofits, and philanthropy at his blog White Courtesy Telephone.

Posted by Albert Ruesga

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Live from CoF: Immigration and Philanthropy

Yesterday at the Council on Foundations annual conference in Seattle, a session entitled “The Color of Democracy” ended with two very different stories.

Georgia Representative Anthony Sellier told his own history—how he migrated from Venezuela, sought an education, became a successful businessman, and now sits in the state legislature. He has lived the American dream. On the other hand, Roberto Suro, director of the Pew Hispanic Center, asked us to imagine the future of the children of undocumented immigrants. Historically, America has meant a better life, not always for migrants themselves, but at least for their offspring. Today, however, the second generation is accumulating disadvantage, and that, Suro said, is a “prescription for disaster.”

In 2006, as the immigration debate boiled, local governments attempted to bar or limit migrants’ access to housing, jobs, and healthcare, and empowered police to enforce immigration laws as part of their normal routine. Over the last year, as a result of Operation Return to Sender, 23,000 people have been detained, separating mothers from children and husbands from wives. The effect is dehumanizing.

Earlier in the session Sellier had told another story, about his friend Carlos, a Mexican immigrant from Sellier’s district in middle Georgia. Sellier’s church worked with Carlos through the long, difficult, and expensive process of applying for documentation. Now Carlos is the chief of a construction crew, and he recently called Sellier to complain about a competitor—a crew chief who hires only undocumented workers and pays lower wages. Sellier acknowledged that Carlos, who has gone the extra mile, shouldn’t have to compete with that chief for business.

But what about the crew of undocumented workers? If we take away their jobs, how will they survive?

What can we do to help them?

Is one partial answer more vigorous prosecution of employers who don’t pay minimum wage, thereby helping the workers while evening the playing field for people like Carlos?

As Suro said in his opening remarks, immigration holds a mirror to the host country. How we answer these questions will tell us much about ourselves. Please share your thoughts below.

Catherine DiBenedetto is the assistant editor of Stanford Social Innovation Review.

Posted by SSIR Editor

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Live from CoF: Remittances—The New Way to Alleviate Poverty

People concerned about alleviating poverty in less developed nations focus most of their efforts on well-known programs like foreign aid, microfinance, foreign direct investment, and the like. But there is another source of money flowing from the developed world to the less developed world that dwarfs these traditional forms of aid and is arguably more effective, but is not well known or understood.

That source of money is remittance—money earned by immigrant workers living in developed nations, like the U.S. or Germany, who send it back home to family members in developing nations, like El Salvador or Azerbaijan, to pay for food, housing, education, new businesses, savings, and other purposes.

In 2006, an estimated $60 billion was sent to Latin American nations by maids, car washers, carpenters, cooks, and other immigrant workers. About $45 billion of that money came from the U.S., another $10 billion from Europe, between $3 and $4 billion from Japan, and the rest from Canada, Australia, and other countries.

To put that number in perspective, the total amount of foreign direct investment (e.g. GM building an auto plant) in Latin America in 2006 was $45 billion, and the total amount of official development assistance (e.g. USAID money) was $6 billion.

About 57 percent of the remittance sent to Latin America is used for basic needs—things like food and rent. The other 43 percent of the money, close to $20 billion, goes for the following: 29 percent for education; 25 percent to start a business; 22 percent for savings; 11 percent to buy or build a home; 5 percent to buy health or life insurance; and 8 percent other.

And it’s not just a Latin American phenomenon. About 21 percent of the population of Moldova, for example, receives remittances on a regular basis. About 200 million immigrants around the world send remittances back home. Those remittances are distributed to an estimated 600 million family members. Altogether, about 800 million people send or receive remittance money, or about one out of every 10 people living on the planet. That’s a huge number, far larger than are directly impacted by microfinance, which gets far more hoopla and attention from the philanthropic and nonprofit communities.

The key difference between remittances and other forms of aid is that remittances are controlled directly by the people affected by poverty. The money doesn’t flow through a government agency, or a foundation, or an NGO. It goes directly from those who earn it to the people who need it and know best how to spend it. The only overhead is the transaction costs imposed by the money changers, such as Western Union. Because of this, remittance is certainly the most grassroots poverty reduction program there is, and arguably the most cost effective as well.

(Note: Thanks to Sergio Bendixen, president of Bendixen and Associates, and Donald Terry, manager of Multilateral Investment Fund, Inter-American Development Bank, for these statistics. Both spoke on a panel yesterday at the Council on Foundations annual conference in Seattle. The panel was called, appropriately enough, “Bottoms Up Philanthropy: How Remittances Transform Communities and Families.”)

Eric Nee is the managing editor of Stanford Social Innovation Review.

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Anti-poverty Engineers

If your height was proportional to your income, how tall would you be? And what does that have to do with reducing a host of ills like violence, teen pregnancy and more?

The likely answer appears further below. For now, though, consider a recent study which proposes that many social ills aren’t due just to the fact of low economic power in absolute terms, but the disparity in relative terms, the level of inequality. According to a profile in the current issue of Stanford Social Innovation Review, the University of Nottingham study posits that inequality – the relative distribution of wealth – is an important indicator of disparities in life outcomes across nations, not just of relative deprivation within them. As shown in one table, they find that the smaller the gap between the income of the top and bottom quintiles, the higher the average math and literacy scores of children. (Indeed, if inequality is in fact so important, it may help explain whey, for example, a nation as rich as the U.S. ranks last among 20 industrial societies in “amenable mortality” (preventable death before age 75), as shown in table from a recent study, also from England, highlighted by Paul Krugman.

Whether the ills are caused by low incomes themselves or by inequality, it should be clear that reducing poverty for people at the lower end of the scale would be more powerful than any other form of intervention. The question is how to do this. 

“You can win an increase in wages (for the working poor), but then they just lose all that and more on rising rents,” as a very experienced public interest lawyer in Los Angeles recently observed to a couple colleagues and me. This “whack a mole” quality means fighting poverty requires a comprehensive approach, one that reaches across all the different disciplines, and different institutions, from hospitals and clinics, to schools, to youth development programs, teen pregnancy, and outside the sector to include business and labor. 

Precisely because poverty has so many facets, however, calling for reducing it can sound hopelessly vague. In the same conversation, that public interest lawyer also observed, “When we came out of school in the 60s and 70s, we all thought we were poverty fighters first. Somewhere along the way we instead became experts in mental health, education, homelessness. We need to get back to having a common project. ” The same fragmentation is easy to see throughout the nonprofit, academic, and policy worlds. At a recent meeting of academics, foundation officers and nonprofit leaders in LA to think about ways to forecast and track progress in the region, the group was divided over whether to focus on actors and outcomes in a certain field, such as health or education, which seemed more practicable, or to try a more holistic approach. I and others suggested the group track poverty and outcomes related to it. Our reasoning was that the students who fail, the people who get sick and die for lack of health insurance or health care, the people who suffer homelessness or untreated mental illness, and so on, are, by and large, the poor. Indeed, it is often the very same people who get sick, drop out of school, can’t find work or adequate housing – they show multiple indicators of the sickness of poverty (there is a medical term for this that I can’t recall just now). 

Now raise your hand if at some point in reading this your mind touched on the old saw, “the poor you will always have with you.” ¹ This is often invoked to argue against efforts to reduce poverty. Even assuming that poverty cannot be eradicated, certainly it makes sense to try to lift as many people out of poverty as possible, doesn’t it? You would think so. But unfortunately, many public debates about reducing poverty in the U.S. get hung up on the related issue of reducing inequality, and quickly devolve into arguments over redistribution and the ethics and possibly counterproductive effects of inhibiting the otherwise free flow of wealth to the top, in our trickle-up economy.

Here’s where we get back to how tall we would be if measured by our incomes. The Nottingham study’s emphasis on inequality made me think of this graphic, from a terrific 2006 Atlantic Monthly article on rising inequality by Clive Crook [for the graphic alone; for the full article] is a stunning illustration of the distribution of economic power.

In his article, Crook described a very powerful thought experiment by Jan Ven in which he imagined a parade of people whose heights were determined by their incomes - at the beginning of the parade, people are so small they are hard to see, but by the end, the very rich, like Bill Gates, are so tall you can barely see the tops of their shoes. This illustration, to me, shows that not only would we want to increase incomes for those at the shorter end of the spectrum, but also that concerns about reducing the height of the gargantuan people in the top few percentiles shouldn’t hold much weight – they can easily stand to grow at a slower rate than they have in the past couple of decades. Most importantly, it simply presents a more accurate picture of the disparities than any recital of statistics could.

So how do we in all our diverse subfields and sectors move toward fighting poverty as our common project? And does the push for measurable results, ironically, undercut progress on this larger quest?

Peter Manzo is the director of strategic initiatives for the Advancement Project, a civil rights advocacy organization, and a senior research fellow with the Center for Civil Society in the UCLA School of Public Affairs. Previously, he was the executive director and general counsel of the Center for Nonprofit Management. 

Posted by Katie Harrington

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Inequality in Giving—Interview with Rob Reich, Author of “A Failure of Philanthropy”

Rob Reich is an Associate Professor of Political Science at Stanford University. He is also the author of “Philanthropy and its Uneasy Relation to Equality” in Taking Philanthropy Seriously: Beyond Noble Intentions to Responsible Giving.

Perla:  Rob, you’ve done a lot of research on how very little individual donations here in the U.S. actually go towards causes that serve the needs of the poor.  Can you update us on your research on this inequality of giving?

Rob:  It’s proceeding on two fronts.  First, I’m following up on the example I gave in the SSIR article about private giving to public schools in California.  I have a ten year database about every nonprofit in California that raises money for public schools.  I’ll be looking at the distribution of private dollars and their consequences.

Perla:  I just recently realized that you used to be a teacher.  Now it makes sense your interest in public schools.

Rob:  Yes.  I used to be a sixth grade teacher in Houston.  And the second thing - I’m in the midst of writing a book looking at the simple and fundamental question about the role of the state in providing incentives to give money away.  Why should the state provide any incentive for donations?  I think the answer is not well developed or understood.

Perla:  What’s the response you get from donors when you present your research?

Rob:  I often get a little bit of a surprise.  In particular, people don’t realize - even though it’s quite consistent in the findings - that over half of all charitable dollars, from individual donors to religion and faith-based charities that serve the poor, have already been carved out. The media has not done a good job of reporting this.  And then with respect to the inequalities in giving, in the audiences that I talk to, there’s often some thought that charity does have a role in serving the needs of the poor and disadvantaged.  And they are surprised overall how little goes to the needy.  My anecdotal experience matches up with the findings that the Google study presented - the intention that people have to give to the poor is widespread but not actualized in practice.

Perla:  Why do you think that is?

Rob:  The simple answer is that the most important reason people give money away is that they know already to give.  Poor people are not asking rich people to give money away.

Perla:  What can small and medium sized nonprofits who provide basic services for the poor do?

Rob: They should try to develop a development office.  But that’s a catch twenty-two- you need donation and overhead to get it off the ground. You can try to appeal to people’s best intentions.  Show statistics. But it shouldn’t be the responsibility of people working in these nonprofits.  This is a public policy problem. One of the public policy solutions is to provide a differentiated incentive structure.  It makes sense to me to provide additional incentives, or diminish existing incentives for things that don’t give to the poor.  How to operationalize what that would look like is still unclear.  I don’t accept that this will politicize the deduction structure.  There’s already politics involved in defining what is 501C3 and 501C4 so we’re not crossing a new threshold.  The system makes distinctions between what organizations get tax benefits and which don’t.

Perla:  What are some things that can be done to raise awareness about this?

Rob:  The media could do a better job reporting about it.  The kind of high profile glamour with which the media portray big ticket donations such as refurbishing cultural, medical institutions -  I’d like to see similar attention paid to, say, the Robin Hood foundation or other organizations where the intention is to serve needs of the poor. But I don’t want to make this a media problem or a nonprofit problem - this is a public policy issue.  There are things that nonprofits and media should do, but this is mostly a public policy problem.

Perla:  Do donors also have some responsibility to be more aware of what they are giving to?  I sometimes wonder if donors, because they tend to come from a different socio-economic background than the poor, whether they feel less comfortable being involved or giving to the poor?

Rob:  I don’t think it’s a matter of donor psychology or stereotypes about the poor because there’s been vast amounts of civil society efforts around the poor- some of which are paternalistic -but lots of activity and interest.

Perla: Do tax incentives matter?

Rob:  Tax incentives do matter, especially for high income givers. But the majority of Americans - 70% don’t even itemize - they don’t take advantage of the deductions.  The impact is less strong than initially thought.

Perla:  Is there any other research you are working on that would be of interest to nonprofits?

Rob:  Yes, I’m also working on whether the domestic poor or international poor are needier and whether the American poor have claim before the global poor?  Does the tax deduction play a role in steering donations one way or another?  The Gates foundation has a massive program for global giving.  Lots of people criticize the U.S. government for the small percentage of money spent on global aid, but if you add all the U.S. philanthropy, it’s a lot of money.  However, the foreign aid budget is publically decided and private philanthropy isn’t.  The comparable lack of benefit someone from Hurricane Katrina receives from US aid -  does that person have something to say about big foundations and how they spend their money?

Perla Ni, founder and former publisher of Stanford Social Innovation Review, is the founder and CEO of GreatNonprofits. She is also a co-founder of Grassroots.com.

Posted by Perla_Ni

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