Monthly Archives: August 2011

Depravity or Circumstance? The Nature of Poverty

“It is simply a fact that our social problems are increasingly connected to the depravity of the poor. If an American works hard, completes their education, gets married, and stays married, then they will rarely — very rarely — be poor. At the same time, poverty is the handmaiden of illegitimacy, divorce, ignorance, and addiction.  As we have poured money into welfare, we’ve done nothing to address the behaviors that lead to poverty while doing all we can to make that poverty more comfortable and sustainable.”

David French, Bigot

Believe it or not, somebody wrote that.  Enough people have pointed out that David French, the author, confuses correlation with causality.  Here is one argument from Seth Masket that sufficiently debunks the theory:

[T]hese key things — education, a successful marriage, and a job — are a lot easier to come by if you’re not poor. What’s more, they’re a lot easier to come by if your parents weren’t poor. But just being born into a poor home means a person is going to have a much harder time coming by these key things that keep him or her out of poverty. That doesn’t make the person depraved. It makes the person a victim of circumstances.

Here is another one from Matt Yglesias:

Now I suppose you could argue that the availability of drug treatment programs, battered women’s shelters, and food kitchens creates “moral hazard” and encourages people to become heroin addicts and/or bed down with abusive partners. But I don’t think that this is a very plausible story. People don’t become homeless drug addicts because the downside to being a homeless drug addict isn’t severe enough in the contemporary United States. And affluent parents don’t treat their children in this kind of punitive way. If a prosperous teenager develops an addiction problem, he’ll be given help. Any halfway responsible parent with the means to do so would bail out a daughter whose live-in boyfriend is abusing her. Poor people have, typically, made some mistakes in life and it’s often the case that had they lived lives free of error, they wouldn’t be poor. But it’s not like middle class people are living mistake-free lives. The difference is that middle class people have lives that give them a fair margin for error, whereas people who start out in bad circumstances can be crippled by a bit of misfortune, impulsiveness, or bad decision-making.

Arguing with someone like French would be like laying out all the factual reasons why a mountain is in the wrong pace, not to mention it sounds like he has the intellectual rigor of an inanimate piece of rock.  But I ruminated on other aspects of why French is wrong (beyond the obvious), and came up with a few clear examples from my own life.

David French's personal heroes, the Dukes.

In most aspects of my life, I’ve been pretty fortunate.  My parents are physicians who put a lot of emphasis on education.  I spent most of my high school years grounded due to some harmless hijinks, and took a lot of AP classes because my parents pushed my brother and I to excel in school.  I went to a good university, where I was surrounded by smart people and educational resources that I wish I could still access.  After I graduated, I went to work for a company in Boston under smart people with graduate degrees from Harvard and MIT.  At Kiva and Technoserve, my friends and coworkers came from diverse backgrounds, and had the resources (financial and otherwise) to volunteer for a few months.  Now, in Nairobi, I live with a group of tech entrepreneurs and interact on a daily basis with some of the smartest people I’ve ever met.

All this is meant to stress the impact people have in your life.  From the start, I was on a track that, at every turn, placed me in the midst of mentors who have shaped my intellectual and personal growth.   My teachers in high school and college were committed and enthusiastic.  My bosses and mentors are skilled and talented.  I spoke with one of my old managers tonight after about two years to get some career and school advice.  I’m grateful to have opportunities like that, but I hold no illusions about the role my own favorable circumstances played in providing them.

Conversely, without those role models, you need to have a superhuman combination of motivation, maturity, and intelligence at a very young age to see the benefits of education and hard work.  And even if you do, there is no guarantee that an education is going to make your situation that much better (and in today’s America, with income inequality at its highest levels in 70 years, that is increasingly true­­).  One of the great paradoxes of education in countries with chronic high unemployment is that the economic returns to schooling are marginal when there are no jobs to absorb all the graduates.  Does that make people who pull their kids from school “depraved”?  Of course not.  As Masket says, they are a victim of circumstances.  In fact, from an economic and financial perspective, they are thinking rationally, which, as someone who believes that the God and the Free Market are the only paths to salvation, should appreciate.  Of course French is one of a great many thinkers today who have cobbled together all of the

People like French don’t actually really understand their own principles, and would probably be surprised to hear that the two most influential figures in developing their worldview – Ayn Rand and Jesus – would both strongly disagree with their stance on just about everything.  Take the last two paragraphs of French’s article on the National Review blog:

Earlier this week, Walter Russell Mead highlighted disturbing research showing that the poor — far more than the rich — are disconnected from church and religion. While church attendance is dropping among all social classes, it’s falling off a cliff for the poorest and least-educated Americans. In other words, the deeper a person slides into poverty, the more they’re disconnected from the very values that can save them and their families.

The bottom line is that we need more free enterprise, and we need more virtue. Sadly, the Great Society and the sexual revolution have deprived us of both.

The key to ending poverty, despite the growing concentration of wealth at the top, is God and the markets.  Of course, Ayn Rand, the intellectual figurehead of the kind of laissez-faire economics advocated by French, was a devout Atheist. I’ve read Atlas Shrugged and The Fountainhead, my “Introduction to Philosophy” professor was the editor of the Ayn Rand Reader, and my father would like to think himself an objectivist, but he cares about people too much to truly commit.  These, I think, are enough to establish my bona fides.   In her own words:

There has never been a philosophy, a theory or a doctrine, that attacked (or ‘limited’) reason, which did not preach submission to the power of some authority.

So now that we have kicked out one of French’s legs, let’s go for the other one: religion.  I did a quick Google search for “Jesus poverty quotes” and it returned 7.3 million views.  This one from Deuteronomy 15:7, 11 makes my point sufficiently:

If there is a poor man among your brothers in any of the towns of the land that the LORD your God is giving you, do not be hardhearted or tightfisted toward your poor brother. There will always be poor people in the land. Therefore I command you to be openhanded toward your brothers and toward the poor and needy in your land.

Were Jesus to return to earth today and come face-to-face with David French, do you think he would say, “You’re absolutely right, Dave – the poor are depraved.”  I supposed that French would say that the Levites weren’t welfare queens.

David French is either an ostrich clinging to a romanticized version of the American dream, an idiot, or both.  In this country more than many others around the world, if you work hard, you can be successful.  But to posit that everyone in this world is dealt the same hand and the ones currently earning less than $40K a year to provide for a family of four have simply chosen a life of “depravity” is ludicrous.  Remember Dave – that kind of thinking will get you left behind.


Thoughts on Rugged Altruism

One sign that the U.S. political scene has reached rock bottom is David Brooks writing one of his weekly columns about development workers in Nairobi.  In “The Rugged Altruists,” Brooks discusses the virtues possessed by three smart, young development workers in the course of doing this work.

The first is courage – a willingness to move to a place foreign in all senses of the world.  They go to learn about what they don’t understand, and put themselves in situations for which they have no paradigm.  Through this process of immersion, the come out stronger on the other side, more well-rounded and knowledgeable about a new culture.

The second virtue is deference, which Brooks describes as “the willingness to listen and learn from the moral and intellectual storehouses of the people you are trying to help.” People often come in thinking they know the answers to the problems they’ve come to try to solve.  Quickly they realize how little they actually know – a multitude of cultural nuances and specific, sometimes heartbreaking fundamental barriers they never could have imagined exist.  The adaptable ones step back and take a moment re-calibrate their expectations, before approaching the situation from a different angle.  They accept what they don’t understand – context – and seek out teachers to show them the way.

The last and, in Brooks’ opinion, most important virtue is thanklessness.  When there are no prizes for first place, nor much recognition at all for a job well done, the work becomes a labor of love, driven by passion more than anything else.  Sometimes the problems are so great that incremental improvement becomes the barometer for success.  Will it change the world?  Probably not.  But it will make a big difference for a few people – maybe even a whole community – and that is laudable.

These virtues exist everywhere I’ve been.  The IT manager at the MFI I worked for in the Philippines used to tell his team of programmers that they should strive for anonymity.  No one acknowledges the IT department unless something goes wrong.  Yet, without their work, the organization could not function as well as it does.  Leaving a legacy in the form of perfection, where no one realizes the importance of your work, is the ultimate goal.

In Ghana, my Ghanaian coworkers would stress about how it was a travesty that the rice farmers they worked with had no market for their paddy, or that the largest juice processor rejected an entire harvest of pineapples because they’d mismanaged the finances at the company.  My closest friends worked for Engineers Without Borders Canada, an admirably driven group committed to making agriculture more competitive in Africa.  On one memorable occasion, over a few Stars, a few of them were talking about how much shit pigs could eat.  “Back in the village when I had typhoid, I was shitting outside my hut every ten minutes.  Every time I went outside, it was gone.” Another day, another dollar.

Now, in Kenya, the mixture of talent and principles on display is unlike anything I’ve ever seen.  On a daily basis, I meet people who, within the development community, are legendary for changing the paradigm altogether.  It is an easy place to feel inspired.

A farmer with One Acre Fund

I think Brooks nails the virtues.  But these virtues are not necessarily elemental.   People are always looking to challenge themselves in different ways, and putting yourself in an unfamiliar situation where you have to rely on your wits and judgment to figure out the right moves is not uncommon for any young person I think.  Showing deference to people more knowledgeable is certainly a virtue learned through experience, but it is also common sense.  And thanklessness, to me, comes with the territory.  In the beginning of the article, he segments development workers into the ones making a difference and those just taking up space.  I have my own opinions about what works and what doesn’t, but I think it is unfair to make judgments about the latter.  Everyone is out here for different reasons, but a common denominator is the belief that you can make things better, which is a noble motive.  Some people are doing a better job than others, but everyone is trying.

The broader goal of achieving perspective is important.  Escaping the bubble that influences the way you see the world and surrounding yourself with people who bring to bear a set of life experiences completely different from your own expands your own worldview.   Being somewhere different from where you were formed influences your political and religious views.  Basic fundamental values, concepts of right and wrong, should be malleable in the face of new information.  Pursuit of different perspectives – which are often radically different in places where the value system is defined by forces you’ve never encountered – offers the chance to truly empathize with people, based on tangible experience rather than abstract ideas.

I see the virtues Brooks highlights in his column everywhere I go.   Everyone shares these virtues, but probably doesn’t ever actulaly think about them (with the exception of deference).  There also people hungry for perspective, trying to understand how everyone else thinks and learn how the world works.  That is probably what makes people on the road so interesting.

The Myths and Realities of Impact Investing

“[Africa] is a wonderful place to really make money. We have one billion people hungry for everything.” Mo Ibrahim

A friend posted an article on his Facebook wall titled “Why Social Impact Investing is a Crock,” leaving much to the imagination.  Here is an excerpt:

Over the last decade the world of do-gooding has seemingly been taken over by MBAs. Social entrepreneurship, a field encompassing both mission-driven businesses and entrepreneurial nonprofits, professes to bring the efficiency, rigor, and cold, hard metrics of business to the most important causes on the planet. Does it really? Not so much, says Dean Karlan, author of the recent book More Than Good Intentions. “The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor.” He distinguishes between the type of scientific research done by his lab, Innovations for Poverty Action, with trials complete with control groups, and the type of data collection done in the vast majority of the nonprofit world, which is nothing more than a “monitoring exercise.”

I think both Karlan and the author have the right idea, but for the wrong reasons.  Later in the article, Karlan explains why the cost of doing a rigorous impact analysis is cost prohibitive for an investor who is focused on financial returns, with impact studies accounting for as much as a third of the investment.  I think the title of the article is excessive and meant to be provocative, but the argument is defensible.

The other day I listened to a presentation from Kentaro Toyama, one of the eminent thinkers in ICT (information, communication, and technology) for development (ICT4D, for short), a school of thought that sees technology as the silver bullet in ending poverty.  His talk was titled “ICT or Development: Why it’s so hard to get rich and help the poor simultaneously.”  It was also meant to be provocative, but for a different reason.  Toyama’s point is not that the absence of verifiable impact makes impact investing a crock.  Rather, he contends that it is difficult, if not impossible, to get rich by providing socially-beneficial goods and services to the base of the economic pyramid.  You can get rich selling products to the poor, but they won’t necessarily be good (alcohol, tobacco, soda, etc.).  Conversely, you can sell products that will address a social need (solar lanterns, cookstoves, etc.), but you won’t get rich doing it.  He challenged the audience to come up with an example, and explained why his thesis holds in each case.

There is a myth of a fortune at the bottom of the pyramid, according to Toyama.  At least, that fortune is purely measured in market size and raw purchasing power.  It should not be confused with an opportunity to offer products that alleviate poverty and make a bundle to boot.  The rural and even urban poor are difficult markets to serve profitably.  A disparate and sometimes non-existent supply chain makes getting products in the hands of consumers a challenge even for the biggest multinationals.  Branding products for the poor, or subsidizing them, makes them less appealing to the middle class, who might pay more and create cross-subsidization opportunities (on this point, I think he is wrong, having seen the same solar lanterns we were selling to microfinance clients in the Philippines being sold in malls in Manila for twice the price).  Not to mention, selling products to the poor is not going to help them out of poverty.  Employment, in the form of manufacturing and labor-intensive work, is the key to growth.  In short, it is possible to serve a social cause, and it is possible to make lots of money selling products to the poor.  But to do both simultaneously?  Very difficult.

My friends and I discussed the talk over lunch.  Most felt that the talk was good, but thought  Toyama oversimplified a complex topic, creating a dichotomy that practitioners don’t really subscribe to.  Anyone who honestly thinks that you can make serious money – young-rich Silicon Valley money – by selling socially-conscious products and services to the poorest segments of the world population is clearly dreaming.  So that conversation should be a non-starter.  You can make money, sure, and you do a lot of good, but if you’re goal is to get rich, then you are in the wrong business.  For that reason, we all concluded that the talk wasn’t meant for people like us.  It was meant for the people in Silicon Valley who have become a little too excited envisioning that Venn diagram.

During the talk, I asked Toyama what he thought of social impact investing.  Basically, he thought it went through a period of irrational exuberance, where people thought they could make high returns and serve a social good, before dipping once people realized that was not the case.  It has made a slight resurgence, as people have checked their expectations and come to sacrifice financial returns for social impact. What Dean Karlan and Kentaro Toyama have in common is that they both believe that it is very difficult to both make good money and help the poor.  Karlan thinks the social impact of many investments is unproven, while Toyama thinks the social impacts are fine, but making money is a challenge.

The legacy of Mo Ibrahim

I happen to disagree with both.  Ten years ago, a telecom industry in Africa barely existed.  Today, most of the population, regardless of whether they are living in poverty, owns a cell phone.  When I brought up this point, Toyama says that the telecoms are entirely profit-oriented, and could care less about helping the poor.  Someone earning a dollar a day, for example, will think nothing of spending a quarter on a ringtone.  But to say that the development of a mobile network that connects the most remote parts of Africa to the rest of the world has not helped the poor by several orders of magnitude is crazy.  It is ironic to me that people interested in this developing products for the poor always leverage the cell phone revolution in Africa, but never seem to give it any credit for laying the groundwork for real, substantive change and improvement – moving the needle over generations, rather the 2-3 year time periods for the randomized control trials being used to measure impact.  (My intention here isn’t to write off RCTs – rather to say that maybe there is a broader way of looking at impact).

There is often a paternalistic attitude (not necessarily among people like Toyama or Karlan, but others less in the know) toward serving the poor.  People try to engineer outcomes, and are dismayed when someone spends the extra income from the dairy cow they bought with help from a microfinance loan on booze, cigarettes, and fast women. Judge not, I say, lest ye be judged.  After all, in the words of Devin the Dude, “you only get one ticket, might as well enjoy the ride.”

Creating more opportunities should be the barometer of success in serving the poor.  Microfinance was about providing access to financial services, which it did.  It has given poor people a place to save their money and borrow money to smooth their irregular consumption.  It created opportunities that did not exist.  In a much less outwardly altruistic example, connecting Africa to the world and putting a cheap cell phone in the hands of every African is helping the poor and making a killing.  If the poor then spend the school fees on ringtones, that is their discretion.  But creating opportunity – in the form of infrastructure or technology – is what moves the needle.

That is why, in my opinion, social impact investors need to move in one of two different directions.  They can either expand the definition of social impact beyond the “directly reach a million poor people” definition that exists today, and accept the fact that there is  highly profitable companies that serve a social cause and are specifically targeted at the poor are few and far between.  Or, they can accept the fact that the returns will be marginal, but the intangible social value created by the product will significantly exceed the financial opportunity cost.  Either way, the current narrative that you can make lots of money and serve the poor at the same time (rather than serially, like Bill Gates, as Toyama suggests) is dangerous.

But where's the impact?

It is dangerous because it breeds unrealistic expectations and creates resentment when they fall short (“Impact investing is a crock!  Those assholes lied to us!”).  Social entrepreneurs shouldn’t feel like they have to be 100% financial sustainable to be successful.  That is a nice-to-have, but there are billions of dollars being spent very poorly on development projects right now.  Money is not an issue (Kiva, for example gets money with 0% returns) – impact is the problem.  Similarly, investors shouldn’t measure success by the direct impact on the lives a certain number of poor people, or hitting specific targets in living standard improvement.  They should invest in Africa, but do it responsibly.  Stay away from oil, cigarettes, alcohol, or any other product that has a net-negative social impact, and focus on telecommunications, manufacturing, or even natural resources (so long as workers are treating well).  Investment will generate employment, which, as Toyama says, is the real engine of poverty alleviation.

Until people recalibrate what it means to a) make money, and b) have an impact, and convey these goals honestly, I’m afraid social impact investing will continue to fall short of the expectations and face the same circular firing squad that has plagued other “silver bullets”, like microfinance.  I think real social entrepreneurs and impact investors understand this push-and-pull.  But Toyama’s intended audience is probably less informed about the realities on the ground, which is why he was giving the talk in the first place.

How to Deal with Al-Shabab and a Failed State in Somalia

One of Somalia's many problems. (AFP Photo/Mohamed Dahir)

I’ve been reading a lot of opinions lately about the decline of the empire of the United States, where experts try to pinpoint the exact moment where we planted our flag atop the hill of global dominance and then began our descent down the other side (somewhere around the early 1990’s, according to the consensus).  In every calculation, the war in Afghanistan is either emblematic of a state in decline (they don’t call it the “graveyard of empires” for nothing) or something that actually precipitated the fall.  We defeated the communists at the end of the 1980’s – the high-water mark in our global position.  And one of the great ironies of that victory is that we secretly funded the mujahedeen in Afghanistan to fight the Soviet Union and, in doing so, kept the Russians mired in the same position we have found ourselves over the last ten years.  One of those mujahedeen was Osama Bin Laden, son of a Saudi billionaire who, with the help of the CIA, bankrolled the insurgency against the Soviets.  Bin Laden quickly turned against the United States (not that he was ever with the U.S.) and became the figurehead of the global jihadist movement until a few months ago when Barack Obama killed him.

People love to point out the fact that we funded the very people who have tried to kill us over the last two decades.  How could we do that, they ask?  The answer is relatively simple.  When a country doesn’t seem like a threat, no one really pays cares if we are potentially nurturing our future enemies, so long as we are able to channel them in support of our cause at the time.  And then, when the snake is all grown up, he bites.  And, in an ironic twist that would make George Santyana roll over in his grave we are doing it again.  Only this time, we are doing it in Somalia, the last truly failed state.

Ever-present Somalia.

It makes sense at this point to give some context about Somalia.  With a score of 113.6, it is consistently ranked number one on Foreign Policy magazine’s Failed States Index year after year.  Here is how it is described in the most recent ranking:

Relatively speaking, the first months of 2011 have been full of good news for Somalia, the world’s closest approximation of anarchy. For two full decades, the majority of the territory in this crescent-shaped country on the Horn of Africa has gone essentially ungoverned; an internationally recognized transitional government is fighting tooth and nail to control the capital. Yet after months of stalemate with Islamist insurgents, the momentum finally seems to be turning. Block by block, the national troops — with the considerable help of an African Union-U.N. joint peacekeeping mission — have made significant territorial gains in Mogadishu.

Yet Somalia is still in tatters. Out of a population of nearly 10 million, as many as 3 million are thought to need humanitarian assistance. Another 2 million have been uprooted in the conflict, and political infighting has paralyzed the nascent government. Neighboring Uganda has warned that the fractures stand to make matters worse, offering Islamist insurgent groups a chance to reorganize.

Perhaps the greatest fear looming over Somalia today is that it will become the next haven for al Qaeda fleeing Afghanistan. Somalia’s Islamist rebels, who call themselves al-Shabab, have already pledged their allegiance to the global terrorist network.

Here, demonstrators in Mogadishu denounce the United Nations mission in the country, accusing it of spending too much on flying diplomats in and out of Nairobi and not enough on fixing what’s broken in Somalia.

This was written prior to the recent famine, which has left over 30,000 children dead and is the localized food crisis in 20 years.  How to deal with the “basketcase” of Somalia has eluded successive U.S. governments for the last several decades.  Now, as the U.S. is faced with the prospect of Somalia becoming the next Afghanistan – a hub for global jihadist groups like Al-Qaeda – the issue has suddenly become much more pressing.  Jeffrey Gettlemen, the failed-state beat reporter for the New York Times, reports on the latest use of military contractors to fight Al-Shabab, the Islamic Fundamentalist group that only a mother could love:

The Pentagon has recently told Congress that it plans to send nearly $45 million worth of military equipment to bolster the Ugandan and Burundian troops. The arms package includes transport trucks, body armor, night vision goggles and even four small drone aircraft that the African troops can use to spy on Shabab positions.

Unlike regular Somali government troops, the C.I.A.-trained Somali commandos are outfitted with new weapons and flak jackets, and are given sunglasses and ski masks to conceal their identities. They are part of the Somali National Security Agency — an intelligence organization financed largely by the C.I.A. — which answers to Somalia’s Transitional Federal Government. Many in Mogadishu, though, believe that the Somali intelligence service is building a power base independent of the weak government.

One Somali official, speaking only on the condition of anonymity, said that the spy service was becoming a “government within a government.”

“No one, not even the president, knows what the N.S.A. is doing,” he said. “The Americans are creating a monster.”

The future of global jihad.

I have a great respect for the complexities of foreign policy, containment, defense, and dealing with a king cobra like Somalia.  But the African Union should be dealing with Somalia and taking responsibility of policing its own region.  Having a major presence there creates resentment in the same way that it has done Afghanistan.  It is a dangerous country and to allow it to effectively fall apart is not really an option either.  So I understand why these measures might need to be taken.  Still, I suppose this is how it starts.

Towards the end of the article there is another nugget of insight into the different ways of approaching a failed state with an Islamic fundamentalist problem:

In Washington, American officials said debates were under way about just how much the United States should rely on clandestine militia training and armed drone strikes to fight the Shabab. Over the past year, the American Embassy in Nairobi, according to one American official, has  become a hive of military and intelligence operatives who are “chomping at the bit” to escalate operations in Somalia. But Mr. Carson, the State Department official, has opposed the drone strikes because of the risk of turning more Somalis toward the Shabab, according to several officials.

Johnnie Carson is the highest state department official in Africa.  He is a career foreign service officer, and has cut his diplomatic teeth dealing with African governments since the 1970s.   By all accounts, he understands the cultural nuances that affect diplomacy in sub-Saharan Africa.  Reading this, I appreciate that someone like Carson is running the show.

I think that this sort of measured approach to dealing with a volatile and complex situation is reflective of Obama’s deliberative foreign policy.  Brute military force that rains collateral damage on civilians makes for fertile recruiting grounds for Jihadist groups.  It needs to be smartly applied, in combination with diplomacy and development.  But, as I wrote the other day, the latter two could end up on the receiving end of cuts at the end of 2012.  If that happens, the counterforce pushing back on the military operatives itching to put boots on the ground in Somalia will be marginalized. And history may be free to repeat itself.

Trust and the Invisible Hand in Agriculture

The following is a guest post from Mark Brown, an agriculture value chains specialist with Engineers Without Borders Canada working in Ghana.  The post originally appeared on EWB’s blog, Untapped Markets.

Market Facilitation is about fostering new relationships between businesses in agriculture. In sub-Saharan Africa much of the business that takes place happens “informally”. Informal business is any business activity that it is not overseen by the government. These activities are not taxed or regulated. They are also not legally binding. As the businessplace in Africa becomes more productive, the flow of goods will increase and require a higher degree of predictability. Farmers need to know how many tonnes of produce their markets will consume before a given season begins; processors need to make sure that they have an appropriate supply of incoming product that will not overwhelm their storage or production capacity or undersupply their output markets. As businesses in agriculture forge new formal relationships, it is of paramount importance that they know that their business partners are committed to buy or sell increasingly predictable volumes. A memorandum of understanding (MOU) is the typical guarantee that businesses make with each other to ensure that they can know in advance where produce will flow. Since market facilitators are constantly linking up agricultural business actors and facilitating their agreements to increase production, they often find themselves facilitating the signing of MOUs. MOUs are useful, but they need to be used carefully, because at the end of the day, any business relationship is ultimately about trust.

An important attribute to MOUs is the fact that they are not forged in stone.  They are not always honoured. It can be extremely hazardous to a business relationship if MOUs are recklessly ignored. It is also hazardous if fears of the repercussions of default keep a business from sharing their challenges with their partners. Both of these pitfalls can happen if an MOU is introduced to a business relationship that lacks trust between the partners.

Lacking Trust, Ignoring Responsibilities and the realities of legal recourse

In one instance in my experience, a market facilitator helped an aggregator arrange for pre-financing of her outgrowers to help them boost their yields. It seemed like both sides were going to benefit immensely. The aggregator required a loan and it would be extremely easy to pay back the loan with the amount of increased yield that she was about to purchase. The farmers were going to have new interest free access to inputs  for their farms. The aggregator was not well acquainted with many of the new outgrowers who she pre-financed but they did sign an MOU with her. At harvest time many of the farmers “side-sold” to another buyer who was paying a higher price. The aggregator lost a lot of prefinanced money and had to delay payment for the product from the farmers who did supply her. In reality, the legal cost – both in actual legal fees as well as time lost from work – of taking several different farmers to court is debilitating to a business and proved to not be cost effective for her. The MOU was there, the farmers defaulted and it was not worth it for her to take legal action. In the next season, she will have to focus more on engaging outgrowers that she knows that she can trust.

Fearing Repercussions and Hiding Difficult Realities

In another example, a newly opened fruit factory contracted its outgrowers to supply fruits according to a schedule in higher volumes than the year before, their business was growing. The MOUs went out to the farmers for their specific volume and the season looked promising. What the factory had not accounted for was some logistical barriers in their production. When these came into effect, fruits started piling up and soon their storage facilities were overwhelmed. When this happened, the agreement had to be breached. The problem was, the factory was intimidated by what was going to happen if all of their outgrowers decided to take legal action against them through their legally binding MOU. Instead of informing the outgrowers and having them leave the fruits on the trees and encouraging them to seek alternative markets, they kept quiet. Trucks full of fruit began arriving at the factory and the factory workers began issuing bogus excuses why the fruits had to be rejected, citing poor fruit quality. Farmers were furious and with the fruits already harvested, it was not easy to find a ready market. Many of the farmers lost vast amounts of fruit and even more farmers lost their trust in the company. Only two farmers took legal action, but this was a case where honesty and a warning that the MOU had to be broken would have been more constructive. If there was more trust between the farmers and the factory, this probably would have happened.

MOUs vs. Trust

In the first case, dishonest business behavior went unpunished because legal costs were too high. In the second case, fear of legal action actually caused the dishonest business behavior. In both cases, there was a business actor that did not trust their business partner – they trusted an MOU. MOUs are useful for agreeing to transact predictable produce volumes. They are capable of specifying what an agreement is between two business partners that trust each other, but it is not capable of formulating the trust between two partners.

Why Don’t Americans Care About Famine in Africa?

Former congressman Bill Frist has penned an op-ed titled “Why Americans Should Care About Famine in Africa.”  Recently back from the Dadaab refugee camp on a fact-finding mission with Jill Biden and Raj Shah, the head of USAID, he discusses the tragedy of thousands of women and children arriving daily, only to find that the camp – already overcapacity by a factor of four – cannot handle the influx of refugees.  But there is a bright spot, Frist says.  That bright spot is that aid to the region has become smarter and more effective over the last decade.  Without it, the crisis would undoubtedly be much worse.

The article reads less like a critical analysis of the situation than an advertisement for USAID and a preemptive case against cutting foreign aid, which is always on the chopping block and could very well get the ax come next year when the trigger goes into effect.  The debt ceiling deal creates a super-committee to decide what will be cut.  If the super-committee can’t come to an agreement – which, if history is a guide, they most certainly will not – then a Sword of Damocles will fall and chop off a part of entitlement spending and defense.  People are happy that defense spending is finally going to be cut (twenty years after the fall of the Berlin Wall), but the fine print is not so rosy.  Over to The Guardian:

The security category includes “department of defence, the department of homeland security, the department of veterans affairs, the National Nuclear Security Administration, the intelligence community [and] international affairs.” This sets up a dynamic where hawks will be trying to cut as much as possible from the state department’s diplomatic corps, and foreign aid, in order to favour their patrons at the Pentagon and in the weapons industry. Hartung explained that the contractors, in addition to having the support of speaker of the House John Boehner:

“had Buck McKeon, the head of the House Armed Services Committee, whose biggest contributor is Lockheed Martin is the upper parts for AR-15’s with big military facilities in his district, [and] Randy Forbes, whose district is near the Newport News Shipbuilding complex, which builds attack submarines and aircraft carriers. They used their influence to get people on the inside, their allies in the House, to push their agenda.”

Defense is broadly defined in this scenario as including diplomacy and development – the three D’s.  There isn’t really a comparison between the three – Robert Gates, the defense secretary, famously pointed out that the military has more members in its marching bands than the State Department has foreign service officers – except that the military-industrial complex favors one more than the others.  So, should push come to shove and the super-committee fail to come to an agreement on cuts, it is likely that development – USAID, the Millenium Challenge Corporation, etc. – are going to receive a disproportionate percentage of those cuts.

Development has almost no constituency.  When the government cuts defense spending, it eliminates jobs in communities where contractors like Raytheon and Lockheed Martin have their factories.  The F-22 fighter jet – the next generation plane for the air force – manufacturers at least one component in every single state in the country.  From a supply chain perspective, that doesn’t make a lot of sense.  But when your biggest client is the government, it makes sense as a company to make yourself an integral part of the local economy for as many constituencies in the country as you can.  Development, on the other hand, employs very few people, and the ones that it does are typically not American.  Despite its strategic importance as part of US foreign policy (the three largest recipients of aid are Israel, Pakistan, and Afghanistan), people question the efficacy of aid.  And, in the current political climate where the term “socialism” is used liberally, people find it difficult to stomach the idea of giving money to other people when people believe that a) we are spending too much as a country, and b) we have our own problems at home.

Frist isn’t the only one who has come out in defense of aid.  John Kerry has an op-ed in the Washington Post from a few days ago about the importance of foreign aid to the country:

At this time of budget crisis, a United States senator defending foreign aid might well be advised to get examined by a political consultant if not a mental health professional. But right now it’s more urgent than ever that those of us who believe in robust American leadership step up and articulate the dangers of American retrenchment. Many question whether we can afford foreign aid and development investments, but the reality – however hard to swallow – is that we can’t afford not to.

So why don’t Americans care about foreign aid?  When asked to prioritize what they would cut from the budget, foreign aid is always number one.  People assume that our foreign aid budget is ten times larger than its actually size (about 1%).  I think there are a lot of reasons why Americans don’t care about famine, or, more broadly, foreign aid in general (clearly Americans care about famine, but I define “caring” as making a concerted sacrifice toward its elimination).  Here are a few that come to mind:

  • Foreign assistance goes to countries that are beyond the ability to help

Somalia has been without a functional government for twenty years.  It is controlled by a mixture of rebels, pirates, warlords, Islamic fundamentalists, and, depending on the day, a weak transitional government that has been in transition for the better part of two decades.  The U.S. sent its special forces into Somalia during the Clinton administration.   The resulting Battle of Mogadishu was immortalized in a book and a film, and has given pause to subsequent governments considering entering Somalia.  With the recent deaths of 30 Navy Seals in Afghanistan will only serve to make us more wary of sending troops into a situation where they might get killed (which is a good thing).  If Somalia is the poster child for where our foreign aid dollars go, most Americans would probably rather spend money on a fight that can be won (the last ten years, notwithstanding).

  • It is called “aid”

The American dream still resonates strongly with people, despite the fact that it is moving further and further from the grasp of everyday Americans.  Hard work and bootstrapping are synonymous with being an American.  We have something of a welfare state, but it pales in comparison to countries in Europe (for better or for worse).  When smaller government is what the country wants (or least a government that spends less), taking money away from people who should be earning it anyways is an easy sell.

  • We’re broke and foreign aid has no constituency

The United States has a “spending problem,” according to Juan Boehner.   This is true, but the interesting thing about political debates about spending is that the participants rarely use percentages.  That is why it is easy to get people whipped up about the “bridge to nowhere,” when 70% of government spending is tied up in defense, medicare, and social security.  So, if you are shedding programs, aid has the least political backing and is easy to unload.

  • Americans do not empathize with the recipients of foreign aid

How can they?  This isn’t the fault of the American people.  I used to live in an apartment in Boston and met my neighbors once.  I didn’t care what they were doing, and they didn’t care about me, I’d imagine.  And they lived below me.  To ask people to care about the welfare of people with whom they have no tangible connection is a stretch anywhere.  This is why Nick Kristof uses “bridge characters” in his writing – to get the average American to care about Darfur or Somalia or Cambodia, which, as he discovered as a reporter for the New York Times, is not easy.

  • Foreign assistance has bad marketing

How do you get people to buy Coke over Pepsi?  How do you convince them to buy the loveseat in addition to the sofa?  How do you get them to increase the percentage of the national budget that is allotted to foreign aid?  The same way – you market it, and you sell it.  Foreign aid projects have poor marketing.

  • Some foreign aid is wasted

When money goes toward a good cause, like the current famine, it doesn’t get much press.  When it is stolen by a kleptocrat dictator in Africa, who then buys cars, boats, and airplanes, it really sticks in people’s craws (and rightfully so).

These are a few ideas, but I am sure there are more.

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For those who do not know, Kiva, the online microlending website, gave me my first shot at trying to improve the lives of the poor.  When I joined the Kiva Fellows program, I was placed with Negros Women for Tomorrow Foundation, a micofinance institution in the Philippines.  I loved it there, and loved the work.   I began to write a blog about microfinance in Southeast Asia, which expanded in scope as my interests broadened to agriculture, energy, education, and economic development.   Ultimately, that blog became this blog in its present incarnation.

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