http://www.ssireview.org/articles/ Strategies, Tools, and Ideas for Nonprofits, Foundations, and Socially Responsible Businesses en walker_kelsey@gsb.stanford.edu Copyright 2008 2008-09-02T19:00:01-08:00 http://www.ssireview.org/articles/entry/the_rise_of_other_nations2/ http://www.ssireview.org/articles/entry/the_rise_of_other_nations2/ In his new book, Fareed Zakaria argues that to stay competitive, America needs to reconsider its global role now that other countries’ growing success is reshaping the world. His call to action isn’t new; it goes back as far as Alice Amsden’s 2001 book, The Rise of “the Rest”: Challenges to the West from Late Industrializing Economies. But Zakaria adds much to the discussion with his unique perspective, which is informed by historical events, cultural and political studies, and current affairs—and also with his telling details. He explains, for instance, how globalization’s increasing pace is evident in the growing percentage of non-American players in the U.S. Open tennis tournament. He also entertains his readers: His droll description of Queen Victoria’s jubilee alone is worth the price of admission. Not that I always agree with his analysis of globalization. For me, the value countries place on innovation directly relates to their place in the current world order. Yet Zakaria mentions innovation only glancingly, never discussing some important points: that right after World War II, the United States was preeminent in the innovation game; that in the next 63 years, know-how and resources were redistributed to other parts of the world; and… Economic Development 2008-09-02T06:00:01-08:00 http://www.ssireview.org/articles/entry/dialing_for_development/ http://www.ssireview.org/articles/entry/dialing_for_development/ There are 2.6 billion people around the world who live on less than $2 per day.1 Most of these people living at the bottom of the pyramid lack clean water, healthy food, and affordable health care. Long recognizing these problems, foundations, nonprofits, and governments have spent billions of dollars trying to alleviate them. More recently, microfinance institutions have recognized that poor people lack the capital and financial services that are necessary for economic growth and job creation. And so these organizations have started offering these services to the world’s poorest people, unlocking new economic opportunities for borrowers and lenders. Yet until recently, most organizations have overlooked another important need in poor communities: the need for information and communication services. At first glance, this need doesn’t seem as great as that for clean water, or even for capital. But in the 21st century—the Information Age—lacking access to information can be just as debilitating as lacking health care or housing. For example, poor fishermen who don’t know the market price of fish are at the mercy of unscrupulous middlemen. Rural farmers who don’t know the weather forecast or the most recent pricing trends don’t know what to plant, when to harvest, or… Economic Development, Social Entrepreneurship 2008-09-02T06:00:00-08:00 http://www.ssireview.org/articles/entry/microloan_sharks/ http://www.ssireview.org/articles/entry/microloan_sharks/ Banco Compartamos, the largest microfinance institution in Mexico, is the acknowledged poster child for commercial microfinance institutions (MFIs). From its inception in 1990 until 2000, Compartamos operated as a not-for-profit nongovernmental organization (NGO), receiving $4.3 million from international development agencies and private Mexican donors. In 2000, the organization was reaching 60,000 borrowers— mainly poor women in rural areas. To tap commercial funds for even faster growth, the NGO and other investors converted it to a for-profit business. By the end of 2006, the corporation was serving some 616,000 borrowers—a tenfold increase. The corporation went public in 2007. For its initial public offering (IPO), Compartamos’ owners sold about 30 percent of their shares to new investors, raising a total of $450 million for the original investors—not bad for an initial total investment of $6 million. Following the IPO, the corporation was valued at more than $1.5 billion. That comes out to an internal rate of return to investors of roughly 100 percent a year, compounded over eight years, reports the Consultative Group to Assist the Poor (CGAP).1 Many observers hailed the Compartamos IPO as an unalloyed success. “The financial markets have shown the true value created by high-performance, double bottom line–oriented… Economic Development, Social Entrepreneurship, Corporate Social Responsiblity 2008-07-13T14:00:00-08:00 http://www.ssireview.org/articles/entry/shes_crafty/ http://www.ssireview.org/articles/entry/shes_crafty/ From 1933 to 1947, Dr. Jayanti Mitrasen Mahimtura was among the legions of Indians who joined in her country’s struggle for independence from Great Britain. She took time off from medical school, did jail time twice for acts of civil disobedience, and wore only khadi, the hand-spun cloth that Mahatma Gandhi used as a symbol of India’s self-sufficiency. Today, Mahimtura’s granddaughter, Priya Haji, is a rising star in the fair trade movement. Haji’s company, World of Good, connects artisans—mostly women—in poor countries with trendy consumers in the West. The company first ferrets out handmade items from far-flung villages across Asia, Africa, and South America. It then cleverly displays the wares in affluent urban stores throughout the United States. Though Haji, the CEO, declines to release sales figures, she says gross revenues have doubled every year since 2004, when she started the company with two classmates from the University of California, Berkeley’s Haas School of Business. Boutiques selling ethnic crafts like earrings, scarves, and bowls are ubiquitous in gentrifying neighborhoods. But Haji thinks bigger: Her company works with 150 organizations in 34 countries to source enough wares to stock mainstream retailers such as Whole Foods, Wegmans,… Economic Development, Social Entrepreneurship 2008-07-06T14:00:01-08:00 http://www.ssireview.org/articles/entry/15_minutes_with_martin_eakes/ http://www.ssireview.org/articles/entry/15_minutes_with_martin_eakes/ When Martin Eakes was a teenager growing up in a poor, rural community outside of Greensboro, N.C., his best friend, who was an African American, was shot and killed in a playground near Eakes’ home. On that day, Eakes vowed to live his life for the two of them. Eakes went on to graduate from Yale Law School, but instead of taking a lucrative position at a high-powered New York law firm, he returned to North Carolina to devote his energy and talents to improving the lives of the poor. In 1980, Eakes started Self-Help as a way to help the poor help themselves. His first loan was for $1,700, to help seven laid-off textile workers start a community bakery. From those modest beginnings, Self-Help has grown into a financial powerhouse. At its core is a credit union that takes in deposits and lends out money to low-income people who want to buy homes or start businesses, and to nonprofit organizations. Self-Help also repurchases home loans made by large banks to low-income buyers. The 501(c)(3) community development financial institution now has more than $1 billion in assets. Self-Help isn’t the only organization lending to low-income home buyers. In the last… Economic Development, Social Entrepreneurship, Government 2008-06-15T14:00:00-08:00 http://www.ssireview.org/articles/entry/reimagining_microfinance/ http://www.ssireview.org/articles/entry/reimagining_microfinance/ Despite the fact that most microfinance institutions (MFIs) were established to reduce poverty, many are starting to look like traditional financial institutions. To expand their outreach and loan portfolios, they tap into commercial and quasi-commercial sources of finance, which require them to demonstrate consistent profitability to their investors. When the Mexican MFI Banco Compartamos went public in 2007, for example, its existing shareholders earned returns of approximately 100 percent compounded annually over an eight-year period. This trend toward commercialization has led critics to ask whether MFIs will continue to serve the world’s poorest people. They point out that many profit-minded MFIs have either raised their interest rates or failed to lower them when reductions in costs allowed them to do so. They note that some MFIs have cut back on social service programs, infrastructure, and staff training to reduce costs and increase short-term profitability. They show that a growing number of MFIs are not tracking their social impact even though they have the tools to do so. At the same time, other critics worry that MFIs are not commercial enough. They say that MFIs’ commitment to social justice keeps these organizations from becoming profitable. Lack of profitability in turn prevents… Economic Development, Social Entrepreneurship, Philanthropy & Responsible Investing 2008-06-08T14:00:00-08:00 http://www.ssireview.org/articles/entry/less_is_more/ http://www.ssireview.org/articles/entry/less_is_more/ The prevailing orthodoxy when it comes to helping the poor has boiled down to a catchphrase: Give adequate resources to those with inadequate resources. In our experience, however, flooding a country with financial aid reduces, and sometimes voids, the incentives to find innovative solutions to overcoming resource constraints. Afghanistan, for instance, has proved a dismal failure in development, despite an investment of some $20 billion in development funds. Sure, the numbers per capita are small, but at the least, people’s living standards should have improved in the capital. But as a group of us recently witnessed, Kabul has no regular electricity (people sleep in temperatures averaging 41 F), sewage runs along open trenches in the city streets, and there is no clean or hot water. Money flows to Afghanistan have also created inflation and distorted the economy. A year ago in Kabul, a decent office cost thousands of dollars per month. A textile entrepreneur we met could not afford to hire a general manager because nongovernmental organizations had inflated salaries. And a local doctor had given up medicine to chauffeur for an embassy—the pay was better. Imaginative Tinkering Works Development efforts dominated by resource-driven thinking caused this situation. They ignored… Economic Development, Social Entrepreneurship, Government 2008-05-29T14:00:01-08:00 http://www.ssireview.org/articles/entry/review_creating_a_world_without_poverty/ http://www.ssireview.org/articles/entry/review_creating_a_world_without_poverty/ CREATING A WORLD WITHOUT POVERTY: Social Business and the Future of Capitalism Muhammad Yunus 288 pages (PublicAffairs, 2008) The title of Muhammad Yunus’ new book, Creating a World Without Poverty, gives a sense of his vision’s sweep, but only hints at his ambition. He wants not only to end global poverty and related problems such as gender discrimination, social exclusion, and lack of access to health care and education, but also to eliminate environmental degradation and extreme inequality. In short, Yunus wants to create a more just society for all. Yunus presents his ideas for solving the world’s social problems as he outlines how Bangladesh can develop more successfully; updates the history of the Grameen Bank, for which most readers will know him; offers his thoughts on the potential of technology to help end poverty; and details his ideas on international norms and governance. But his main tool for alleviating the world’s ills is social business, which he defines as financially sustainable but non-dividend- paying enterprises established to solve social and environmental problems. These enterprises are controlled by shareholders (either donors or the poor), and donors get their initial investment back, though any additional profits created by the enterprise are… Economic Development, Social Entrepreneurship, Philanthropy & Responsible Investing 2008-05-29T14:00:01-08:00 http://www.ssireview.org/articles/entry/the_price_of_going_left/ http://www.ssireview.org/articles/entry/the_price_of_going_left/ A few decades ago, developing countries were either one-party socialist states, absolute monarchies, or military juntas, and so were not privy to the planned chaos of elections. But with the spread of democracy, these countries now regularly enjoy the drama and disruption of voting. Multinational corporations (MNCs) not only watch these elections closely, but also plan their foreign investments according to the elections’ projected outcomes, finds Paul Vaaler, a professor of international business at the University of Minnesota’s Carlson School of Management. He finds that when the political leadership of developing countries seems poised to shift from left to right, MNCs announce more project investments. But when an election seems likely to go to the left, foreign-domiciled MNCs announce fewer investments. “MNCs don’t vote at the ballot box, but they do vote with their dollars,” says Vaaler, summarizing a study he published in the February 2008 Academy of Management Journal. He clarifies, however, that his study does not show that MNCs shape elections. Rather, they respond to them. Vaaler says his study is the first to examine how elections in developing countries influence foreign corporate investment. Traditionally, right-wing policies are more investor-friendly because they favor less inflation, lower taxes, and… Economic Development, Government 2008-05-29T14:00:00-08:00 http://www.ssireview.org/articles/entry/review_out_of_poverty/ http://www.ssireview.org/articles/entry/review_out_of_poverty/ OUT OF POVERTY: What Works When Traditional Approaches Fail Paul Polak 240 pages (Berrett-Koehler, 2008) Until now, the social enterprise bookshelf contained mostly two types of books—studies of what works, and studies of what’s broken. David Bornstein’s How to Change the World, which chronicles the inspiring work of Ashoka Fellows, best represents the first type. The writings of Jeffrey Sachs, Hernando De Soto, and William Easterly fall into the second group, though each of these economists has a markedly different perspective on what’s broken and what should be done. Paul Polak is helping to create a third genre by writing one of the first how-to social enterprise books: Out of Poverty, which draws on Polak’s 25 years of using entrepreneurial approaches to increase the income of the rural poor in Asia and Africa. Polak has long believed that to have a major impact, global poverty alleviation efforts must focus on small-plot farmers. A recent World Bank report backs him up, noting that “three of every four poor people in developing countries live in rural areas … and most depend on agriculture for their livelihoods.” As Polak states in the book, “most of these extremely poor people … can earn much… Economic Development, Social Entrepreneurship 2008-05-29T14:00:00-08:00