Davos 2008

An MIT Press Journal

TECHNOLOGY | GOVERNANCE | GLOBALIZATION
Special Edition for the 2008 Annual Meeting of the World Economic Forum

innovations

The Power of Positive Doing
Lead Essays

Social Innovators with a Business Case Klaus Schwab and Pamela Hartigan Beyond Lending Fazle Abed and Imran Matin
Cases Authored by Innovators

Income is Development Martin Fisher
commentaries by Paul Polak; Julia Novy-Hildesley; Eric Simanis & Stuart Hart

Making Sight Affordable V. Kasturi Rangan & R.D. Thulasiraj
commentary by Geoffrey Tabin

Seeking a Cure for Inequity in Access to Medicines Victoria Hale Taking Animal Trafficking Out of the Shadows Dener Giovanini
commentaries by Jerry Mechling; Carter Roberts

Information Technology to Meet Social Needs Jim Fruchterman Science as Social Enterprise Richard Jefferson
commentaries by Sara Boettiger & Brian D.Wright; Yochai Benkler
FEATURING SCHWAB SOCIAL ENTREPRENEURS

Editors Philip Auerswald Iqbal Quadir Senior Editor Winthrop Carty Associate Editors Miriam Avins Elizabeth Dougherty Consulting Editors Christian Duttweiler Helen Snively Interns Ana Agan Justin Lee Huang

Chairman of the Advisory Board John Holdren Advisory Board Lewis Branscomb Susan Davis Bill Drayton Robert Frosch John Gibbons Anil Gupta Daniel Kammen Don Kash David Kellogg Neal Lane Eric Lemelson Monique Maddy Granger Morgan Jacqueline Novogratz R. K. Pachauri Gowher Rivzi Roger Stough Karen Tramontano James Turner Xue Lan

Editorial Board David Audretsch Michael Best Matthew Bunn Susan Cozzens Maryann Feldman Frank Field III Richard Florida Keenan Grenell James Levitt Martin Malin Peter Mandaville Julia Novy-Hildesley William J. Nuttall David Reiner Kenneth Reinert Jan Rivkin Steve Ruth Peter Spink Francisco Veloso Nicholas Vonortas Yang Xuedong Publisher Nicholas Sullivan

Innovations: Technology | Governance | Globalization is co-hosted by the Center for Science and Technology Policy, School of Public Policy, George Mason University (Fairfax VA, USA) and the Belfer Center for Science and International Affairs, Kennedy School of Government, Harvard University (Cambridge MA, USA). Support for the journal is provided in part by the Lemelson Foundation; the Schwab Foundation for Social Entrepreneurship; the Ash Institute for Democratic Governance and Innovation, Kennedy School of Government, Harvard University; and the Center for Global Studies, George Mason University.
Innovations (ISSN 1558-2477, E-SSN 1558-2485) is published 4 times per year by the MIT Press, 238 Main Street, Suite 500, Cambridge, MA 02142-1046. Subscription Information. An electronic, full-text version of Innovations is available from the MIT Press. Subscription rates are on a volume-year basis: Electronic only—Students $23.00, Individuals $45.00, Institutions $140.00. Canadians add 6% GST. Print and Electronic—Students $26.00, Individuals $50.00, Institutions $155.00. Canadians add 6% GST. Outside the U.S. and Canada add $20.00 for postage and handling. Single Issues: Current issue $15.00. Back issue rates: Individuals $20.00, Institutions $40.00. Canadians add 6% GST. Outside the U.S. and Canada add $5.00 per issue for postage and handling. For subscription information, to purchase single copies, or for address changes, contact MIT Press Journals, 238 Main St., Suite 500, Cambridge, MA 02142-1046; phone: (617) 253-2889; U.S./Canada: (800) 207-8354; fax: (617) 577-1545. Claims for missing issues will be honored if made within three months after the publication date of the issue. Claims may be submitted to: journals-claims@mit.edu. Prices subject to change without notice. Advertising and Mailing List Information: Please contact the Marketing Department, MIT Press Journals, 238 Main St., Suite 500, Cambridge, MA 02142-1046; (617) 253-2866; fax: (617) 258-5028; e-mail: journalsinfo@mit.edu. Innovations: Technology | Governance | Globalization is indexed and/or abstracted by CAB Abstracts. website: http://www.mitpressjournals.org/innovations/ © 2007 Tagore LLC.

innovations
TECHNOLOGY | GOVERNANCE | GLOBALIZATION
Editors’ Introduction 3 Philip Auerswald and Iqbal Quadir Lead Essays 7 Social Innovators with a Busines Case: Facing 21st Century Challenges One Market at a Time Klaus Schwab and Pamela Hartigan Beyond Lending: How Microfinance Creates New Forms of Capital to Fight Poverty Fazle Abed and Imran Matin 13

Cases Authored by Innovators 29 Income Is Development: KickStart’s Pumps Help Kenyan Farmers Transition to a Cash Economy Martin Fisher Case discussion: KickStart Paul Polak Case discussion: KickStart Julia Novy-Hildesley Case discussion: KickStart Erik Simanis and Stuart Hart The Aravind Eye Care System: Making Sight Affordable V. Kasturi Rangan and R.D. Thulasiraj Case discussion: Aravind Eye Care System Geoffrey Tabin Institute for OneWorld Health: Seeking a Cure for Inequity in Access to Medicines Victoria Hale Taking Animal Trafficking Out of the Shadows: RENCTAS Uses the Internet to Combat a Multi-Billion Dollar Trade Dener Giovanini

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Case discussion: RENCTAS Jerry Mechling Case comment: RENCTAS Carter Roberts Benetech: Developing Information Technology to Meet Social Needs Jim Fruchterman Science as Social Enterprise: The CAMBIA BiOS Initiative Richard Jefferson Case discussion: CAMBIA BiOS Sara Boettiger and Brian D. Wright Case discussion: CAMBIA BiOS Yochai Benkler

159 191 204

About Innovations
Innovations is a journal for, and about, people using technology and novel modes of organization to address global challenges. The journal was launched in the winter of 2006 as a publication of MIT Press, jointly hosted at Harvard's Kennedy School of Government (Belfer Center for Science and International Affairs) and George Mason University's School of Public Policy (Center for Science and Technology Policy). The journal’s advisory board is led by John Holdren, and includes two former U.S. Presidential Science Advisors, a former NASA Administrator, the chief counsel on the Science Committee of the U.S. House of Representatives, the publisher of Foreign Affairs, and R.K. Pachauri, co-recipient on behalf of the U.N. Intergovernmental Panel on Climate Change (IPCC) of the 2007 Nobel Peace Prize. In its first eighteen months of publication Innovations has established itself as a significant new journal of high editorial standards, uniquely focused on solutions in the public interest. Innovations has published twelve original cases authored by innovators, spanning domains of impact from rural enterprise creation to open-source agricultural biotechnology, the siting of a nuclear waste facility, and the creation of a virtual world. Six of these cases are included in this special edition for the 2008 Annual Meeting of the World Economic Forum.

mitpress.mit.edu/innovations innovationsjournal.net

Philip Auerswald and Iqbal Quadir

Editors’ Introduction
If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea… He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature… —Thomas Jefferson, Letter to Isaac McPherson, August 13, 18131 An English country doctor by the name of Edward Jenner discovered in 1796 that inoculation of humans with cowpox conferred immunity to smallpox. To describe the process Jenner coined the term “vaccination,” derived from vacca, the Latin word for cow. When the British Royal Society assented to publish Jenner’s findings in 1798, the work was greeted more with derision than with acclaim. Few believed that fluid from a diseased animal could confer benefits to human beings. The doubters were mistaken. Vaccination became a widespread practice. In 1966 the World Health Organization (WHO) launched an effort to eradicate smallpox on a global scale. By 1980, almost two centuries after Jenner’s discovery, there was no longer a single case of smallpox anywhere in the world. By what process did the invention of the vaccine ultimately lead to the global eradication of a dread disease? Jenner’s work obviously was only the beginning of a long story. The eradication effort required leadership and long-term vision, detailed planning, flexible organization, ingenuity, and hard work on the part of Philip Auerswald and Iqbal Quadir are the founding co-editors of Innovations. Auerswald is also Director of the Center for Science and Technology Policy and an Assistant Professor at the School of Public Policy, George Mason University, and a Research Associate with the Belfer Center for Science and International Affairs at Harvard's Kennedy School of Government. Quadir is also Founder and Executive Director of the Legatum Center for Development and Entrepreneurship at MIT. Previously Quadir was a Lecturer at the Kennedy School of Government and a Fellow with the Center for Business and Government at Harvard University. He founded GrameenPhone in collaboration with Grameen Bank of Bangladesh and Telenor AS of Norway. This essay is derived from the editors’ introduction to the inaugural issue of Innovations that appeared in Winter 2006. © 2006 Tagore LLC innovations / Davos 2008

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Philip Auerswald and Iqbal Quadir many people. Initially employing a child’s toy construction kit, scientists at the Lister Institute in London developed a method of freeze-drying the vaccine, aiding in storage and transport. Benjamin Rubin of Wyeth Laboratories collaborated with Gus Chakros of the Reading Textile Machine Company to By focusing on the particulars of design the bifurcated practice, Innovations is intended to needle, aiding in administration of the complement existing journals, vaccine.2 To address providing a common space that cuts problems faced in the practice of large-scale across academic disciplines, bridges vaccination, fieldworkers involved in theory and practice, and links the WHO eradication human action with global impact. effort developed novel approaches, including smallpox recognition cards, watchguards, reward programs, rumor registers, and containment books.3 Managers and supervisors encouraged experimentation by field workers, and facilitated communication among them. Discovering the process of vaccination required insight and ingenuity; ending smallpox required a series of innovations.4 Other cases exist in which technology and novel forms of organization have been employed to address public challenges on a global scale. Yet while problems with major implications for social welfare may be the first to get attention, those with relatively easy answers usually are the first to be solved. In part for this reason, the magnitude of present challenges exceeds that of past successes. In an era in which the secrets of the genetic code have been unraveled and fundamental processes of life are being newly understood, people everywhere still face a future marred by the stark realities of global climate change, the proliferation of weapons of mass destruction, and the spread of infectious disease. And while the beneficial impacts of technological change have been dramatic, they have not been broadly shared. The majority of people in the world continue to live in persistently poor places, where the local environment is deteriorating and sickness is a daily fact of life. Existing institutions and incentive structures may or may not be adequate to address these challenges. If the past is any guide, continued progress in addressing public challenges will require continued innovations—the efforts of individuals, groups, and communities who creatively employ new organizational forms, and in many cases new technology, to effect discontinuous change. This journal is about such innovations and the changes that they bring about. It is less about what needs to be done, and more about what people are doing. Our purpose is to capitalize on the fundamental nature of innovations. Innovations can be copied and possibly scaled up. Innovations open up new possibilities and cre4

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Editors’ Introduction ate the ground for yet more innovations. By drawing attention to innovations in the public interest, we intend to encourage critical thinking about them, and to spur their proliferation.
1. Text from the Electronic Text Center at the University of Virginia Library, <http://etext.virginia.edu/jefferson/quotations/jeff1550.htm>; archival reference given as ME 13:333. A taper is a candle. 2. Jack W. Hopkins, The Eradication of Smallpox: Organizational Learning and Innovation in International Health, (Boulder, CO: Westview Press, 1989). 3. Lawrence B. Brilliant, The Management of Smallpox Eradication in India, (Ann Arbor, MI: University of Michigan Press, 1985). 4. In preparing this brief description of smallpox eradication we benefited from Chun Wei Choo, “The World Health Organization Smallpox Eradication Programme,” unpublished manuscript. <http://choo.fis.utoronto.ca/fis/courses/lis2102/KO.WHO.case.html> last accessed 2/8/2005.

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Klaus Schwab and Pamela Hartigan

Social Innovators with a Business Case
Facing 21st Century Challenges One Market at a Time
If there is one thing about which public and corporate leaders around the world today can agree, it is the ever-growing importance of innovation. The search for innovative solutions to the world’s myriad local, national and global challenges has become a clarion call rallying people across multiple borders defined by nation, industry, and academic discipline. Yet policy making reflects deep ambivalence about innovation. The cheerleading over innovation exists in contrast to the myriad institutional, legal, regulatory, and educational impediments to the work of innovators. While not innovation experts, we have been privileged to interact over a span of decades with the some of the world’s most recognized innovators—from those working at the grassroots to those at the helm of new industries. This has provided us with some perspective on the nature of innovation and the hurdles innovators face daily as they search for ways to disseminate their approaches and products. Education is a good place to start. A society’s capability to innovate arguably begins, or possibly ends, in school.1 For the vast majority of primary schools, among the qualities of a “star” pupil are tidiness, adherence to rules and directions, and good behavior. In the later grades, outstanding achievement is measured in grades, standardized test scores and sometimes, the number of extracurricular activities undertaken. These constitute the ticket to acceptance to top schools producing the world’s elite. But it is not clear that this is how to develop the talents of tomorrow’s innovators. The educational system is reinforced by employment policies in most government institutions and corporations. When reviewing candidates, recruiters invariably look for evidence of academic achievement and a steadiness that produces good exam pass rates and grades rather than for experiences that might suggest a candidate is innovative and inspired, perhaps even rebellious. This is because most Professor Klaus Schwab is the Founder and Executive Chairman of the World Economic Forum and Co-Founder of the Schwab Foundation for Social Entrepreneurship. Dr. Pamela Hartigan is the Managing Director of the Schwab Foundation. This essay originally appeared in volume 1, number 4, of Innovations. © 2006 Klaus Schwab and Pamela Hartigan innovations / World Economic Forum special edition
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Klaus Schwab and Pamela Hartigan organizations have a low tolerance for mistakes. Risk-averse societies and organizations keep people from failing. They also keep them from trying. And the key to successful innovation is initial failure and persistence.2 It is hardly surprising, then, that among the commonly shared experiences of successful innovators is the recollection of having been described at some point as crazy, not just by acquaintances, but by family, friends and close colleagues. Almost by definition, innovators are mavericks. Most organizational structures and their corresponding managers and civil servants deal with what is. Innovators do exactly the opposite. They focus on creating things the world has never seen. They systematically disregard boundaries—whether of nation, academic discipline, or social staWhile the world clamors for tus—to the predictable annoyinnovation, it tends to deprive ance of those who consider it their responsibility to keep innovators of the resources boundaries in place. An irony results: While the world clamors and recognition that would for innovation, it tends to deprive maximize their potential to innovators of the resources and recognition that would maximize transform societies for the their potential to transform socibetter eties for the better The challenge of innovation in the 21st century is therefore also about reshaping societies to be not only tolerant, but actually welcoming, of innovators. In the case of the innovators using technology on which this journal focuses, past innovation heroes had their impact on business. From the individual brilliance of Thomas Edison came the global powerhouse that is GE; from the unique inspiration of Kiichiro Toyoda came the car company of today that continues to be a global standard setter. In the coming century, however, the greatest opportunities for innovation exist in domains of public service heretofore left to governments. Social innovators who have taken a business perspective today are pioneering new approaches and helping to map out future markets where most would only see looming problems and risk. In doing so, they are the harbingers of the biggest market opportunities of the century. And history suggests that they have at least as much chance of shaping the twenty-first century as many of today’s great incumbent businesses. On current trends 75% of 2001’s Standard & Poor’s 500 will have disappeared from the S&P index by 2020. In their stead, companies unheard of today, using new business models, will be delivering products and services to new and existing markets, dislodging incumbents who have not been able to innovate fast enough to keep up with 21st century needs.3 Already today, there are hundreds of such innovators who are reaching new markets, serving unmet needs, and creating new supply chains. This journal
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Social Innovators with a Business Case recently profiled KickStart and its founders, Martin Fisher and Nick Moon. Kickstart designs, produces and sells appropriate technologies to rural entrepreneurs in some of the world’s poorest markets, allowing them to start small-scale businesses. In 2005, KickStart sold over 8,400 pieces of equipment that helped start 5,964 businesses generating an additional $5.3MM in annual profits and wages for new businesses. Martin and Nick have ventured into territory no mainstream company would dream of entering—and in doing so, they have paved the way for a new group of producers and consumers to emerge. Dr. Devi Prasad Shetty is meeting unmet needs of a different sort through an innovative business model in health. An Indian cardiologist, Shetty’s organization, Narayana Hrudayalaya, strives to make sophisticated healthcare available to all in India. His network of hospitals is able to provide 60% of treatments below cost or for free, thanks to drastically reduced costs resulting from high volumes, innovative cost saving methods and donations. A network of 39 telemedicine centers reaches out to patients in remote rural areas. Two health insurance programs provide coverage for 2 million farmers at Rs 120 per year (USD 3). Again, innovators lead the way in coming up with business models to provide quality health care for the poorest who cannot afford it—while sustaining and growing the enterprise. In Nigeria, Isaac Durojaiye has both created a new product and tapped into a new source of labor. His company, Dignified Mobile Toilets (DMT) is the first manufacturer of mobile toilets in West Africa. DMT makes, installs and maintains thousands of public toilets in Nigeria through a franchise system providing job opportunities to members of youth gangs that oversee the daily maintenance of the facilities and keep 60% of the profits. The toilets are placed in high traffic areas, such as bus stations and markets, where there is a high demand for sanitation facilities. Thus, DMT offers an alternative to current widespread and unhygienic practice of using the street as a toilet. It also aims to attack the unemployment situation, particularly among youth. More than half of the population of Nigeria is under 35 years of age, and many are unskilled. While Nigerian employment statistics are under debate, it is believed to be in the range of 17%, with an even higher rate among urban youth. Up to 55% of the unemployed are secondary school graduates, underlining the fact that education and skills do not guarantee employment. Sub-Saharan Africa is not the only region where new solutions are needed to address emerging models of participation in the work force. Sara Horowitz is spearheading a form of portable unionism to promote the interests of the growing number of independent workers in the United States. Unlike traditional trade unions which are limited by law to employees of workplace-based organizations, Working Today, founded by Horowitz, provides flexible and portable benefits applicable to an increasingly mobile and decentralized workforce adjusting to the changing contours of the U.S. and global economy. It has built a membership of 16,000, including 10,000 independent workers who receive health insurance. Its model could be expanded to address the needs of the more than 30 million independent workers across the U.S.—and beyond. innovations / Davos 2008
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Klaus Schwab and Pamela Hartigan The more acute the societal challenge, the greater need for an innovation-driven societal transformation. Global climate change is number one on the list in terms of the magnitude of the challenge and in terms of the scope of the required response. The climate challenge in this century will not be solved by changing power plants, designing new automobiles, or reformulating gasoline. It will be solved, and must be solved in this generation, by people changing their behaviors and their institutions. National policies, corporate programs, venture financing and consumer behavior will all contribute. But if they are counted upon to be the drivers of change, that change simply will not occur. To catalyze the shift, the general population must The more acute the societal be spurred to action, in turn pressuring governments. challenge, the greater need One such catalyst is Yann Arthus-Bertrand, a photographer for an innovation-driven who has demonstrated through societal transformation. creativity and perseverance that there is no real North-South divide when it comes to environmental threats. Bertrand produced a series of extraordinary books, exhibitions and films introducing us to our planet from the air. Like most innovators, he is unrelenting. He has taken over 100,000 images just to put together “Earth from the Air.” As one of his colleagues put it, “With him, I learned that nothing is impossible. People will tell him ‘No’, and he hears ‘Maybe’. And herein lies the strength of such innovators—and their common bond. The word “no” doesn’t exist for them. As Barry Coleman, co-founder of Riders for Health,4 has quipped, “There is nothing as motivating as when someone tells us ‘It can’t be done’. It is our call to action.” What set of incentives will lead to the deep diffusion across society of the capability to innovate and the inclination to respect and value innovators? The first place to start is to step beyond paying lip service to the importance of innovation in the public interest. Acknowledging the role innovation must play in addressing the challenges of inequity is a prerequisite. But to date, and except in a small number of wealthy countries, such as the U.S., U.K., and the Scandinavian countries, governments have played a modest role in financially supporting innovation, particularly when directed towards social transformation. The vacuum has been only very partially filled by venture capitalists, private investment, and philanthropy—individual and corporate. Thus, among the examples of social innovators highlighted previously, not one of them secured national public sector support—other than international aid—when launching their initiatives. While one might argue it is better not to be financially supported by a government in the early phases of the venture in particular—because it can compromise the ability to be truly innovative—the existing financing vacuum evident as these social ventures scale up cannot be filled by wealthy individuals or enlightened
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Social Innovators with a Business Case business alone. Increasing recognition of the importance of social innovation and the concomitant growth of “philanthropreneurs” may spur more funding flows to support early stage innovative hybrids focusing on social transformation. Many, if not most, of today’s social innovators defy traditional legal pigeonholing as “not-for-profit” or “for-profit” organizations. Rather, they “intersect” across both—they are social innovators with a business case, so to speak, hybrids that straddle between a charity and a profit maximizing company. Consequently, many find themselves maneuvering through a tangled web of legal regulations to identify what benefits and obligations exist in relation to their enterprise. The fact is that to date, no country has developed a specific legal model recognizing the hybrid nature of such organizations and the social and economic functions they serve. Our fascination with these pragmatic visionaries and their organizations lies much less in the goods and services they provide than in the catalytic role they play in triggering innovations in the social sector. Like the business innovators who come up with major innovations for the marketplace, social innovators are the mad scientists as it were—working away in their organizations that act like social innovation laboratories. They test and perfect different approaches, and when they come up with the most effective and efficient ones with the greatest impact, it should be government and the corporate sectors’ respective roles to celebrate the innovation, take it up, learn from it, and help scale it so that all can benefit. Ultimately, the innovation lies in the models devised for service and product delivery all along the supply chain—not in the provision of the good itself. It is those models that others need to take up and replicate. Innovators in the public interest are the flame that ignites the fire of social transformation. That flame must be fanned and nurtured by governments, publicly traded and private companies, academia, media and individuals working together to achieve its promised impact.
1. We recognize that a vast number of children in poor communities must abandon their formal education after the primary school years. Yet patterns of learning are developed at the primary level. 2. Thomas Edison is oft-quoted as saying. “I have not failed. I have found 10,000 ways it won’t work.” 3. Richard Foster and Sarah Kaplan, 2001. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—And How to Successfully Transform Them (New York: Random House). 4. Working with Ministries of Health and NGOs in African countries, Riders for Health builds local capacity to maintain and manage motorcycles and other vehicles, enabling health care workers to reliably service remote areas. As a result, RfH is able to operate fleets of vehicles in the harshest conditions with a zero breakdown rate for five years or longer. RfH has demonstrated that a properly managed vehicle under its system will save more than 50% of costs over a six-year period, compared to an unmanaged vehicle. RfH has been able to lower infant and maternal mortality in targeted communities. With each motorcycle it runs, 20,000 receive primary health care every year.

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Fazle Hasan Abed and Imran Matin

Beyond Lending
How Microfinance Creates New Forms of Capital to Fight Poverty
The very idea of microfinance has changed banking as we knew it. Providing small loans to the poor, mostly women, replaces physical collateral with collective responsibility. Today, microfinance is an established way to provide financial services to the poor. It can be scaled up in widely different environments around the world, and can deeply benefit the people it serves. It allows the poor both to take advantage of opportunities and to manage their vulnerabilities. The focus of the innovations in microfinance has itself evolved. In the early days of microfinance, the focus was much more “social:” how to form groups in ways that would most effectively enforce collective responsibility? How to motivate women to form their own groups? How to motivate people to save for a period before lending them money? How to respond to negative responses from the better-off and the religious groups in a community? Then, as the focus shifted from social questions, microfinance began to become more professionalized and was scaled up. Soon, innovations related to basic loan management followed. Along with the focus on financial sustainability, innovations in microfinance included better management information systems, and management systems that could increase productivity and internal control. During the middle 1990s, the pendulum began to swing back to the client end, as criticisms of one-size-fits-all types of microcredit gained ground. The initial focus on product innovations in the credit domain was soon followed by a call to expand innovations to a whole range of financial services beyond credit, including savings, insurance, and money transfers. In this article, we focus on a different source of innovations in microfinance: using the process capital of microfinance to design innovations that can address a far wider range of constraints facing the poor. We will also discuss the strategic F. H. Abed is the founder and chair of BRAC. Imran Matin directs BRAC’s Research Division and its Africa Program. Corresponding author Imran Matin can be reached at <imran.m@brac.net>. This essay originally appeared in volume 2, number 1/2, of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Fazle Abed as an Outstanding Social Entrepreneur. © 2007 Fazle Hasan Abed and Imran Matin innovations / World Economic Forum special edition

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Fazle Hasan Abed and Imran Matin linkages between microfinance and other approaches that innovators must consciously design into the package if microfinance is to be truly inclusive. To illustrate our argument we provide some examples from Building Resources Across Communities (BRAC) in Bangladesh. The greatest power of microfinance lies in the process through which it is provided. Women form groups of their own choosing, known as Village Organizations (VOs) to engage with a formal institution; even this process reflects a significant redefinition of a traditionally very patriarchal contract.1 Moreover, staff members, who are of a higher socio-economic status, engage in a very meaningful act simply by going to the doorsteps of these women to The greatest power of do business with them, and seeking their microfinance lies in the help in solving problems; this practice process through which it begins to redefine the relationships within socio-economic hierarchies, and between formal institutions and poor women. In is provided. an institutional environment that is generally exclusionary, uncertain, unpredictable and at times openly hostile to the poor, microfinance staff follow a process that goes like clockwork: rule-bound and almost ritualistic, it opens up the possibility of a new culture of expectation and keeping promises through engagement between the poor and external institutions. For their part, institutions create their own strong foundations as they learn the art and science of managing large-scale microfinance operations. They must engage with the details of developing systems and procedures, understand incentives and the psychology and motivations of staff and clients, and come to grips with the details of developing a performance-driven management culture and system that requires constant vigilance. HARNESSING THE PROCESS CAPITAL OF MICROFINANCE: SOME CASES FROM BRAC The process of providing microfinance thus creates new forms of engagements, relationships and capacities—what we term in this paper the “process capital” of microfinance. Traditionally, innovations in microfinance have focused on its financial domain: developing new products or new management systems or using new technology to increase efficiency. We argue that it is possible to better leverage microfinance structures and processes to facilitate other types of innovations to develop new services for the poor. The poor are a diverse group with diverse livelihoods, needs and potentials. Over time they encounter changes in their personal lifecycles, along with new opportunities and external shocks. The diverse and dynamic reality of poor peoples” lives and livelihoods forms the canvas against which BRAC conceptualizes and designs its repertoire of development programs, of which microfinance is a
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Beyond Lending BRAC: Summary Statistics

Source: BRAC <www.brac.net.> core element. More important for the arguments in this paper, BRAC uses the process capital of microfinance as an entry point to address other constraints and to open up new opportunities for the poor. We provide some examples in this section.

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Fazle Hasan Abed and Imran Matin Developing poultry as a viable enterprise for the poor Traditionally, women in rural Bangladesh have raised poultry, mostly as a subsistence activity and to manage small crises. In 1983, BRAC realized that, in addition to offering access to microfinance it would need to help poor women make more money from the activities in which they were already engaged. Poultry seemed a good place to start and BRAC began a series of consultations with villagers to identify major constraints. High poultry mortality, which villagers often took as unavoidable, emerged as a major issue. BRAC assessed the existing government services and found they were limited in both outreach and effectiveness. At first, it used its own staff members to provide wider poultry vaccination services, but it soon realized that much wider outreach was needed to systematically serve the poultry vaccination needs of a given area. Sustainability was also an issue. BRAC then developed the community-based volunteer approach. The idea is simple. In each village, an appropriate member of the village organization (VO) is trained to vaccinate poultry and treat basic poultry diseases. BRAC bears the costs of training. Trained vaccinators then get a flask to carry the vaccine, a syringe to apply the vaccination, and a bag with the BRAC logo. They buy the vaccine from BRAC or government facilities and sell the service to poultry rearers in the community. To get them started, BRAC gives each vaccinator a small loan. Today BRAC has over 20,000 poultry vaccinators working in villages throughout the country, responding to a very important need of small poultry rearers. Once these volunteers significantly lowered the mortality rate of poultry, another bottleneck was identified: yield. The average yield of local varieties of poultry is 40 to 60 eggs a year, but High Yielding Variety (HYV) poultry yield 250 to 300 eggs a year. The government was the main supplier of HYV chicks, and BRAC bought up most of its supply to distribute among its VO members on a pilot basis. Now, another major constraint emerged. Rearing HYV poultry is different from rearing local varieties; the farmer needs feed, clean water, and basic poultry hygiene. BRAC started training its VO members about these issues so that they could get the maximum yield from rearing HYV poultry. To facilitate feed distribution, BRAC used a model very similar to the one for creating poultry vaccinators. It developed a new cadre called “feed sellers” who were trained to prepare good-quality poultry feed that they could sell to poultry rearers. As HYV poultry rearing expanded, traditional middlemen started exploiting the women who were too isolated to get good information about local market prices. BRAC then developed a cadre of egg collectors, again from its VO membership base. As the women discussed the local market price of eggs every week at their VO meetings, it became harder for the middlemen to exploit them. Milking more Livestock rearing is another popular activity among poor households in Bangladesh; here women also play a key role. Many BRAC members were using their loans to invest in livestock. On average, local breeds can produce 1 to 1.5 liters
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Beyond Lending of milk a day, being milked for 250 days a year, but a 25% improved variety will typically yield 6 to 8 liters a day with a total of 270 milking days in a year. Clearly, improvements in livestock breeding could lead to significant opportunities. In 1985 BRAC piloted an approach similar to its poultry worker model to develop a cadre of workers to artificially inseminate cattle. The government was the main provider of insemination through its 1,100 Livestock Artificial Insemination Centers. Despite their numbers, however, the centers were distant from many of the rural households rearing livestock. This led to two problems: the expense and inconvenience of bringing livestock to these centers, and the problem of timing. A cow is usually in heat for 24 hours, and the optimal “heat period” only lasts about six hours. Due to lack of outreach, many rural livestock rearers did not know about the government services. Moreover, the government facilities relied predominantly on liquid livestock semen which required refrigeration and had to be used within three days. This meant that centers had to be located in areas with electricity and much semen was wasted. Or, if they used out-of-date liquid semen, cows did not conceive. This led to a vicious cycle of dissatisfaction and lower demand. After some research, BRAC developed another approach. Through VO members, it recruited their husbands or male relatives who had a secondary education, and trained them in modern methods of livestock rearing and artificial insemination. Its partners were Bangladesh Agricultural University and Bangladesh Livestock Research Institute, which had excellent technical knowledge in this area. Initially, a few women were trained along with the men, but the work involved traveling long distances on bicycles, and administering the semen. It was more suitable for men. Instead of liquid semen, BRAC used frozen semen which had no expiry date but did need liquid nitrogen for storage. BRAC currently purchases liquid nitrogen from Bangladesh Oxygen Limited and distributes it in cylinders to its 55 Livestock Artificial Insemination Centers across the country. The trained Livestock Artificial Insemination Workers (LAIWs) come to these centers on fixed days of the week to buy the frozen semen. The LAIWs buy a single shot of frozen semen for 70 taka (roughly US $1) and provide on-farm service to the livestock rearers for 100 taka. BRAC provides them with regular training and the basic equipment they need. The average LAIW earns about 2,500 taka a month. The conception rate is over 65% which is higher than the internationally acceptable standard of 50%. Demand is rapidly increasing for the LAIWs’ services, so their income is growing. BRAC used posters, popular theater, and “miking” to publicize the LAIWs’ services and the importance of modern methods of livestock rearing. “Miking” is a very popular way to spread various types of information in Bangladesh, especially in rural areas. A rickshaw, bicycle, or scooter is decorated with posters and a microphone is placed in the front; it is then driven around the villages to make announcements. The microfinance VO meetings and networks are also used to

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Fazle Hasan Abed and Imran Matin inform people about improved breeds and the opportunities they offer. Initially, to facilitate service delivery at the community level, BRAC used “post boxes” placed in villages so that people who needed the service could leave a note. With the massive expansion of cell phones in Bangladesh, BRAC is now providing the LAIWs with loans to buy phones. The name and number of the relevant village LAIW is displayed throughout the village and in the BRAC area office, and is publicized through the microfinance VO network. Getting basic health services to reach the poor Many of the costly health problems faced by the poor can be reduced if basic information and prevention services are available in villages. And illness is a key reason for increased poverty and defaults on microfinance loans. The traditional MFI response to this issue has been insurance, which addresses the demand-side constraint of finance. But the demand side includes other constraints besides finance, such as knowledge of ways to prevent disease, or having the information on services available. Premium payment today for an uncertain event in the future for the poor when there are many other pressing competing needs, also makes insurance uptake by the poor a challenge. BRAC approached this problem by making basic health services available at the community level. Again, the microfinance VO structure played an important role. Appropriate VO members were selected and trained in essential health care. They were then assigned to work areas covering around 300 households each. Within their area they provide basic health information and advice, sell non-prescription medicines for basic illnesses, take pregnant mothers for ante-natal checkups, help mothers to immunize their children at government facilities, and mobilize the community for national immunization day. BRAC’s annual expenditure on training is 285 takas (about $4) per volunteer. The volunteers earn money by selling medicines at retail rates, and by referring people to health facilities. They can average 200 to 250 taka monthly. Making rights real for the poor: BRAC’s Human Rights and Legal Services For the poor, especially women, a crucial constraint is lack of knowledge about their legal rights and difficulties accessing legal services when they need them. Without such knowledge, poor women can lose the few resources they have and become even more vulnerable within the society. Often when Bangladeshi women slide into poverty and dispossession, legal disempowerment is a key element in that slide. BRAC sought a cost-effective mechanism to address this constraint. It started from a promotive perspective, providing human rights and legal education (HRLE) for its members. It trained group members as cadre legal volunteers to provide this training to others. With the help of leading national legal experts, it developed innovative training materials such as flip charts to provide training on basic rights and essential legal issues in the areas of inheritance, marriage and violence against women. Each group member pays the legal volunteer about 15 cents
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Beyond Lending (10 taka) for her services and BRAC pays another 15 cents. To maintain continuity, BRAC formed local Law Implementation Committees (LICs) consisting of the top three learners in an area; they maintain close links with other BRAC members. During 2006, over 10,000 HRLE classes were held for over 200,000 BRAC members. BRAC was well aware that once it took hold, this basic knowledge about rights would lead members to call for more direct legal action to support the poor. Indeed, BRAC soon formed a partnership with two leading legal-aid NGOs in Bangladesh to help BRAC members and other poor in the community resolve their conflicts through alternative dispute resolution. If women need to go to court, BRAC provides legal advice and assistance through a cadre of panel lawyers who are paid a modest honorarium for their services. They provide assistance with issues like polygamy, dowry, dower and maintenance payments, divorce, physical torture, and land-related disputes. As of December 2006, a total of over 42,000 complaints had been made and over 50% were resolved. So far, almost 3,000 cases have been filed in local courts, and over 35% have been resolved. The program has succeeded in obtaining about US $1.2 million in monetary compensation for its members in various cases. The fact that all these cadres of volunteer workers are recruited from the VO members helps in many ways. The VOs are the focus of BRAC’s delivery structure, including microfinance. Typically, a VO consists of 35 to 40 members who are formed into smaller groups of five. This structure provides a ready market for services, arising from the initial access to microfinance. Though most of the volunteers have little education and low socio-economic standing, they are members of the VOs and are trained and certified by BRAC, so their fellow VO members trust their services as they would not trust villagers outside the VOs. Fellow members can also hold them to account for their services more effectively than outsiders could. As their services became established within the secure and controlled environment of the VO, they can then extend them to market beyond the VO membership. INCLUSIVE MICROFINANCE: NEW GROUPS, NEW SERVICES Making microfinance inclusive is the new mantra. The focus, however, is not only on new financial products, but also on designing socio-economic processes that create strategic linkages with microfinance. Because the various hitherto un-served groups face different constraints, they may require a wider set of introductory non-microfinance interventions so they can make the best use of microfinance itself. The key challenges here involve packaging and sequencing. Another is how to develop appropriate incentives and management systems that do not distort the process, but instead create synergies. In this section, we briefly describe several ways that BRAC is challenging itself to make microfinance truly inclusive.

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Fazle Hasan Abed and Imran Matin Building opportunity ladders for the extreme poor BRAC has long realized how hard it is to address the needs of the extreme poor using conventional microfinance. In Bangladesh, where outreach to the poor and the poorest has had the greatest influence in shaping the discourse on microfinance, evidence suggests that about 15% of all microfinance clients are among the very poorest. This is not an insignificant result for BRAC’s outreach, and occurred mainly as microfinance expanded with the support of PKSF (Palli the BRAC has long realized how Karma Sahayak Foundation), and government-sponsored hard it is to address the needs donor-funded wholesale institution. However, work by BRAC’s of the extreme poor using Research Division2 shows that a significant portion of these poorest conventional microfinance. clients tend to be relatively inactive as participants. That is, they borrow far smaller amounts, and do so less frequently, and they tend to have long overdue debts that they cannot repay. Also, unlike most microfinance members, they are more likely to drop out of one MFI and not join another one. All this suggests that the focus of discussion on microfinance and the extreme poor should go beyond their simple membership in MFIs, to examining the quality of their MFI participation and how it can be improved. For BRAC the challenge was to develop cost-effective mechanisms to include the extreme poor in the programs and to move beyond grants. In 1985, the Vulnerable Group Feeding (VGF) program of the World Food Program (WFP) was providing time-bound food assistance to the extreme poor living in vulnerable areas. To implement a new sustainable model for the most vulnerable, BRAC approached the WFP and together the two NGOs designed the Income Generation for Vulnerable Group Development (IGVGD). program to link extremely vulnerable women to mainstream development activities. This initiative organized extremely poor women into groups and provided them with skill development training in sectors, such as poultry, where large-scale self-employment can be created. While the program was operating, these extremely poor women were given a monthly ration of wheat for two years. The program also developed a savings scheme and later provided small amounts of program credit, so that the women could use their training to develop more meaningful and secure livelihoods. The whole program aimed to take systematic advantage of a window of opportunity in the lives of these extremely poor women: While they were receiving food transfers and had some short-term security, it provided support so that the women could stand on more solid ground once the transfer period ended. An independent study by WFP found that through this strategic linkage, more than three quarters of
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Beyond Lending those who received the monthly ration card became regular clients of BRAC’s microfinance program. A CGAP (Consultative Group to Assist the Poor) study found that the average woman in the VGD program received a subsidy of about US $135, which is fairly small, considering that the overwhelming majority of IGVGD women graduated out of their need for continuous handouts. As more of the VGD women graduate to BRAC’s microfinance program and as they improve the quality of their lives, BRAC will likely be able to recoup these subsidies. BRAC’s experiences with IGVGD demonstrated that it is possible to create opportunity ladders out of the safety nets for those who are left behind by conventional microfinance. So BRAC became even bolder, and experimented further with this concept. BRAC noticed that the IGVGD approach helped the great majority of its participants to benefit from regular microfinance programs, but a significant minority still failed to reach this stage. More worryingly, those who failed to “make it” were among the poorest of the poor. They also saw several reasons for this situation. Sometimes, the local representatives selected participants based on political motives and other forms of selfinterest. More importantly, the VGD women often failed to get the full benefits of the window of opportunity that the food transfer provided, because two or more of them tried to share one VGD card. Sometimes, the cards had to be “bought’— which often meant selling the cards, in advance, to wheat dealers to raise the money for the “payment.’’ BRAC felt the need for a program that would give it more control over these processes; it also wanted to design a specific window of opportunity in which the extreme poor (those spending 80% of their income on food, yet not being able to attain 80% of the calorific requirement) could build solid ground and then move forward. In January 2002, to address these challenges, BRAC started a new experimental program, “Challenging the Frontiers of Poverty Reduction: Targeting the Ultra Poor,” or TUP. The program seeks to “push down” the reach of development programs, specifically targeting the ultra poor through a careful methodology that combines participatory approaches with simple survey-based tools. During the period 2002-2006, it worked with 100,000 ultra-poor women. The whole idea behind the CFPR/TUP approach is to enable the ultra poor to develop better options for creating sustainable livelihoods. This requires a combination of approaches; some are promotional, such as asset grants and skills training, and others are protective, such as stipends and health care services. It also means attacking constraints at various levels: within households and in the wider environments of institutions, structures and policies. The CFPR/TUP approach aims to deliver on all these fronts; BRAC hopes that the initial subsidy in this approach, which will be heavier than the IGVGD, will reap benefits by allowing the extreme poor to build a more solid and comprehensive base from which to move ahead. After two years of intensive grant-based support, the members of the innovations / Davos 2008
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Fazle Hasan Abed and Imran Matin CFPR/TUP program form their own microfinance groups. As of December 2006, over 15,000 CFPR/TUP members had formed their own groups as a part of the graduation package. BRAC has disbursed over US $500,000 to these members; their average grant is $38 and they have saved close to $366,000. Microfinance for adolescents: Starting early The proportion of the population in the 15-29 age group is increasing in South Asia, including Bangladesh, due to an interplay between declining fertility rates and population momentum. This segment of the population will constitute the next generation of workers, parents, citizens and leaders. This “youth bulge” is likely to intensify further over the next two to three decades as fertility rates decline more markedly and the momentum in population growth slows. Some see the swelling numbers of young people as a risk. With rising enrollments in primary school, and growing primary completion rates, young people will create enormous pressure at the higher levels of education. A closely related risk is high unemployment and the associated vulnerabilities that it creates for young people and the society at large. Although this is one of the healthiest periods of a person’s life, it can also be a time of taking on risky behaviors that can injure one’s health. Still, these large numbers of young people bring unprecedented opportunities as agents of growth and social change. Along with the “youth bulge” comes a declining dependency ratio which presents a unique window of opportunity. The economic arguments for investing in children and dependent youth have never been better. Microfinance has traditionally focused on married women, usually aged over 25, while education programs typically focus on primary school children. Thus mainstream development efforts generally miss a critical and large part of the lifecycle, as people make their transition from childhood to adolescence and youth. But investing in people during this period of their lives can yield significant development dividends. Adolescence is an extremely vulnerable period, especially for girls in a patriarchal society like Bangladesh. As they reach puberty, many encounter abrupt physical restrictions that they will continue to face throughout their lives. Lack of mobility has far-reaching implications in shaping their mindsets, worldviews, aspirations and confidence levels; these, in turn, adversely affect their decision-making power throughout their lives. To address the particular contextual realities that face adolescent girls in Bangladesh, in 2003 BRAC initiated a special microfinance program for them: Employment and Livelihood for Adolescents (ELA). It aimed to provide ways that adolescent girls could begin to become economically self-reliant; eventually, it hopes to unleash a process of overall empowerment as these adolescents enter adult and family life. ELA offers its group members different kinds of trainings to help them earn an income and develop a savings habit, and it provides access to

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Beyond Lending small loans. As of December 2006, over 272,000 adolescent girls had become members of ELA and formed over 9,000 ELA groups, each consisting of 15 to 20 members. Over 87% of them have taken on a loan averaging US $70. They have saved in total almost $3 million. In addition to helping the adolescents begin their journey in becoming economically self- reliant, ELA has recently begun to develop a social space called ELA Centers, where members can expand their social opportunities, become involved in other groups, and learn to act as social change agents in their home, family and community. Reaching the socially excluded: Microfinance for Commercial Sex Workers For many reasons, commercial sex workers (CSWs) are vulnerable and socially excluded. Their lives, and their livelihoods, tend to be mediated by multiple layers of intermediaries who exploit them in many different ways. But they must rely on these intermediaries to protect them, given that they are so vulnerable, in terms of income and health, as well as socially and politically. Given the global concern over the The basic spirit of spread of HIV and AIDS, various atrisk groups, including CSWs, are microfinance is to search being targeted for different types of for possibilities based on interventions. Generally these interventions aim to increase condom use, knowledge, understanding raise awareness and provide some and perspectives that start treatment of various sexually transmitted diseases and infections, at ground level. though less treatment is available for those with HIV/AIDS. Despite this initial support, they remain very vulnerable economically. In 2004, BRAC started a small project to increase condom use among brothelbased commercial sex workers. BRAC soon recognized much more deeply-rooted constraints behind the low rages of condom usage. It engaged in extensive consultations, and developed a cadre of health volunteers among the commercial sex workers who would provide basic health support and sell a range of health products such as essential non-prescription medicines, condoms, and low-cost sanitary napkins. In addition to these interventions, BRAC also works on the demand side; its awareness-raising activities include video shows, and quiz and popular theatre shows, at the community level and among students of schools and madrassas. At some of the consultation meetings, the CSWs began to mention how much they needed secure futures for themselves and their children. Among the needs they listed were schooling for their children, and safe places to save and to take out loans. This prompted BRAC to start microfinance for CSWs, with a key focus on savings.

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Fazle Hasan Abed and Imran Matin As of December 2006, BRAC had managed to motivate over 50% of the CSWs in the six brothels where it is working to form their own groups to save and borrow. It has disbursed a total of over US $57,000 in loans to the CSW borrowers, with the average loan about $190. The members have been able to save over $16,000 during these years. Bridging the gap with the basic spirit of microfinance: Financing micro and small enterprises The basic spirit of microfinance is to search for possibilities based on knowledge, understanding and perspectives that start at ground level. It is this keen and nuanced understanding that allows those involved in microfinance to select clients, segment markets, enforce loan contracts, manage loan repayment problems, and make everyday decisions. A good microfinance staff member has to be a barefoot economist, a sociologist, and a psychologist, all at once. When staff members can take this incrementally accumulated sense of life on the ground, with all its twists and turns, and combine it with the arts and sciences of management structures and incentives, they can facilitate successful scaling-up operations. This kind of spirit, and the organizational culture that nurtures and sustains it, is critically important in breaking into new market segments, especially when the segment is informal and unknown, like the micro and small enterprise market segment. Most of the micro and small entrepreneurs operate in the market’s informal segment, and lack the kinds of formal documentation that conventional financial institutions typically use for appraisals. These entrepreneurs have little or no access to traditional mechanisms of loan enforcement. Anyone appraising the potential to grow and repay loans has to take the person’s financial abilities into account using innovative means, but must also take on social tasks that conventional bank representatives are often not suited to do well. BRAC realized that a sizable portion of its existing microfinance clients were entrepreneurial enough to handle larger loans and grow their businesses; it also saw a large unserved market consisting of micro and small entrepreneurs. It knew that growth in this segment of the market was important for generating employment, which would lead to local economic growth. So, in 1996, it initiated Microenterprise Lending Assistance (MELA), a special lending program for micro and small entrepreneurs. As BRAC gained experience with the needs of that market and learned to manage its program more efficiently, it divided the MELA program into two segments: UNNOTI (meaning development) with loans ranging from US $215 to $715, and PROGOTI (meaning progress) with loans ranging from $715 to $4285. Like those in DABI (Daridro Bimochon—“Poverty Alleviation” in Bangla), BRAC’s core microfinance program, UNNOTI clients must form groups and attend meetings to take on loans, while PROGOTI clients are served individually. To receive loans, PROGOTI clients must open a bank account; however, UNNOTI clients only need a passbook for their transactions with BRAC.

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Beyond Lending As of December 2006 the UNNOTI program had almost 550,000 members, who had borrowed over US $180 million in loans averaging $250. Another 343,000 entrepreneurs are borrowing from BRAC’s PROGOTI Program in loans averaging over $1,000. Transfer at the doorstep: Remittance partnership International remittances have been creating a silent revolution in Bangladesh. According to Bangladesh Bank statistics, in 2005, the country received over $3 billion in international remittances, which grew by over 14% a year between 2000 and 2005. The importance of such a huge flow of foreign exchange at various levels of the economy is not difficult to understand. People use various methods to The current discourse on send remittances. A study by RMMRU found that 46% of the total microfinance, with its volume of remittances was chanexclusive focus on neled through official sources, around 40% through hundi or unofinnovations in financial ficial channels, and 6% through products, is important. But friends and relatives. The remaining 8% was hand-carried by migrant we see great scope for workers coming home on visits. further innovations, if we Most of the remittance flow is irregular, coming 3 to 4 times a year. On take a broader perspective average, transfers sent through offion microfinance. cial channels cost almost $2 at the receiving end, but those sent unofficially cost about $1. With official transactions, people had to wait 12.83 days on average to receive cash after they deposited the draft in the bank, while it took only 3 days after they got information about the transfer when remitting money through the unofficial channel Clearly, there is great room for improvement at the receiving end, in terms of cost, convenience and speed of transfer through official channels. For providers of official remittances, a major constraint is their lack of an outreach network, especially in the rural areas, home to a large majority of those who receive the remittances. This is where microfinance institutions like BRAC, with its network of over 2,000 rural branches, can play a significant role, and it has now partnered with BRAC Bank, a full-service commercial bank. As Bangladesh has no official identification system, one key problem is identifying the beneficiary, which increases transaction costs for both the financial institution and the beneficiary. But BRAC could use its local knowledge; it carried out a survey to register close to 100,000 beneficiaries, providing them with a registration card, unique registration number, innovations / Davos 2008

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Fazle Hasan Abed and Imran Matin and remittance passbook. Through an intranet, the BRAC Bank Head Office in Dhaka is connected with all the branch offices; it can send transfer advice to the relevant branch office overnight. The registered beneficiary comes to the branch office with card and passbook, fills in a withdrawal slip, and gets the money within minutes. For each transaction, BRAC Bank sends BRAC a service charge of 175 taka (a bit over $2). BRAC Bank processes close to 35,000 remittance transactions every month, largely through this innovative partnership with BRAC. Although BRAC Bank is a very new entrant into this market, it already has an overall remittance market share of 4% and has been able to capture 35% of the remittances to Bangladesh that had been routed through Western Union. This partnership is not only about providing convenience, speed and low-cost transfers. To discourage people from using hundi, (because the money is unaccounted for, it can be used to finance drug business, terrorism etc.), BRAC Bank is using the popular theatre program of its Social Development Program, which runs over 29,000 popular theatre shows every year in the nation’s villages. A study by International Organization for Migration, having looked into the patterns of remittance use in Bangladesh, sees several factors that constrain the further investment of remittances in productive sectors. They are primarily areas where the country lacks resources. For example, Bangladesh has few resources for promoting information, advice, training and other services relating to investment in new and potentially successful sectors. It also has few ideas about investment opportunities, and those receiving remittances have little expertise in running businesses. If some of these constraints can be alleviated, conditions will improve for all parties involved, including the financial institutions involved in the remittance business. Then, larger remittances can flow more regularly and those who receive them will be more interested in other financial products. With this in mind, the BRAC Bank, in partnership with BRAC, is developing new products; one is Probashi DPS, a special deposit pension scheme for Bangladeshis working abroad. BRAC is also encouraging the registered beneficiaries among its members to open savings accounts and take out loans to start enterprises. BRAC Bank is encouraging the beneficiaries to consider taking out SME loans against the savings from remittances. BRAC Bank is also offering insurance, against accidents and disability, which pays out up to US $1,400. The policy is simple: it is valid as long as the remitter commits to making at least one transaction in 65 days. NEEDED: A BOLDER MICROFINANCE VISION Globally, given the huge un-served and under-served demand for microfinance and the lack of solid institutions, another large unfinished agenda exists: to ensure that the largest number of poor people can have reliable and reasonably priced access to different kinds of financial services. But we must also find innovative ways of doing more.
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Beyond Lending What we have argued in this paper is that the process of microfinancing, through social intermediation, creates valuable forms of capital that remain largely untapped. From BRAC’s experiences, we have provided some examples of how the process capital of microfinancing can be harnessed to address other constraints that the poor face in their fight against poverty. New forms of exchanges are created, along with new forms of service-based employment, and poor people adopt new techniques that bring their enterprises larger returns. Decisions on how to implement these programs—should they be run by one single institution or a partnership, and how should they be sequenced—will depend on institutional characteristics, incentive structures and other contextual variables. In this paper, our purpose is not to prescribe, but rather to draw attention to the possibilities of using the microfinance structure and processes in bolder and more innovative ways. The current discourse on microfinance, with its exclusive focus on innovations in financial products, is important. But we see great scope for further innovations, if we take a broader perspective on microfinance, especially with respect to its process capital. Microfinance is certainly not a silver bullet, but it does have great power and possibilities. By broadening our current imagining of microfinance, we can harness it more fully and thus do far more to alleviate poverty.
1. The village organizations are the gateways and nucleus of all BRAC development activities. Typically, a VO consists of 30 women and is a federation of small 5-member groups. Each small group has a group leader and the VO members will nominate one of them to be the VO chairperson. The VO will also have a treasurer. Currently BRAC has over 170,000 VOs all over Bangladesh. 2. BRAC since its beginning has paid serious attention to evidence leading it to set up its own inhouse Research and Evaluation Division in 1975. This Division has over the years played a significant role in evaluating BRAC’s development programmes and identifying gaps for improvement. A number of new BRAC programmes, such as its special Program for the ultra poor, emerged out of research and evaluation. For more about BRAC’s Research and Evaluation Division, see <www.bracresearch.org>.

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Martin Fisher

Income Is Development
KickStart’s Pumps Help Kenyan Farmers Transition to a Cash Economy
Innovations Case Narrative: KickStart
Within less than a generation, poor families in Africa have been thrown from essentially a subsistence lifestyle into a primarily cash-based economy. Ability to earn an income is suddenly a paramount skill. Yet approaches to encouraging development continue to be based on the assumption that the primary need of people in poor places is something other than a way to make money—better healthcare, education, water, housing, and so forth. This is misguided. Providing these will not end poverty. In a cash economy, money is the primary means to securing other vital resources. Except in a few very remote areas of the world, if you ask a person in a poor place what they need most, they will tell you that it is a way to make more money. The way to address the challenge of persistent poverty is to create sustainable income-earning opportunities for millions of people. Income is development. I am the co-founder of KickStart, a nonprofit social enterprise that has for the past fifteen years employed design principles to address the poverty challenge in Kenya and Tanzania. KickStart designs and markets low-cost pumps and other capital equipment that have been used by thousands of farmers to establish highly profitable commercial enterprises. This market-based approach to development “kick-starts” a sustainable cycle of wealth creation, brings poor people into the middle class, and eradicates the effects of poverty from the ground up. KickStart’s best-selling tools are foot-powered irrigation pumps that enable poor farmers to switch from subsistence to commercial irrigated farming. With Martin Fisher is the co-founder and CEO of KickStart (formerly ApproTEC), an organization whose mission is to promote sustainable economic growth and employment creation in Kenya and other countries by developing and promoting technologies that can be used by dynamic entrepreneurs to establish and run profitable smallscale enterprises. This case narrative originally appeared in the inaugural issue of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Martin Fisher as an Outstanding Social Entrepreneur. © 2006 Tagore LLC innovations / Davos 2008

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Martin Fisher irrigation, entrepreneurial farmers can grow three or four crops of high-value crops per year, greatly increase their yields, and harvest the crops in the off-season, when the prices are highest. The average net farm income of farmers who use our pumps increases by a factor of ten—from $110 to $1,100 per year. In Africa this is a lot of money. For the first time they can afford to properly feed and educate their children, pay for healthcare and plan for their futures. To date, over 40,000 smallscale farmers and entrepreneurs in Africa are using KickStart’s pumps and other technologies to run profitable small businesses. Between them they generate over $40 million per year in new profits and wages, and total revenues equivalent to over 0.5% of the GDP in Kenya, and 0.2% of the GDP in Tanzania. THE UNFULFILLED PROMISE OF “APPROPRIATE TECHNOLOGY” As a doctoral student in mechanical engineering in the early 1980s reading E.F. Schumacher’s 1973 classic, Small is Beautiful, I came to believe—as many others elsewhere had—that the widespread introduction of small-scale, locally made, labor-intensive technologies in poor rural villages was going to save the world. In 1985 I applied for, and was awarded, a Fulbright Scholarship to travel to Kenya with the objective of studying the “appropriate technology” movement, as it was termed, in action. Much to my dismay, my first finding was that the appropriate technology movement was essentially dead. Time and again I was told, “We spent a lot of money on that and it didn’t work.” As an engineer I had a hard time believing that there was no place for technology in development. But clearly I still had a lot to learn. A few months after I arrived I found a small group who were working at the British charity ActionAid to develop low-cost building materials and train local artisans to use them to build high-quality local schools. There, I met Nick Moon, a skilled carpenter and entrepreneur and my future business partner and cofounder of KickStart. Nick and I worked together at ActionAid for the next five years. ActionAid believed in “integrated rural development.” They poured millions of dollars of assistance into limited geographic areas in the poorest parts of Kenya, and our efforts were a part of this approach. Among many other projects, we established a large rural water scheme that built community-owned wells, dams, and other innovative water sources in poor villages. We built and ran a rural workshop to manufacture low-cost ploughs and carts that we donated to poor farmers. I designed new machines for making low-cost building materials and we donated them to youth groups to establish small businesses. And we trained dozens of local carpenters to manufacture their own wooden carpentry tools. However, Nick and I became increasingly disillusioned about the lack of sustainable impacts that we and other development agencies were having on poverty. We were spending large amounts of resources on poor communities, donating infrastructure, tools and equipment, providing training and education and using state-of-the-art community organizing and planning methods. Nonetheless, the
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Income Is Development water sources we built would fall into disrepair after a few years of use; youth groups we trained to start productive enterprises would fall apart because they were not cohesive or entrepreneurial; our manufacturing workOf the 1.1 billion people who live shop competed unfairly with local businesses, on less than $1 per day worldwide, and when the project fully 70% are small-scale rural ended, our improved farm equipment was no farmers who are trying to scrape longer available. The carout an existence on an acre or so penters didn’t use the tools we trained them to of unproductive land. make because they preferred modern-day equipment. While we built dozens of school classrooms using new low-cost building materials, the new materials were no longer locally available after we left town. No doubt we were teaching the local communities how to manage a large amount of development aid, but it was much less clear if we were having any lasting impacts on poverty— or if we were simply making the local people less self-sufficient and more dependent on our aid. After five years of learning by doing, learning from our own mistakes, and learning from the successes and failures of others, Nick and I decided we were ready to try to do things differently. RE-THINKING THE CHALLENGE OF PERSISTENT POVERTY: FROM ONE MEANING OF “APPROPRIATE” TO ANOTHER Finding an alternate way forward meant rethinking the poverty problem from its fundamentals. First, we would not focus on the urban poor. Why? Of the 1.1 billion people who live on less than $1 per day worldwide, fully 70% are small-scale rural farmers who are trying to scrape out an existence on an acre or so of unproductive land. In sub-Saharan Africa—despite the more visible shocking conditions in the urban slums—over 80% of the poor are rural farmers. Five years in Kenya had been long enough to make us aware also of the extraordinary physical isolation of these rural farmers. The few roads that exist are potholed dirt tracks that often become un-navigable after a heavy rain. The average poor farmer does not own a bicycle (much less a motorbike or a car) and lives miles from the nearest road. Farmers and their families have no addresses, no electricity, and no telephones. They often only come to their closest marketplace—a small village with a couple of almost-bare-shelved shops and an empty plot where farmers can sit on the ground and hawk their produce—a few times a month and to a bigger town only a few times a year. Their primary contact with the outside innovations / Davos 2008

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Martin Fisher world comes when they see a newspaper or listen to a radio—most often owned by a better-off neighbor. They have limited access to markets or information and very few distribution and marketing channels can be used to reach them. Sickness is a constant fact of life. Education is a route out of poverty. So families that get beyond subsistence typically seek to educate their children and gain access to curative healthcare. Wealthier families can purchase basic furniture, lighting at night (from a candle or kerosene lamp), soap to wash with, chickens or a cow to improve their diet, basic cosmetics, and better clothes to wear. The relatively rich in rural areas of East Africa will have access to transport and communication, a lead acid battery for lights, a radio for information and entertainment, and potentially a small black and white TV. All of these things cost money. Farmers can no longer grow enough food for their family on their small plots of land, and no longer hunt for food and skins, or gather building materials from a local forest. And despite attempts by governments to provide education and healthcare, the poor must still pay for school uniThe mantra of “give it away” forms, books, and even creates completely inappropriate teachers, and for drugs and advice at local pharincentives, leading to patronage macies or clinics. Many and dependency, instead of selfmust buy cooking fuel and all have to pay for sufficiency and entrepreneurship. clothing, soap, lighting, cosmetics, transport, and communication. In fact— like other people in poor rural regions elsewhere in the world—they are being compelled to make the transition from subsistence to a cash economy. This is a major change—one at least as profound as the fall of the Berlin Wall. Indeed, the two transitions are related. During the Cold War, African governments received enough aid to provide free education and healthcare and to highly subsidize the cost of basic commodities such as maize and cooking oil. Farms were bigger—populations have grown rapidly and farms have been divided with every new generation—and poor families could grow enough to eat, collect building materials and fuel in the forest, sell a small portion of their grain to buy subsidized cooking oil and school uniforms for their children, and survive to live another year. But with the end of the Cold War aid to Africa has decreased ten-fold and subsistence lifestyles have became virtually impossible. Governments no longer provide free health care and education, and the prices of essential commodities have been decontrolled; in Kenya, for example, cooking oil doubled in price when it was decontrolled in 1992. In this context we undertook to evaluate the appropriate technology movement, in which millions of dollars had been invested with few notable successes. In the course of drafting a detailed plan for our new venture, Nick and I came
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Income Is Development to the conclusion that, to begin with, the appropriate technology movement placed too great an emphasis on time- and labor-saving technologies. These are inappropriate for the rural poor, who typically have a surplus of both time and labor and have a very low opportunity cost for their time. They are also unlikely to spend much money on “money saving” devices such as fuel-efficient charcoal stoves and solar lighting because they lack the spare cash. As a rule of thumb, unless credit can be offered, money-saving products for the very poor should cost less than the local price of a chicken—a luxury that even a very poor family can usually afford to eat once a year. We noted that in many cases the appropriate technology movement had promoted to the poor, products designed to address global problems rather than ones designed to create individual opportunities. Solar cookers are an example. For the many years these have been promoted in Africa the arguments have always been the same: we want to save the forests from being cut down by families collecting firewood or making charcoal, solve global warming, and save poor women from spending many hours collecting firewood. Instead, we want poor families to buy an expensive new cooker that does not cook food in the way they like eating it, and they will have to do all their cooking in the middle of the day, when the sun is shining, instead of in the evening, when they traditionally eat their biggest meal. It is not very hard to understand why solar cookers don’t sell. (After all, even wealthy Americans won’t spend money on fuel-efficient technologies just to save the world.) Nonetheless millions of dollars continue to be spent on promoting solar cookers with almost no sustainable impacts.1 We observed that the appropriate technology movement had been imbued with a socialist philosophy in favor of community ownership and against personal property, money, and business. Group ownership—devoid of accountability for those who don’t contribute and reward for those who do—fails. And when economics is ignored people promote technologies that make no economic sense— such as making cooking oil from peanuts when the peanuts are worth much more as a food source than they are as cooking oil. Selling things, middlemen, and profit motives were considered crass and inequitable so they were replaced by unsustainable calls to help each other and give things away for the common good. Women’s and youth groups and other NGO favorites were targeted for technology training and dissemination. These groups are all too often externally imposed, artificially built, and not sustainable. While group formation is useful for some collective activities—such as fixing roads, or getting together to increase marketing power or access to credit—group ownership and management of a small-scale productive technology has generally not worked well. “Community ownership” is an even less likely model. The mantra of “give it away” creates completely inappropriate incentives, leading to patronage and dependency, instead of self-sufficiency and entrepreneurship. The appropriate technology movement had erred in focusing on self-built technologies, such as mud stoves. This romantic notion is misplaced. Such an approach is highly inefficient and results in poor-quality, often worthless products. innovations / Davos 2008
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Martin Fisher The readers of this journal are not asked to build their own computers, cars or watches; why, then, should we try to train poor people to design and build their own tools? Nor can high-quality machines and tools be produced in very smallscale, undercapitalized, under-skilled, local workshops. They must be mass-produced in medium-to large-scale production units, using well-designed production tooling (jigs and fixtures), efficient production methods, and skilled technicians. These production units must be highly motivated to keep the quality up and the prices down. Hence they must be private-sector factories and they have to make a good margin on manufacturing the new technologies. Sometimes NGO workshops and training schools were used to manufacture the new machines and tools but these are not set up to do high-quality, low-cost manufacturing—and they rarely ever did. Finally, appropriate technology efforts followed the wrong dissemination strategies. At first, appropriate technology ideas were spread by running expensive training courses for people in the local communities and expecting them to manufacture and use the new technologies. When this didn’t work well NGO and donor-run appropriate technology centers were established where local people could see the technologies and learn how to make or use them. When this failed to produce results the movement published hundreds of books and manuals on how to build and use appropriate technologies. Almost nobody used private-sector manufacturing, distribution and marketing channels to produce, market, and sell the technologies—so even if people saw the technologies at a demo center or in a book they had no way to actually get hold of them. The challenge as we saw it was to embrace both meanings of “appropriate”: not only designing technologies “appropriate” to the poor, but also designing technologies that people in poor places could themselves appropriate and use to advance their own ends. FINDING OPPORTUNITY IN LATRINE PITS: KICKSTART’S ORIGIN In mid-1991 Nick and I left ActionAid to establish ApproTEC (Appropriate Technologies for Enterprise Creation), which later became KickStart. We teamed up with ApT, a British NGO, and were awarded a matching grant from DFID (the British Department for International Development) to establish ApproTEC as a Kenyan non profit. We left our jobs at ActionAid and initially worked without salaries and used our donated time as a match for the British money so that we could start our operations. But with no other incomes we could not yet claim the full match. We decided to use a market-based model in which we would sell our new technologies directly to local entrepreneurs. We would identify profitable business models that thousands of people could start; design the tools and equipment needed to make these businesses possible; and most importantly, establish a privatesector supply chain to manufacture, distribute, and sell the new tools and equipment to the entrepreneurs. We would create awareness of the new business mod34

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Income Is Development els and equipment with a mass-marketing campaign and sell them to poor entrepreneurs, who would use them to start thousands of profitable new businesses. Finally we would leave in place a fully profitable and sustainable supply chain that would continue to deliver the tools and equipment even after we left town. We quickly discovered that having a well-thought-out theory of change and business model was one thing; establishing a successful social enterprise was quite another challenge. A distant crisis created an opportunity. In 1992-1993 the Somali civil war pushed 350,000 refugees over the border into North Eastern Kenya. The United Nations High Commission on Refugees (UNHCR) contacted us with a problem: Sanitation had become a crisis at the refugee camps because, for cultural reasons, the Somalis refused to use communal toilets. We developed a very low-cost pit latrine technology that could be mass-produced by unskilled refugees so that each refugee family would have their own latrine. These latrines had unreinforced domed concrete slabs with tight-fitting lids, which were more sanitary and much less costly than the commonly used reinforced concrete latrine slabs. KickStart became a UNHCR implementing partner and secured a multi-million-dollar contract to manufacture and install over 45,000 of these latrines over a two-year period. We later trained other relief agencies in the technology and today over 100,000 of our pit latrines have been installed in refugee camps and half a million refugees have better sanitation and health. But, we had done nothing to help them escape their poverty. So to continue working on our mission we used the 6.5% overhead on the UNHCR contract to match our DFID grant and continue to operate KickStart. We were now on our way. At first we promoted the low-cost building technologies I had designed while at ActionAid. Our main products were a block press for making strong building blocks from soil with a small amount of cement, and a fiber concrete roofing tile machine for making lightweight and strong roofing tiles. While these two technologies were bought by local entrepreneurs and used to establish many profitable businesses, the machinery was fairly expensive and the businesses somewhat complicated. One successful entrepreneur was Mr. Ombati, a small-scale farmer who bought a block press in the early 1990s and started making blocks on his small plot in Western Kenya. He expanded his business, bought three more machines, employed over 40 workers, and today he owns a local shopping mall in Nairobi. The right technology in the hands of an entrepreneur is a powerful force. We next turned our attention to a manually operated oilseed press and filter that extracts nutritious cooking oil and high-quality animal feed from locally available sunflower seeds. The design was based on an invention by Carl Bielenberg, an American engineer working in Tanzania. We made modifications to make the press easier to operate, and manufacture, and increase the yields of oil. After the Kenyan government decontrolled the price of cooking oil in 1992-3, the price of the imported palm oil shot up and this innovation became a viable and profitable business opportunity for local entrepreneurs. Jane Mathendu, for example, a single mother and school teacher, bought the press with her savings and a innovations / Davos 2008
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Martin Fisher Irrigation for Improved Health The link between water for irrigation and improved health may seem tenuous at first. However, the increased incomes enable families to afford better nutrition and more preventative and curative healthcare. In addition small-scale irrigation has other, less obvious, but equally important impacts on health. The World Bank and WHO estimate that 4 billion cases of diarrheal diseases kill more than 2 million people each year, the majority of them children. Having enough water to wash hands after using the latrine may be the single most important intervention in improving health in developing countries. Improved hygiene (hand washing) and sanitation (latrines) have more impact than drinking water quality on health outcomes, specifically reductions in diarrhea, parasitic infections, morbidity and mortality, and increases in child growth (Esrey et al. 1991; Hutley et al. 1997). Most endemic diarrhea is not water-borne, but transmitted from person to person by poor hygiene practices, so an increase in the quantity of water has a greater health impact than improved water quality because it makes it possible (or at least more feasible) for people to adopt safe hygiene behaviors (Esrey et al. 1996). It is estimated that hand washing alone can save 1 million people a year, but those who must carry water from a village source do not have enough to facilitate good hygiene. And even clean water from a source in the village is easily contaminated by unwashed hands. Creating a new water source for hygiene alone is too expensive for a poor farmer, but by using the water for irrigation (which makes them a lot of money) they can afford to buy a pump and dig a well next to their house, and this results in much more water for hygiene as well.

loan from her brother. She has now sent her two daughters to university and bought her own plot of land. She employs three workers, sells oil to a local school and hospital, and contracts with 20 local farmers to supply her with seeds. While we were happy with these successes we soon realized that if we were going to have a major impact on poverty we had to focus on new business opportunities for poor rural farmers. For them, by far the best business to start was one that would move them from subsistence rain-fed farming to commercial irrigated farming. Irrigation allows farmers to grow three or four crop cycles per year instead of the one or two possible with rain-fed agriculture. It enables them to grow highvalue crops such as fruits and vegetables and get higher yields per acre. Best of all, with irrigation, farmers have crops in the off-season when the supply is low and the prices are high. Of course in order to use irrigation a farmer needs access to water on his or her farm. Not surprisingly, throughout history people have settled most heavily in those areas where surface and ground water is most available. So many millions of

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Income Is Development farmers in Africa have access to water on their small plots. Unless they live next to a pond or river they have to dig a well to reach this water, but many can simply dig a hole in the ground and find water within the first 10 to 12 feet. Others have to dig a bit deeper, and they can hire local well diggers who can hand dig wells as deep as 60 or 70 feet. Even farmers who don’t have water directly on their plots can often lease close-by land that does, or create catchments to catch rainwater. Wealthy, large-scale farmers know about the benefits of irrigation, and in Kenya they use fancy irrigation equipment to make as much as $3,000 profit per season per acre. But until recently no affordable or practical technologies were available for poor subsistence farmers. Petrol pumps are too [W]e have sold over 59,000 irrigation expensive, and the petrol is unavailable pumps and other money-making in the rural areas. technologies. They have been used to Electric pumps are cheaper, but less than establish over 40,000 profitable new 10% of the populabusinesses... [T]he new businesses tion in Africa has access to grid elecgenerate over US$40 million per year tricity, and solar in new profits and wages. electricity is still far too costly. For poor farmers, the only remaining option was to tie a bucket to a rope and use it to draw water from a stream or shallow well, the most primitive form of manual irrigation. This is backbreaking work, and two people can only irrigate about 1/8 of an acre per day. Clearly a new technology was required. In 1985 American engineer Gunnar Barnes invented a treadle-operated microirrigation pump in Bangladesh. Two metal cylinders are fixed above a shallow tube well and the farmer builds a bamboo structure and attaches a piston to each of two bamboo treadles. The operator steps back and forth between the treadles, pulling water from the well and dumping it into an irrigation channel that distributes it to the crops. Bangladeshis, who live on a flat flood plain and have used channel irrigation for generations, could now get a second harvest of rice or wheat in the dry season. International Development Enterprises (IDE), a U.S. non profit, followed a market-based approach to manufacture and sell treadle pumps in Bangladesh and India, with incredible success. In less than twenty years over 2 million pumps were sold and on average each pump has generated $100 per year in new net income for the users. In 1990-91 we designed a new version of the treadle pump for East Africa. Unlike Bangladesh, Kenya is very hilly, and farmers are not familiar with channel irrigation, or in fact any other type of irrigation. In addition, pumps cannot be innovations / Davos 2008
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Martin Fisher safely left in the field. So we designed a portable pump that could both pull water from a stream or shallow well and pressurize it through a hose pipe to push it up a hill or through a sprinkler system. However, the pump was heavy and bulky to carry, and KickStart had not yet established an efficient supply chain for our technologies. We only sold a few hundred pumps. In 1995 Bob Hyde, an American former marketing executive, joined KickStart and convinced us that while we had identified the right business opportunity, we had not yet designed the ideal technology. For cost-effective distribution and mass marketing we needed a much smaller, lighter-weight irrigation pump. Bob also helped us greatly improve our distribution, sales, and marketing functions. In the following years we developed and marketed a line of low-cost manually operated irrigation pumps. Our first pump was a small portable suction-only pump that could pull water from a shallow well and dump it into a channel for furrow or flood irrigation. But clearly in Kenya a pressure pump was going to sell much better. So we developed the “Super-MoneyMaker” irrigation pump. Its name gets right to the point. This small, portable “stair-master-like” machine has both suction and pressure capabilities. It can pull water from a hand-dug well as deep as 25 feet—or from a pond, lake, or stream—and can pressurize it to a total height of 50 feet above the water inlet. It can push water through a hose pipe as far as 400 meters, spay it through a hand-held nozzle or sprinklers and can be used to irrigate as much as 2 acres of land. The pump weighs 45 pounds and is easily carried to the farm and from one spot to another for irrigating wider areas. It retails in Kenya for $95. It enables farmers to grow multiple harvests of high-value cash crops such as fruits, vegetables, and flowers. The economic and social impacts of this technology have been remarkable. The average net farm income of farmers using this pump has increased ten-fold from US$110 per year before buying the pump to US$1,100 per year after buying it. The pump literally lifts farmers from poverty into the middle class. For example, Janet Ondiek was widowed in 1999 and left completely destitute on a two-acre plot of land in Western Kenya with her 6 young children. With no income, she was forced to take her children out of school and beg from her relatives just to survive. But she grew a small plot of cabbages using a bucket to draw water from the stream running through her property. One day, while selling her cabbages in town, she saw our pump being demonstrated in a local shop. After working six months to save money, and taking a small loan from her sister, she bought the pump. Within the first year, she repaid her loan, employed two young men to help her irrigate, planted a full two acres with cabbages, kales, and tomatoes, and opened a small shop to sell her produce in the local town. She made $3,200 profit in her first year and was able to send her kids to a private school. When we visited her a few years later she had rented additional land and employed four young men to help her in the fields. We have since introduced the MoneyMaker-Plus—a single-cylinder version of the more expensive Super-MoneyMaker—that retails for $55 and can irrigate one acre. We are test-marketing a very low-cost pump called the MoneyMaker-Hip
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Income Is Development Lessons Learned: What Works Many technology development and promotion projects have gotten a number of the following lessons right. However, only those that have gotten them all right have created significant impacts on poverty: The number one need of the poor is a way to make money. The time of subsistence economies is over. To assist people anywhere you have to understand their circumstances. In our business as in any other, we need to understand our customers’ circumstances and what they need to change those circumstances for the better. We need to provide them with what they need to make their own choices—a way to make money— not what we think they should have. There are no jobs. Developing countries have very small private sectors—and until these countries improve their governance, the private sectors will grow only slowly. The solution is in the people’s drive and determination. The rise of the informal sector shows that poor people in developing countries are willing to start their own businesses. People in poor places need money-making business models and technologies. With little access to information on business models and very few affordable capital tools, the rural poor lack the opportunity to start profitable businesses. Technology is important for job creation and economic growth. New technologies can open up whole new productive and value-adding industries—and growth on this scale is what is needed to eradicate poverty. Micro-finance is very useful but is not enough. Small loans—without sound business models and the technologies to run them—will not by themselves end poverty. Pairing credit with business models and capital equipment will increase the benefits of both. Entrepreneurs in poor places need high-quality technologies and designs. People are investing significant money. Products must perform as promised and last a long time. People need to know about and be able to access the new business models and technologies. Marketing to isolated people in poor places is a large challenge—but is just as important as creating the technologies. Sell the technologies, don’t give them away. Those who buy tools are more likely to use them than those who receive them for free. This is true anywhere. Do high-quality mass production in medium-or large-sized factories. Only these facilities can provide the economies of scale or the consistent quality needed Establish a private-sector profit-making supply chain. This is the most efficient way of delivering goods and services. It endures only when the work is profitable for all. Target individuals, not groups and communities. In general, groups don’t do a good job of sharing and maintaining a productive asset. People in poor places are like people anywhere else: they will take care of their own families’ needs before they will commit themselves to efforts to better their communities. innovations / Davos 2008
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Martin Fisher Pump, which can irrigate up to 3/4 acre. But our mission is not to design or sell pumps. Our mission is help people escape poverty. What sets KickStart apart is that from the beginning we knew that we wanted to measure the direct impacts we were having on poverty. So we created an innovative system to carefully track and quantify the individual and aggregate impacts created by our technologies. That system is described in more detail below. The impacts have been substantial. To date, we have sold over 59,000 irrigation pumps and other money-making technologies. They have been used to establish over 40,000 profitable new businesses; and currently almost 700 new businesses are being created every month. On aggregate, the new businesses generate over US$40 million per year in new profits and wages. Beyond the immediate income growth there are many other socio-economic benefits. Pump owners have created over 22,000 new waged jobs and have increased their expenditure on other farm inputs—such as seeds and fertilizers— by as much as 2000%. Middlemen buy the produce and sell it to vendors, who resell it at markets in the city, or to exporters, who clean, pack and label it for export. Other pump owners grow seedlings that they sell to local farmers. Some 30% of the pumps are lent out by their owners to even poorer family members or neighbors, who use them on their own small farms. The new incomes enable the users to afford better nutrition, education, health care and housing for their families, and for the first time to climb out of poverty and plan for their futures. More than 50,000 children are either in school for the first time or in improved schools as a result of our work. And over 5,000 pump buyers have used their new incomes to build new or improved houses. In addition, our pumps enable families to improve their hygiene and sanitation. Because they make money by irrigating they can now afford to dig a well on their plots of land. Thus the pump gives them not only enough water for irrigation but also plenty of extra for increased home consumption and hygiene. Between 1995 and 1999 our efforts were gaining traction in Kenya. We were starting to create significant impacts on poverty while at the same time working to continually refine both our tools and our model. By 2000 it was time to prove that our model was replicable in a new location. We decided to start a program in Tanzania—a country even poorer than Kenya and one with a socialist and much less entrepreneurial history. With funds from British DFID, we established an irrigation pump manufacturing, wholesale, and retail network in Tanzania, and to date we have sold more than 14,000 pumps there. In 2005 we raised funds from USAID to start a similar program in Mali in West Africa. We have proven that our intervention works on the individual level, with 40,000 new businesses generating over $40 million in new profits and wages each year. We have also shown that it is highly cost-effective and can be replicated successfully in other countries. We are now on our way to proving the long-term sustainability of our model.

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Income Is Development THE BUSINESS MODEL: HARNESSING ENTREPRENEURIAL SPIRIT Nick and I built KickStart based on a set of basic learned truths (see box at right), learned from which we developed a systematic five-step model: identify profitable business opportunities; design tools and equipment to make those business opportunities possible; establish a profitable supply chain; develop the market; and end subsidies and leave in place a profitable private-sector supply chain. Surrounding this model is an ongoing impact-monitoring effort that not only measures our results against the goal of moving people out of poverty, but also provides critical market intelligence and feedback for improving each step of the process. Step 1: Identify Profitable New Business Opportunities Selecting the right business model is the most critical factor in determining the likely success of a new business. We use sub-sector and market studies to examine a particular sub-sector (horticulture, building materials, animal feeds, transport, etc.), and we look at the economics of the entire value chain to identify possible new “technology-based” business opportunities. We look for business opportunities that many thousands of people can start with initial investments of no more than a few hundred dollars, and that are so profitable that entrepreneurs will recover their investment in the first three to six months (“farm time”). Poor farmers are used to putting their money in the ground for short periods while they wait for the harvest, but a pay-back time of one to two years will be unacceptable. What types of businesses can a poor person start? It is easiest to start a business that initially sells products or services to neighbors or in the local village. So at least initially, the new businesses must serve the needs of other poor people. However, it turns out that there are many opportunities because the poor generally pay high per-unit prices for low-quality products and services—food, farm inputs, fuel, water, clothes, building materials, transport, lighting, cosmetics, electricity and even entertainment, education, and healthcare. Thus, the new businesses must supply more affordable goods and services to local poor customers. As the businesses grow and the entrepreneurs become more experienced they can expand their market to include the local town and then can start selling to middlemen who sell in the local city and even to export markets. Step 2: Design Equipment KickStart focuses solely on technologies that are directly used to create income. Designing tools and bringing them to production is our second step. A prejudice leads many to assume that poor people only need poorly engineered products. Nothing is further from the truth. To start successful businesses

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Martin Fisher Design Criteria for KickStart Pumps Association with a highly profitable business model. The new tool or equipment must be associated with a highly profitable business model. To ensure this, one has to carefully examine the local economics, and determine the required capacity, scale and throughputs of the new technologies to assure that the new businesses will be viable and profitable. Affordability. The new tool must be affordable to our cash-constrained customers. Poor farmers in Africa can rarely afford anything costing more than a few hundred dollars, and for most of them even affording as little as $20 or $30 is a major challenge. Energy efficiency. Because of the lack of electricity or petrol in the rural areas our tools are human powered, and they must be extremely energy efficient to make the most of the limited power generated by a human operator.2 Ergonomic design and safety. They must also be ergonomic and safe. They must efficiently transfer human energy into mechanical energy and be used for long periods of time without injury. To be effective they have to make use of the operator’s largest muscles and weight. Ease of transport and storage. The new technologies must be portable and easy to transport and store. They must be delivered to and stored in small rural retail shops and be easily carried home by buyers and stored in their small houses. They must be transportable on a minibus, the back of a bicycle, and by hand over rough roads and trails. They must be small and lightweight or, if need be, easy to disassemble. Ease of installation. The technologies must be easy to install and maintain with few tools and minimum spare parts. The poor do not own even the most basic hand tools, so any required tools, along with spare parts, must be made available in local shops.

they require high-quality, well-engineered and highly durable equipment with consistent performance characteristics and interchangeable spare parts—just as the better-off require when they buy a photocopier, car or computer. This requires high-quality engineering and mass production. The design criteria we set for ourselves are daunting. Designing tools that work is the easy part. Designing tools that incorporate all of these design criteria is a significant challenge. The vast majority of this design work is done by a small team of engineers, designers, and technicians in our workshop in Nairobi, Kenya. They research raw material properties and ergonomics, use CAD and stress analysis to develop the designs, incorporate design for manufacturability from the start, and do many hours of building and testing of prototypes to ensure the performance and wear characteristics, cultural acceptability and durability. As a result it takes many months to invent, design and produce each new technology.
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Income Is Development Limitation on training required. Our equipment must also be easy to use with minimal training. Training thousands of customers in remote locations is very expensive so the technologies should be as intuitive and easy to use as possible. The poor are not exposed to many new technologies and often cannot read operation manuals, so we try to make the operation of our tools implicit through their design. Strength and durability. Our products must be strong. A poor farmer will tend to push a new technology to its limits, so we design our tools so that they won’t break even if two grown men work on them at the same time. They must also be durable. They are used for many hours each day in the tropical sun, mud and water. If the tools break or wear out quickly, we’ve not only lost a customer but have put a family’s survival at risk. We typically offer a oneyear money-back guarantee and design the equipment to have a three-to fouryear lifespan, although in reality many of them last much longer. Clearly, maintaining quality control during manufacturing is also of utmost importance. Potential for local manufacture. We design our equipment to be (at least initially) locally manufactured in Africa. And although we are using the largest factories, the choices of raw material and manufacturing technologies are extremely limited. As a result our tools are all fabricated from welded and shaped mild-steel sections and plates, with only a few machined parts and a few simply molded plastic or rubber components. Cultural acceptability. Our designs must be culturally acceptable. For example, the treadles on our pumps must be designed for bare foot operation and must be low enough to the ground so that when women use them, they do not display provocative hip movements at eye level. Environmental sustainability. Finally, as much as possible using the technologies needs to be environmentally sustainable.

Step 3: Establish a Supply Chain By far the most efficient and effective way to get products (and spare parts) to people is to sell them through a private-sector profit-making supply chain. This is completely sustainable because everyone in the supply chain makes money on every sale and they are all highly motivated to make it work. The first link in KickStart’s supply chain is manufacturing. We know that centralized mass production combined with effective distribution is the most effective model for getting products to the market. This has been proven time and again with products ranging from bicycles to computers, and soap to Coca-Cola. We use this same model for our tools and equipment. They are mass-produced in medium-to large-scale factories, using well-designed production tooling, efficient production methods and well-trained technicians. Our engineers design all the toolinnovations / Davos 2008

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Martin Fisher ing required for high-quality mass production. This is a major challenge in Africa because of inconsistencies in the strength and dimensions of local raw materials, the lack of advanced production machines and the shortage of skilled labor. We have developed new manufacturing methods to help overcome these challenges and we out-source the manufacturing to the largest, most experienced and bestcapitalized factories that we can find. However, we still have to train the production workers and help to supervise the quality control. We then buy the equipment from the factory and recruit existing local privatesector players—wholesalers/distributors and retail shops—to establish a profitable supply chain where everyone, including KickStart, makes money on every sale. In many cases existing supply chains have to be strengthened to handle greater cash flows and credit. In other cases we recruit and train brand-new distributors and retail shops to reach the villages closest to the farmers. But the good thing is that these are local business-people, they are motivated by earning money, they are in the community to stay and they know the local customers. At present over 350 retail shops in Kenya and Tanzania sell our products. Most of them are small-scale agricultural-veterinary shops that presently sell small packages of seeds, fertilizer and other farm inputs, and we have shops in every high-potential city, town and village. Many of these shops are little more than a single room; for most of them our products are the most expensive items they have ever sold and all of them require significant training in the operation and marketing of our products. Finally, since our final customers are very price sensitive, we establish a national retail price that will be as affordable as possible while ensuring that the wholesalers’ and retailers’ margins are competitive with their other products. Because much of our initial marketing is national in scope (radio and newspaper advertisements), the fixed final retail price is an important factor to both us and our customers. Step 4: Develop the Market We want to get as many people out of poverty as possible so our technologies need to be as well known and easily available in Africa as are sewing machines and bicycles—everyone knows about them, what they can do and where they can be bought. While we know our tools can enable people to make a lot of money, they do not sell themselves, and have no impact if not used. Thus, developing our market is by far the most important challenge and this is where KickStart spends the vast majority of its resources. We are selling “big ticket” items to extremely risk-averse buyers who buy very few capital goods, have very little cash and very limited access to information and marketing channels. This is not an easy sell. If a poor person spends a large percentage of their annual income on a new tool and it fails to make them money, they will go hungry for many months. In addition, when they see these products for the first time they often have no idea what they are. They sometimes ask what magic is being used to move the water

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Income Is Development through a sprinkler or extract cooking oil from sunflower seeds. These are completely new and foreign technologies—as when people saw the first motor car in the 1800s. And, just as with buying a car, our customers not only need to see the new machine in operation, but they also need to “test drive” it themselves. We need to make this test drive possible and convince them the tools will indeed help them to escape poverty. These rural customers are very hard to reach. They live miles from the closest village and very often miles from the nearest road. They only rarely come to town, only see a radio or newspaper when a wealthier neighbor or relative facilitates it, have very limited means of transport and are often less than fully literate. Word-of-mouth, or “viral marketing,” would seem to be a great technique to reach our target market, but there are cultural barriers that prevent it from taking off. East Africans are modest people who are unlikely to boast about their successes and this tendency is magnified because in very poor communities people who succeed are more often envied than admired. In addition, it is common for the best-off member of a family to assume the financial responsibility for the whole extended family. People who find financial success often find nieces, nephews, and widowed in-laws on their doorsteps. So, advertising one’s success is not as common as a marketer would hope. We modify standard marketing and sales strategies to adapt to these circumstances. We work to build a strong brand—“MoneyMaker”—which speaks to a poor person’s number one need, and we offer a product guarantee. Our most important strategy is live demonstrations, but we use radio and newspaper advertisements, billboards, competitions, promotions, and a commissioned sales force to pull in the customers to see the demonstrations. We also target wealthier relatives in the cities who travel to their rural homes a few times a year and carry news from the city. The message is always the same—the buyers can make a lot of money and escape poverty if they go to their local shop, buy our equipment, and use it to start a new business. One very important thing is consistency—risk-averse customers will not buy products from here-today-gone-tomorrow salesmen. And since demonstrations are so critical, and labor is so plentiful, we use labor-intensive marketing methods, as they did in the early 1900s in the U.S. and Europe. Sales agents demonstrate the equipment in front of the retail shops and in the rural areas from the back of trucks and bicycles. Going forward we will need to convince even poorer farmers to buy, and to do this we will need to lower both the actual and the perceived risks even further. This means finding new ways to promote word-of-mouth sales that get around the cultural barriers. These will include strategies such as training local pump experts to train others, rewarding people who recruit new customers, bundling advice and other farm inputs with the pumps on a service basis, and introducing a financing mechanism. Clearly, market development for selling new “big ticket” (from the standpoint of rural budgets) items to the rural poor in Africa is a very challenging and expensive activity.

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Martin Fisher Step 5: End Marketing Subsidies KickStart uses donor funds to finance the initial market development for the new tools and equipment. When the sales reach a “tipping point” we will cease the marketing subsidies, and leave in place a fully profitable and sustainable supply chain that will continue to deliver the new technologies to poor entrepreneurs for many years to come. When a new product is first introduced into any new market anywhere in the world, sales are few and the promotion costs required to make each sale are very high—so money is lost on every sale. The more radically new the product is, the more expensive it is to make these early sales. However, with successful products, the sales eventually take off, the marketing costs per sale drop drastically, and sales continue to increase without any further marketing subsidy. The introduction of our pumps to poor farmers in Africa is no different. We initially spend a lot to develop the market, but eventually we will reach a “tipping point” and KickStart will start to make a profit on each sale. Think, for example, of telephones, color TVs, personal computers, the internet, cell phones, and on-line retail sales. Each of these required many years and many millions of dollars of investments before reaching their tipping points. To reach this tipping point requires spending both time and money on market development. It is no doubt possible to accelerate this process by investing more in marketing, but a new technology that requires a major cultural shift or expensive new investments will still take a significant period of time to catch on. In this case, time cannot be simply replaced with money. Based on the history of the introduction of new products in Africa and elsewhere, we estimate that a tipping point will be reached when sales of a new moneymaking technology for the poor reach 15% to 20% of the total market potential in that particular country.3 In Kenya we have the experience of the Kenya Ceramic Jiko. This is a fuel-efficient charcoal stove that saves the users money because it uses 40% less charcoal than the common all-metal stove. It was developed and heavily promoted using donor funds in Kenya throughout much of the 1980s and 1990s and sales grew slowly. And then suddenly, when it reached 18%-20% of the market potential, sales took off. Today with no more donor funds it accounts for over 65% of all charcoal stove sales in Kenya.4 This tipping point behavior and “hockey stick”—shape sales curves for new technologies are common throughout history. We predict that it will take between 6 and 15 years after the introduction of a new KickStart technology to reach the tipping point. The exact period will depend on the technology, the country, and the amount of money spent on market development. KickStart uses donor funds as smart subsidies to finance the initial technology and market development for each new technology. However, once a tipping point is reached in a given market we will start to make a profit on every sale. We will then reinvest these profits (along with more donor funds) to develop new tech-

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Income Is Development Cell phones: The Exception that Proves the Rule There are millions of cell phones in developing countries around the world including in Somalia—a country with very few donors and no operating government. Why have private sector companies been able to market cell phones to both the wealthy and the poor without the need for subsidies? Cell phones have a number of rare properties that make them excellent technologies for the poor in developing countries. First, in developing countries cell phones are money-making and money-saving devices. Phone calls save people a lot of money—often the only alternative is a long and expensive bus ride. In addition, phone calls greatly increase the level of family remittances back to rural areas—so even the very poor are willing to pay for calls. Thus every cell phone is a potential pay phone as local neighbors will pay to make calls. Second, unlike with manual water pumps, wealthy and middle class early adopters are willing to pay a high price for the convenience of a cell phone. Their only alternative is to wait for many years to get connected to an unreliable and poor-quality landline. These high prices help companies recover the costs of the initial infrastructure and market development, and later enable them to lower the prices so that poorer customers can afford the phones. Finally, cell phones are unique because they have a built-in credit facility. Most money is made not from selling the phones themselves—which can almost be given away—but from selling the minutes, which are sold in very small and affordable units. Very few other money-making technologies for the poor share these characteristics; instead, like our irrigation pumps, they require initial smart subsidies to overcome the market failures. nologies and enter new markets so that we can further our mission of getting millions of people out of poverty. MEASURING IMPACTS AND COST EFFECTIVENESS Defining and measuring impacts and cost-effectiveness should be a critical activity for any social enterprise. If you are not having any impacts, or are spending more to create them than they are worth, then you may as well go home. But unfortunately good impact-monitoring is still rare. Much of impact monitoring is about collecting “market information.” Any company that sells a product needs to understand how their customers use the product, and how it can improve the product and the way that it is selling it. So, all good companies collect some type of market information. The additional information that social enterprises need to collect is the answer to the question “Are we meeting our social mission?” In KickStart’s case, the mission is to get poor people

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Martin Fisher out of poverty, so our most important indicator is how much more money the people who buy our technologies make. We can then look both at the cost-effectiveness of our program and at other indicators such as: How much labor do they employ? What do they grow? Do they send their kids to school? Build new houses? Improve their diets and health? KickStart has developed a systematic, replicable method to measure our impacts. Every product comes with a guarantee; every buyer (with the help of the shop keeper) fills out the guarantee form when they buy the product at the retail shop. These guarantees act as a marketing tool by reducing the perceived risk of buying the product, and they give KickStart a database of all the buyers. From this database, we develop a randomized, statistically valid sample of recent purchasers. The sample represents 50 to 60 customers per year who comprise one cohort. To date we have monitored six different cohorts of pump farmers in Kenya and Tanzania as well as users of our oilseed press in Kenya. These customers are visited within a month of purchasing the products, before any impacts have been realized, then visited again eighteen months later and a few of them again after 3 years. The first visit creates a benchmark at zero impact, and the subsequent visits measure impact. Data collected during these visits include the status of all farm activities from the previous year, crops grown, area under cultivation, production costs, income generated, number of employees, wages paid to employees, who performs what tasks (family, paid workers, men or women), other sources of income, number of dependents and number of children in school, physical assets owned, any problems with the technologies, and the effectiveness of our marketing methods. Based on these data we calculate the change in income and other social and economic indicators that result from using the new technologies. In addition, we prepare detailed case studies, deepening our understanding of the farmers and their new businesses. The monitoring team employs culturally appropriate methods, and uses multiple questions and observations of the individuals, household, and business to cross-check and evaluate socio-economic conditions. For example, one person will ask how much land is being irrigated and how many cabbages were sold from that area. The other, who knows how many cabbages can be grown per acre, paces off the area. Each team consists of one man and one woman to ensure that interactions with owners and their families are comfortable and appropriate. By collecting this data we can determine if we are having real impacts on poverty and how effective our interventions are. Again, our mission is to move people out of poverty, so measuring increases in net incomes is our primary concern. As a social enterprise, we also monitor our cost-effectiveness. Our donors are investing their money and their trust in KickStart and we are very serious about maximizing the return on their investment. Here we consider two numbers. The first is an absolute number—how much in donor funds we spend to take a family out of poverty. The second is a ratio, the Bang-for-the-Buck (BfB) —the sum of
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Income Is Development the new net incomes made by the entrepreneurs, and the new wages earned by their employees during the first 3½ years of using our technology, divided by the donor funds that we spend to enable them to do this. We pick 3½ years because although we know the buyers will continue to make new incomes for many more years (by reinvesting in new equipment) this is the approximate design life of our technologies. Between them, these two figures give us a useful way to gauge the cost-effectiveness of our program and a way to compare it to other programs with similar goals. To date every donor dollar that we have spent on developing and promoting our irrigation pumps has resulted in $17 in new profits and wages being generated by the new farming businesses in their first 3½ years of operation. This is a 17/1 “Bang for the Donor’s Buck.” At present, it costs KickStart $250 in new donor funds to take a family out of poverty forever, or roughly $40 to $50 per person. This is an average cost across all of our pump marketing programs including Mali, where we have been selling pumps for only a few months. The pump marketing costs in Kenya and Tanzania are coming down every year and are presently less than $160 per pump. THE LIMITS OF THE MARKET: WHY KICKSTART IS A NON PROFIT The KickStart model is based on the power of the market: we use private sector supply chains to help poor farmers acquire technologies that allow them to begin highly profitable businesses and escape poverty. Yet KickStart is itself a nonprofit. At present we spend $250 of donor funds for each family lifted from poverty through the use of a $95 pump, and we recover only 20% of our costs from earned income. Why? The reason is that it is not profitable for a private company to develop and mass-market new low-cost money-making technologies to poor rural farmers in Africa. Simply put, KickStart uses the market because we know that this is the most cost-effective and sustainable solution, but we are a nonprofit because we need to spend donor funds to overcome a classic market failure. To understand this we need to take a closer look at this failure. The generic challenges of doing business in the world’s poorest countries are obvious—high political, security, and currency risks and poorly developed roads, electrical grids, ports, and legal structures. But there are many profitable businesses in Africa, and considerable potential for starting more. So clearly all these challenges can be overcome. What is so different about our market sector? The critical difference is the very high marketing costs required to sell new “big ticket” items—such as a treadle pump—to the poorest and most risk-adverse customers in the world. They are unfamiliar with new technologies, undereducated and rightfully fearful of making a mistake. In rural Kenya, as in many other places in Africa, infrastructures for distribution, information provision, credit, and marketing are all highly undeveloped. The trajectory of adoption for capital goods sold to the rural poor creates an additional challenge to self-sufficiency in our market. Usually when a new product innovations / Davos 2008
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Martin Fisher is introduced in a new market, the early adopters pay a much higher price than those who buy it later. This initial high price helps the company to recover the initial technology development and market development costs and then prices can be lowered to reach less-well-off customers. The first handheld calculator cost hundreds of dollars and all it did was add, subtract, multiply and divide. Likewise, early cell phones were so expensive that only the very wealthy bought them. Today prices have come down and these items are affordable to anyone. However, when products are designed specifically to address the needs of the rural poor, the early adopters are also poor and they can not afford to pay higher prices. The wealthy don’t need manually operated irrigation pumps, and if the margins are too high the poor cannot afford them. So the initial development costs cannot be recovered by high-priced early sales. In short, there is no “cream” to skim off the top of this market. An equally significant challenge is that, although new money-making products for the poor are not easy to design, they are generally simple to copy. No one will copy them in the beginning—because the marketing costs are too high—but once the tipping point has been reached and they become profitable to sell, they will be widely copied. This is a particular challenge in a developing country. Patent laws are difficult to enforce and the poor are driven more by low prices than by quality or brand loyalty. Thus it is difficult to maintain market share and difficult to recover the market development costs through high-volume sales. Financing of growth via market mechanisms is another challenge. In the developed world, the market development of brand-new products is most often financed either by debt or by equity investments. In East Africa equity capital is scarce—new business ventures typically face high risks and do not have easy exit strategies. For those who do want to invest in business development, there are more attractive business opportunities than trying to sell new big-ticket capital products to the rural poor. These include new products and services targeted to the middle class and wealthy, and consumer products (soap, cooking oil, beer, soda, etc.) marketed to the poor. And of course there are even more profitable opportunities investing in real estate, extraction industries or large-scale or contract farming. Such is the nature of the market failure, and for all these reasons private sector companies rarely attempt to introduce new big-ticket items for poor people in Africa. Unless someone else is willing to pay for the initial market development costs, the cost-of-sales are simply too high compared to the possible returns and it is very unlikely to be a profitable venture—though one whose positive economic impacts far exceed its expenses. KICKSTART’S NEW CHALLENGES KickStart has received international recognition and has earned the support of large companies and major foundations.5 With this support, KickStart has grown. We currently have offices in Kenya (our African headquarters), Tanzania, Mali, and the U.S., and employ over 200 people. Our staff includes a small team of engineers,
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Income is Development designers, and technicians based in Kenya; management, impact monitoring, and more than 125 marketing and sales staff in Africa; and five employees in the US. Our African headquarters manages African-country sales and marketing, technology development, and all African-based administration, monitoring and impact assessment, and fundraising. The U.S. office was established as a 501(c)3 nonprofit in late 2001 to handle overall management, financial control, strategic planning, and fundraising. Our country offices in Kenya, Tanzania, and Mali are primarily responsible for sales and marketing, essentially franchising our successful products and marketing practices. They establish the retail and wholesale networks in their respective countries, and put in place cost-effective marketing activities to support and increase sales. In the next three years we plan to expand into as many as four new African countries, including Ghana whose government has taken note of our impact on the GDP of Kenya and Tanzania. We are also implementing a business-to-business model of sales to other NGOs to expand our impacts to the rest of the developing world. Carrying out these plans will require two business decisions. First, we plan to focus on irrigation pumps, which already represent over 95% of our sales and impacts. We believe the worldwide market potential for these pumps is as high as 35 to 40 million pumps, which would translate into a major contribution to reducing poverty in the developing world. Second, we plan to centralize mass production and establish a global supply chain for the pumps. Rather than manufacture pumps in every country, we will produce our best-selling pumps in the lowest-cost location. We have recently ordered our first batch of Super-MoneyMaker pumps from China, and we can import them into any African country at a lower cost than we can produce them locally. Manufacturing in China will also allow us to serve new markets. Lower prices and higher quality will benefit our tens of thousands of customers, and global supply means we can sell to other organizations to increase our impacts and generate income. In addition, we will develop new technologies. We are market-testing our verylow-cost “hip-pump,” which retails for $33, and are developing a low-cost deepwell pump, low-cost well drilling, water harvesting and storage technologies, and low-cost transport technologies. KickStart is in the process of developing a financing model for our irrigation pumps. For poor farmers the initial $120 investment for a pump, hose pipe, and seeds is difficult to borrow or save—but since the pumps provide a very high return on investment to the buyer they are an ideal product for a financing mechanism. Our goals are to increase sales by lowering the barrier to entry, move us more quickly to the tipping point, and help KickStart recover more of the marketing costs. To succeed we must examine lessons learned from past technology-specific financing programs and other micro-financing efforts around the world. Past efforts to give technology specific loans to the very poor have often failed because they encouraged people to borrow money for things they don’t want or need—as innovations / Davos 2008
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Martin Fisher this is their only option for credit—and so led to many business failures. Microfinance programs partially solve this problem, and they have worked well in urban and peri-urban areas in Africa. However, very few micro-finance programs have found cost-effective ways to reach the poorest, hardest to reach, and most riskaverse customers in the world—those in rural Africa. KickStart will most likely develop its own model for pump financing. We plan to rapidly roll out our marketing and retail networks, and we need a financing method that can be rolled out just as quickly. It will likely be based in our retail shops and may use entrepreneurial agents on bicycles to reach the farmers. It will require very good vetting of the borrowers, and will have to get all the incentives right for the loan agents and the borrowers. Among many ideas, we will explore bundling the pumps with products and services such as fertilizer, seeds, and farming and marketing advice to increase the chances of the farmers’ success and loan repayments. It will be a major challenge to develop an effective financing program; however, we are confident that with enough determination and advice from others, we can make it work. CONCLUSION ENDING POVERTY IS THE GOAL, CREATING INCOME IS THE MEANS In poor places just as in rich ones, developing and marketing new technologies is often too expensive for the private sector to do alone. In these cases governments provide major subsidies to help overcome the market failures. In fact, every major new technology from automobiles, to telephones, computers, the internet, solar panels and biotechnology have received significant government subsidies, and they continue to receive them today. For example, the sale of hybrid cars in the U.S. has been greatly boosted by the government giving every buyer a tax credit of as much as $3,400. It is well demonstrated that smart subsidies for new technology and market development can help to fuel economic growth. However, the governments of the poorest developing countries are too cash constrained to provide such subsidies. In the absence of the subsidies typically found in industrialized economies, KickStart—whose mission is to get people out of poverty—uses donor funds as smart subsidies to take over this role. We use them to subsidize the costs of developing the market for new moneymaking technologies. But once a tipping point is reached and our products are as commonly known and easily available as sewing machines or bicycles no further market subsidies will be required. Other companies will enter the market and compete with us on price, brand, quality, and distribution. Many more money-making products will be sold at zero additional costs to the donors, and more people will use them to escape from poverty. However, reaching the tipping point will not happen quickly. The internet required trillions of dollars of government funding and equity investments (and losses) over a 15-year period before it created a few dozen profitable new business models. It took Amazon.com ten years and over $3 billion dollars in investments
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Income is Development before it made its first profitable sale—and this was to sell books to the wealthiest customers in the world. Similarly, over a 30-year period, hundreds of millions of donor dollars have been spent on the market development of micro-finance, yet today only a small percentage of micro-finance institutions have become profitable. It will be years longer before either the internet or micro-finance industries recover in profits the total money invested in creating them. But these early investments opened up completely new ways to do business and they are already creating millions of new jobs and many billions of dollars of new revenues and wealth—so the total economic impacts greatly exceed the initial investments. Despite over a trillion dollars in development aid, poverty in Africa has gotten worse. Over the past four decades the number of people in sub-Saharan Africa living on less than a dollar a day has more than doubled and life for the average person has become much more difficult. At the same time, in many places the rural poor have been catapulted into a cash-based economy; as subsidies have vanished, they must now fund their own access to housing, food, and education. Most international development efforts focus on alleviating the adverse consequences of poverty rather than developing the means to escape poverty: technologies and business models that increase incomes for the rural poor. I have lived and worked in Africa for the past 20 years and I remain optimistic that there is a solution. But, to get there we need to move beyond the failed practices that have guided efforts to address the poverty challenge for the past four decades and take a very different approach.
1. See for example comments by Mark Hankins, Energy Alternatives Africa, “Southern realities and top-down marketing of the solar cooker.” 2. Humans can only generate about 80 watts of power over a sustained period of time. Our oilseed press, for example, is almost an order of magnitude more energy-efficient than the best motor-powered oil expellers. 3. E. Rogers, Diffusion of Innovations, (New York: Free Press, 2003). Rogers describes a “critical mass” or “tipping point” as the point where enough users have adopted an innovation so that the further rate of adoption becomes self-sustaining, and shows examples where for innovations from cell phones to hybrid seed corn this point occurs at around 15%-20% of the local market potential. This market potential has also been discussed in numerous other publications (Wired, etc.) 4. See studies by Mark Hankins and/or Hugh Allen, including M. Hankins, Renewable Energy in Kenya, (Nairobi, KenyaMotif Creative Arts Ltd., 1987), and M. Hankins, The Kenya Ceramic Jiko: A manual for stove makers, (Stylus Publishing, 1992), 5. ApproTEC/KickStart have received recognition from the Tech Awards, the Schwab Foundation for Social Entrepreneurs and the Fast Company and Monitor Group Social Capitalist Award; financial support from the Skoll Foundation and the Lemelson Foundation; and corporate support from John Deere and SC Johnson.

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Paul Polak

A Practical Path to Increased Income
Innovations Case Discussion: KickStart
As the founder of International Development Enterprise (IDE), the organization that started popularizing treadle pumps in Bangladesh twenty-five years ago, I am delighted to have a chance to comment on Martin Fischer’s paper. I would like to focus on three things. I very much agree with Martin that increasing income is the single most important first step out of poverty for the 1.1 billion people who survive on less than a dollar a day. I applaud KickStart’s success in helping thousands of very poor farmers in Kenya and Tanzania move out of poverty by increasing their income with treadle pumps purchased from private sector supply chains. This provides a much needed model of success for sub-Saharan Africa. I would like to examine the remarkable global impacts that more than two million treadle pumps have made in the hands of dollar-a-day poor rural people, and explore what we can be learned from this experience that we can apply more broadly to poverty eradication initiatives. The most important point Martin Fischer makes is that “if you ask a person in a poor place what they need most, they will tell you that it is a way to make more money.” I couldn’t agree more. Over the past twenty-five years, I have had long conversations with more than three thousand farmers who earn less than a dollar a day, and walked with them through their fields. When I ask them what they need most to move out of poverty, virtually all of them say that the most important thing they need is to find ways to significantly increase their income. Martin describes his disappointment when he surveyed the appropriate technology movement in Kenya in 1985, and had to conclude that the move-

Paul Polak is President and Founder of International Development Enterprises (IDE). This discussion originally appeared as a letter in volume 1, number 3 of Innovations.
© 2006 Paul Polak
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ment was essentially dead. Twenty years ago, I talked to a bright young man who was part of a team of people developing a tool carrier for farmers in Africa. He was convinced this new technology would be a major breakthrough, because it would carry out all of the functions of plows, cultivators, seeders, harrows, and carts, all with one basic tool. I had already talked to a lot of small farmers by then, so I asked him a simple question: “How much will it cost?” He scratched his head, and said he thought that was an interesting question. He said he would make some calculations and get back to me. Right then I knew that the tool carrier would never work. If you think like a tinkerer solving a technical problem, you will likely be able to come up with a technical solution. But if you don’t design it for poor people as customers, it will likely never be adopted. The first step in design for the poor is identifying the critical affordability price point at which poor people become willing to vote with their feet to buy it. To me, that was the tragedy of the appropriate technology movement. E. F. Schumacher’s book Small is Beautiful inspired thousands of gifted people around the world. The tragedy is that the appropriate technology movement it inspired was implemented by technical tinkerers rather than hardheaded entrepreneurs who design for the marketplace. If you think of the poor as recipients of charity instead of as customers, you invariably design goods and services that are too expensive to be affordable for them as customers. Effective tools have to be customer driven and market driven if they are to have any hope of being brought to scale. The key reason that treadle pumps have had such a remarkably positive impact on poverty in many countries is that their design was shaped and hardened by disciplined customer feedback, and their marketing and distribution by the private sector around the world was shaped by the poor customers who voted with their feet to buy them. I applaud the success that Martin Fisher, Nick Moon, and KickStart have had in helping more than 65,000 very poor families in Kenya and Tanzania move increase their income by purchasing and installing treadle pumps, as well as increasing the income of enterprises making, distributing and installing them. Kickstart accomplished this by adapting the treadle pump technology widely disseminated by IDE in Asia to the specific conditions of Kenya, and establishing effective local private sector distribution and marketing systems. As has now been thoroughly demonstrated in many developing countries, the income-enhancing impact of treadle pumps comes not from the technology alone. Rather, treadle pumps are effective because small farmers need affordable water control for their crops in order to switch from subsistence crops to labor-intensive high value crops, like fruits and vegetables that they grow for the market. The impressive leverage KickStart obtained by using treadle pumps to stimulate increased smallholder income through growing and selling cash crops mirrors IDE’s earlier experience in Asia. Here is an example of the leverage
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Table 2. Global Treadle Pump Sales *IDE's TP project ended in Bangladesh in 2003 and in India in 2004, but private sector sales in these countries continue **Numbers compiled from EnterpriseWorks' website (www.enterpriseworks.org) *** Personal communication, Ministry of Agriculture of Malawi, 2005. Another 80,000 pumps on on order.

obtained from donor investments in IDE’s treadle pump program in Bangladesh, which began in the mid-1980s. Here is a brief overview of the remarkable global impact that the treadle pumps, a single affordable irrigation technology, has had on the lives of poor people worldwide. Since Gunnar Barnes and his colleagues at the Rangpur Dinajpur Rural Service (RDRS), supported by Lutheran World Service, introduced treadle pumps in Bangladesh in the late 1970s, and IDE launched its global marketing and dissemination initiative in the 1980s, some 2.2 million poor rural families in developing countries have purchased and installed trea56

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dle pumps. The impact of these treadle pumps on the net annual income of smallholders exceeds US$220 million a year, not counting the increased income of private sector supply chain enterprises making, selling, and drilling wells for treadle pumps. Because profitable private sector supply chains are designed to be the instruments for putting the technology in the hands of small farmers, they continue doing so after formal project funding is terminated. The private sector continues to sell and install 55,000 treadle pumps a year in Bangladesh and India after IDE’s and development donors support for the program terminated. The multiplier impact on the economies of developing countries is already in the range of $1 billion a year or more. All this is from one single affordable water lifting technology customized for small farms! Why has this single affordable small plot irrigation technology been so successful? Over the past 15 years, many people have told me that IDE was very lucky to have stumbled on the treadle pump. They said that this is a unique technology, and we will never find another one like it. I totally disagree. I believe that the biggest impact of treadle pumps is not the increase in income for the 5 to 10 million families in the world who are likely to install one. Instead, it lies in what we can learn from the treadle pump experience that is applicable to ending the poverty of the 800 million people who survive on less than a dollar a day, and earn their living from tiny farms. A fact that has never been effectively incorporated into development theory and practice is the remarkably small size of the farms where most of the families who earn less than a dollar a day make their living. Farms under two hectares represent 98 percent of the farms in China, 80 percent in India, 96 percent in Bangladesh, 88 percent in Indonesia, 95 percent in Vietnam, 87 percent in Ethiopia, 74 percent in Nigeria, 75 percent in Tanzania, 90 percent in Egypt, 98 percent in Russia, and 99 percent in the Ukraine (Nagayets 2005). More importantly, average farm sizes in developing countries have been rapidly shrinking. Average farm size in China went from 0.6 ha in 1980 to 0.4 ha in 1990; in India from 2.3 ha to 1.4 ha between 1971 and 1995; and in Ethiopia from 1.4 to 1.0 ha between 1977 and 2000 (Nagayets 2005). This is average farm size. The size of farms where dollar-a-day people earn their living is much smaller—closer to one acre divided into scattered quarter-acre plots. If increasing the income of poor people is the first step out of poverty, then the obvious place to start is to increase the income the 800 million or so people who now earn less than a dollar a day from one-acre farms. While most small farmers put a high priority on growing enough food to keep their families from being hungry, the notion that they should grow surplus rice, wheat, and corn for the market suggests that they should compete in the global marketplace with Western wheat farmers who farm 3,000 acres with combines and generous government subsidies. This is clearly untenable.
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Paul Polak

To take the first step out of poverty, one-acre farmers need to play to their strength in the global marketplace, and that is the lowest labor rates in the world. Their path to increased income is to grow marketplace-driven, highvalue, labor-intensive cash crops. This requires two things: Access to a whole new range of affordable small plot irrigation devices, delivered by private sector supply chains. Access to markets for diversified high value cash crops, delivered by private sector value chains. The treadle pump is only the first of a whole new range of affordable water lifting, water storage, and water distribution technologies that need to be developed to fit the income generating needs of small farmers. For the past ten years, IDE and others have worked to developed affordable small plot irrigation systems. Some 200,000 have already been purchased, and I believe there is a global market for at least 20 million of them. Other affordable small plot water technologies likely to have very large global demand include affordable sprinkler systems, enclosed water storage units, efficient surface delivery systems, and micro-diesel pumps. The most important thing that we can learn from the treadle pump experience is how to design affordable, customer driven small plot irrigation technologies, and how to deliver them in large numbers to small farm customers through private sector supply chains. During the late 1980s, when farmers who had installed treadle pumps in Bangladesh did so well, everybody at IDE believed that all a small farmer needed to move out of poverty was to buy and install a treadle pump. At the height of the integrated rural development movement I even wrote a paper called “Segregated Rural Development,” which touted treadle pumps as the answer to rural poverty. Later on, we found we could apply our intensive rural marketing techniques to convince small farmers in the hills of Nepal to invest in low cost drip-irrigation systems. But the farmers ended up not using them much, and sales went down. These were maize and millet farmers who had never grown vegetables, and we had to implement a crash course in intensive horticulture to train them to switch effectively from growing grain crops to producing off-season cucumbers and cauliflower for the Kathmandu market. This made them a lot of money, and sales of low cost drip systems took off. But farmers further away from the road needed help to link up with traders who would buy their vegetables. This made it clear to us that the process of generating new income for poor farmers must start with an evaluation of the markets where they could sell what they grow, and a recommended list of four or five high-value crops that farmers could likely grow in their area, and sell in the markets they had access to. I believe that 500 million of the 800 million dollar-a-day people in the world who earn their living from farming could move out of poverty by switching to high-value, labor intensive crops, gaining access to the markets where
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they can sell them through private sector value chains, and gaining access to the affordable irrigation tools, seeds, fertilizer, and credit they need to grow them through private sector supply chains. This is a far cry from a singular focus on treadle pumps, but it is the remarkable global success of treadle pumps that has opened the door to learning about the practical path to increased income for millions of impoverished rural people.
References Chapin, R., 1998. “Bucket Kits for Vegetable Gardens.” Chapin Watermatics. Heierli, U. with Polak, P., 2003. “Poverty Alleviation as a Business.” Swiss Agency for Development and Development. Islam, A.S.M. and Barnes, G., 1991. The Treadle pump: Manual Irrigation for Small Farmers in Bangladesh. Rangpur Dinajpur Rural Service. Keller, J. et al., 2005. “New Low Cost Irrigation Technologies for Small Farms,” Proceedings of the International Commission of Irrigation and Drainage (ICID). 19th International Congress on Irrigation and Drainage. Beijing, September 10-18, Beijing, China. Nanes, R, Calavito, L and Polak, P., 2003. Report of Feasibility Mission for Smallholder Irrigation in Bangladesh. International Development Enterprises. Nagayets, O., 2005. “Small Farms: Current Status and Key Trends,” background paper for the Future of Small Farms Research Workshop, Wye College, June 26-29 <http://www.ifpri.org/events/seminars/2005/smallfarms/sfbgpaper.pdf>. Perry, E. and Dotson, B., 1996. “The Treadle Pump—An Irrigation Technology Adapted to the Needs of Small Farmers,” GRID 8 (March 1996): 6-7. Polak, P.,2005. “Water and the Other Three Revolutions Needed to End World Poverty,” Water Science and Technology 51(8):133-143. Postel, S. et al., 2001. “Drip Irrigation for Small Farmers: A New Initiative to Alleviate Hunger and Poverty.” Water International 26(1). Shah. T. et al., 2000. “Pedaling Out of Poverty: Social Impact of a Manual Irrigation Technology in South Asia.” International Water Management Institute Research Report 45.

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Julia Novy-Hildesley

From Idea to Impact
Funding Invention for Sustainability
Innovations Case Discussion: KickStart
A growing number of non profit and for-profit organizations are implementing a new approach to international development jointly emphasizing entrepreneurship and technology. Instead of awarding large grants and loans to national governments, these institutions are emphasizing smaller awards and contracts made to entrepreneurs who invent new technologies or adapt existing technologies to meet the needs of people in the world’s poorest places. Some of these technologies allow people previously making less than $2/day to undertake new income-generating activities; others help people meet basic needs. Many do both. The Lemelson Foundation, created by Jerome Lemelson, one of the U.S.’ most prolific inventors, is among the philanthropic organizations taking this approach. Lemelson programs are built on the premise that invention drives prosperity.1 In this article I describe the Foundation’s international funding strategy, the lessons it has learned through non profit and for-profit partners, and its efforts to join others in advancing an entrepreneurial approach to international development. One of the Foundation’s earliest international partners was Kenya-based KickStart (see article by Martin Fisher in this issue). The Foundation funded two KickStart projects. In 2003, KickStart used a $90,000 Lemelson grant to design and test-market two new low-cost well-drilling technologies for farmers in Africa. These new technologies would enable farmers living in regions without surface water to manually drill small diameter tube-wells up to 70 feet deep . No such tech-

Julia Novy-Hildesley is Executive Director of The Lemelson Foundation, a private family philanthropy founded by one of the most prolific inventors in U.S. history, Jerome Lemelson, and his family (See <www.lemelson.org>). Julia conducted research as a Fulbright Scholar in Madagascar, earned a Master's of Philosophy degree in International Development from Sussex University funded by a Marshall Scholarship, and graduated Phi Beta Kappa from Stanford University with a Bachelor's degree in Human Biology and a minor in African Studies. She serves on the Board of Advisors to the World Affairs Council of Oregon, the Board of Directors of Grantmaker's of Oregon and SW Washington, is a Fellow of the Donella Meadows Leadership Program. This case discussion originally appeared in the inaugural issue of Innovations. © 2006 Tagore LLC
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From Idea to Impact nologies were available in East Africa. The first technology was designed to drill through soft soils, while the second was designed for drilling through hard soils and even rocks. Both were intended to be used in conjunction with KickStart’s low-cost shallow-well pump and deep-well irrigation pump. The soft-soil drill performed well in feasibility tests and has since been purchased by local entrepreneurs who earn money drilling boreholes for farmers. Because the technology is low-cost relative to its income-generating potential, well-diggers can recoup their investment in less than six months. Increased access to A growing number of non water has reduced farmers’ profit and for-profit burden of carrying water for domestic use and increased organizations are implementing their income—they grow a new approach to international more crop cycles per year, plant high value fruits and development, jointly vegetables, and sell products emphasizing entrepreneurship in the off-season when prices are high. and technology. The hard-soil drill proved more challenging. KickStart’s prototype could drill wells as deep as 100 feet through hard soil and soft rock but could not penetrate the hardest rock formations common in volcanic Kenya. Hence, the technology was deemed commercially unviable because the cost of digging many incomplete wells that would be abandoned once boulders were hit would drive the cost of running a well-digging business too high. In 2004, The Lemelson Foundation granted $150,000 to KickStart to promote its soft-soil well drill and other irrigation technologies in Tanzania. This funding was leveraged by combining funds from other private donors and was matched with a grant from the U.S. Agency for International Development (USAID) Global Development Alliance. In three years, KickStart plans to sell over 7,000 pumps and a smaller number of drills to very poor farming families in Tanzania. The farmers are expected to make an average of $760 in new profits every year using the technologies, increasing their net incomes eight-fold. KickStart will also export at least 3,000 pumps from Tanzania to Mali, Mozambique, and Zambia. Working with KickStart on these two projects helped the Lemelson Foundation understand where to apply its resources most effectively. The collaboration also shed light on the non-financial requirements of organizations like KickStart. Finally, it highlighted the importance of partnering with the private sector and investing in market development to ensure impact by creating self-sustaining change.

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Julia Novy-Hildesley KICKSTART AS A POINT OF REFERENCE As with most non profit organizations, securing philanthropic resources has been among the greatest challenges for KickStart. The organization secured its first grant in 1991 from the British government, but to raise a required match Nick Moon and Martin Fisher, the organization’s founders, had to divert attention from their mission to implement a large refugee camp project. For the next 10 years, they raised funds from government aid agencies but were constrained by these donors’ prescriptions and long delays in awarding grants. They strived to raise funds from individual donors and foundations in industrialized countries, but such donors couldn’t take tax deductions for gifts to a Kenyan organization, and few could witness first-hand KickStart’s impacts, financial management, and accountability. To overcome these problems, KickStart established itself as a U.S. charity and opened an office in San Francisco in 2001 to lead and coordinate its fundraising efforts. While KickStart’s funding networks have grown, the organization still struggles to obtain certain types of funding. In particular, funding for technology development and testing which carries risks such as those revealed by the well-drilling project, has been more difficult to obtain than funding for technology promotion, which results in more immediate impacts. “This is one place where technologybased investors such as the Lemelson Foundation can play a catalytic role,” says Fisher. Another type of capital that is difficult to acquire is expansion capital to replicate a proven technology and take it to scale by creating a new market. “Most donors are still more interested in funding pilot projects than in taking proven methods to scale,” says Fisher. Early in the organization’s development, Moon and Fisher lacked access to non-financial resources, including mentoring and networks that could help their organization grow efficiently. “When we started in Kenya in 1991,” recounts Fisher, “almost no one was doing this type of work and it was difficult for us to be in contact with people we could learn from.” For example, documenting the impact of their technology was critical for fundraising and for creating demand for the new technology, yet standards and best practices for doing so were not readily available. Ultimately, Moon and Fisher invented their own approach, which has since provided inspiration to other organizations. “There were very few resources available and we basically had to invent everything ourselves and learn by doing,” Fisher says. In addition, although they realized the importance of developing a retail network and conducting professional marketing to sell KickStart’s technologies, Moon and Fisher lacked business expertise. Such skills were not considered useful for development workers at that time, so there were very few resources available from which to learn. Serendipitously in 1996 they met Bob Hyde, an American marketing executive who had worked in India and now wanted to live in Kenya. Hyde, taken by the organization’s mission, mentored them in marketing. Much later, Moon obtained an MBA from Durham University and Fisher attended an
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From Idea to Impact Executive Education course at Harvard Business School. KickStart would have benefited had Moon and Fisher had such opportunities at an earlier stage. In the Lemelson-funded projects and others, KickStart has had to work closely with Kenya’s and Tanzania’s existing private sector to implement its business plan. Each new technology has required building local engineering and manufacturing capacity. KickStart has had to design entirely new types of production tooling for mass production with poor-quality and poorly dimensioned raw materials, and train local manufacturers who have never before done high-quality mass production. In addition, it was initially very difficult to convince wholesalers and retailers that it would be profitable to sell KickStart technologies. As a result, initially KickStart was unable to build upon the reputable farm-supply shop network, and sold its irrigation pumps through anyone the organization could convince to take the risk, including local butchers and hairdressers. Eventually, the technologies were proven and KickStart was able to work with the private sector to create a reliable retail network and supply chain, ensuring consistent prices and quality, and the availability of spare parts. On the demand side, KickStart had to invest considerable resources in developing the market for its technologies—overcoming poor infrastructure, the riskaverse behavior of poor farmers, and illiteracy. Demonstrating the income-generating potential of the technology was critical to convincing people with very limited resources to make relatively big investments in a new technology; both they and lenders needed confidence that the initial investment could be recovered. To overcome these barriers, KickStart employs creative marketing strategies, such as demonstrating their technologies in front of retail shops, in local market places, and on the back of pick-up trucks. The organization uses commissioned salespeople, radio advertisements, and billboards, and conducts “speed-pumping” contests at local market places and fairs. Because many of these outreach activities require a physical presence (and travel by personnel), they are more costly than written or radio media—but generally more effective. THE LEMELSON FOUNDATION’S INTERNATIONAL FUNDING STRATEGY The Lemelson Foundation’s international program emerged from an initially U.S.focused strategy. Jerome Lemelson, the visionary behind this strategy, was awarded over 500 patents for inventions such as one of the first laser-guided robots, the automated warehouse, and key components of the audio cassette player, the fax machine, and the VCR. He was concerned that the U.S. was failing to nurture inventiveness, thereby threatening the country’s economic development and cultural vitality. To tackle this problem, he created the Lemelson Foundation. which later broadened its vision to foster technological innovation to support economic and social development in developing countries. Over the past decade, the Lemelson Foundation has donated or committed more than $100 million to advance its mission in the U.S. and abroad. Based on Jerome Lemelson’s vision that invention drives prosperity, and on

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Figure 1. The Idea to Impact process.

Figure 2. Lemelson Foundation projects located along the Idea to Impact process.

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From Idea to Impact advice from developing country experts, the Foundation developed its international funding strategy in 2003. The Foundation provides grants and loans to non profit and for-profit organizations that design and disseminate technologies that create self-sustaining positive impacts on people’s lives. The Foundation has considered vital lessons from the “appropriate technology movement” of the 1960s and 1970s, and only supports projects that are driven by the needs and priorities of local people.2 It also emphasizes entrepreneurship, favoring projects that help poor people lift themselves out of poverty by creating income-generating opportunities. To organize and analyze its grantmaking activities, the Foundation created a conceptual framework called “Idea to Impact,” which outlines the process of taking an idea through the stages of conception, incubation, market development and dissemination (see Figure 1); this framework draws on an extensive literature.3 Lessons from Lemelson-supported projects over the past three years corroborate those learned from the Lemelson-KickStart collaboration. The next section describes four projects funded by the Foundation at different Idea to Impact stages and draws conclusions regarding the role of philanthropic resources, the significance of organizational capacity building, and the importance of private-sector partnerships and market development in contributing to success. Figure 2 places the four projects within the Lemelson model: the Benetech project represents the idea conception phase; the PATH project is an incubation project; the SEWA Bank and SELCO collaboration occurs at the market development stage; and the IDE India project is an expansion phase project. Idea Conception: Benetech Landmine Detector Project Benetech is a nonprofit organization that combines the impact of technological solutions with the social entrepreneurship business model to help disadvantaged communities across the world.4 It has identified an opportunity to create a brand new technology: an affordable and highly efficient tool to detect landmines. Benetech will use Lemelson funds to adapt an expensive military landmine detection technique called quadrupole resonance into a much cheaper and only slightly less efficient technology that can be used by humanitarian demining groups. Benetech estimates that it will cost $1 million to develop and test 12 prototypes, and an additional $1 million to reach sustainable production of affordable landmine detectors. To proceed with technology design, Benetech must secure licensing agreements from military contractors, including General Electric, to adapt the demining technique for humanitarian purposes. “Our challenge is to strike a social license with the companies, ensuring that society benefits without creating a competitive disadvantage for them in other markets,” says Jim Fruchterman, founder and director of Benetech. Incubation: PATH Woman’s Condom Project The Program for Appropriate Technologies in Health (PATH),5 is a nonprofit organization that creates sustainable, culturally relevant solutions to health chal-

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Julia Novy-Hildesley lenges, enabling communities worldwide to break longstanding cycles of poor health. PATH is designing a woman’s condom to empower women to protect themselves against HIV/AIDS, other sexually transmitted diseases, and unwanted pregnancy. Lemelson funds support the project at the incubation stage: PATH has refined its design to address issues identified during field trials, such as comfort, effectiveness, and ease of use, and is now engaged in the manufacturing process. In preparation for product launch, PATH is working to convince major reproductive health device manufacturers to produce and distribute the woman’s condom. Market Development: SEWA and SELCO’s Solar Lighting Project The Self-Employed Women’s Association Bank (SEWA)6 and the Solar Electric Light Company -India (SELCO)7 are developing a new market for energy services, including solar lighting and efficient cooking technologies for poor families and street market vendors in India. Each organization has a distinct role in the partnership. SEWA was founded in 1972 as a trade union of poor, self-employed women in Gujarat, India. Today it has over 80 cooperatives tackling the varied needs of its members. The Lemelson Foundation is supporting a project to adapt three alternative energy technologies, including solar lighting, to the needs of the poor and create a system to distribute these to households in Gujarat State, India. SWEA is using Lemeslon funds to train individuals from its network of nearly 700,000 selfemployed women to become profitable new owners of energy service businesses. It also provides small loans to allow newly trained women entrepreneurs to launch their businesses and offers micro-credit to end-users, mostly women, to purchase the technology. SELCO, on the other hand, is a private sector, for-profit company, in Bangalore, India, founded in 1995 to market, install, and service solar home lighting systems throughout South India. To date, the company has installed more than 20,000 solar home lighting systems through its network of more than 25 service centers in Karnataka state. By custom designing and selling solar lighting to newly trained women entrepreneurs, SELCO is piggy-backing on SEWA’s investment in capacity building and financing. SELCO uses SEWA’s network activities and membership meetings to provide information about the new technology. Impact Expansion: IDE: India’s Drip Irrigation Project International Development Enterprises India (IDEI) is a non profit enterprise that provides long-term solutions to poverty, hunger and malnutrition through affordable technologies.8 The Lemelson Foundation is supporting IDE-India’s expansion of its manufacturing, distribution and retail supply chains for its low-cost dripirrigation kit, which sells for 60-80% less than comparable irrigation systems. The support enables IDEI to scale up its successful model from Madhya Pradesh state to Tamil Nadu state. Like KickStart, IDEI establishes self-sustaining supply chains by using philanthropic resources to build demand and develop local supply capacity. As with SELCO and KickStart, scaling up to new locations requires investing in creative marketing schemes to reach dispersed and often illiterate consumers. IDEI takes traveling vans to villages that attract attention by broadcasting Indian film

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From Idea to Impact music, garnering an audience for demonstrating its drip-irrigation kit. IDEItrained field agents distribute local-language flyers and follow up with interested farmers. After noting a disparity across farmers’ incomes following adoption of IDEI’s irrigation technology, IDEI began to build private-sector partnerships to provide training to help farmers determine the most profitable mix and timing of crops for their location. The organization also builds sales channels to link farmers to local, national, and international markets for their new crops. The Role of Philanthropic Resources In each of these projects, philanthropic resources were necessary to correct market failures, as private sector companies were not designing, manufacturing or distributing the necessary technologies on their own. Raising such grants can be timeconsuming, distracting key personnel from their core business, particularly because organizations often must pursue small grants from many sources and find it difficult to secure funds for high-risk stages of development. In the case of Benetech, the landmine detection technique developed for military purposes is highly proprietary, and private companies do not have an incentive to adapt the technique to suit the small and not very lucrative humanitarian demining market. Benetech required not only philanthropic resources to address a general market failure, but high-risk, early-stage grant funds to launch the project. As Jim Fruchterman, head of Benetech notes, “It is much harder to find the risk capital [grant] to go from idea to working prototype. Once we have the humanitarian landmine detector in production, we’re certain we can find funding to produce detectors for demining groups.” A $250,000 grant from the Lemelson Foundation with fund-matching requirements has helped secure additional resources to propel this high-potential project to later stages of the Idea to Impact process, where other funding is more likely. PATH faces similar funding constraints. It was able to secure funds for user acceptance trials in the research and development stage. However, PATH needed to design manufacturing processes to attract large-scale manufacturers, and also produce a product for the clinical trials required for licensing by a regulatory agency. These milestones are critical to attracting later-stage funding for manufacturing and distribution, but prior to the Lemelson Foundation grant, PATH was unable to secure funds for these critical tasks. Michael Free, PATH Vice President, notes that “new drugs and devices require large investments whether they are for rich or poor populations. For the latter, risks are high and returns are low, so traditional sources of investment are not available. We have to rely on public and philanthropic sources. These sources seldom can invest in the entire project, but are more often willing to fund up to the next milestone. Some milestones are more appealing than others. Some funders change their goals or strategies during the five to ten years of ‘idea to impact.’ Blessed are the funders who fill the gaps or support the critical but less appealing phases.” For SEWA Bank, philanthropic funds were needed to incentivize the bank to offer financial services in a new and unproven technology sector—solar lighting. innovations / Davos 2008
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Julia Novy-Hildesley Lemelson funds allowed the bank to provide larger loans to small-scale manufacturers who would build the new high-risk local supply chain for solar lighting, complementing SEWA’s micro-finance services offered to end-users. In contrast, SELCO’s founder, Harish Hande, chose to establish SELCO as a for-profit company, and did not seek philanthropic resources. Unfortunately, the high cost of market development has slowed the company’s growth, because Hande has had to use valuable equity to cover these expenses. He is now considering whether to diversify his fundraising strategy to include seeking grant funds for market development. Like KickStart and SELCO, IDEI faces the long, hard road of creating fully profitable supply chains for its technologies; this requires significant philanthropic resources and takes between three to twelve years, depending on market size. Nonetheless, grant funds provided to IDEI and similar organizations are highly leveraged. For example, a Foundation contribution to IDEI of $22 yields a net increase of $500 in annual household income for farmers adopting its drip-irrigation kit. Similarly, every dollar granted to KickStart generates a twenty-fold increase in new profits and wages for the end-users of its technologies. Such organizations are also exploring alternative financing. To complement grant funding, KickStart is considering using a loan to finance outsourcing mass production, so that it can increase marketing and sales to other development and relief agencies (“B2B” sales). Because the cost of sales is low—they can sell by the containerload— this is potentially a very profitable business. Organizational Capacity The development of internal capacity is critical for maximizing social and economic impact. Each organization has faced capacity challenges and often developed innovative ways to address them. Benetech, for example, has created a network of pro bono lawyers, which it draws upon at little cost to the organization to secure necessary licensing arrangements, such as those from the multinational manufacturers of the military landmine detection technology. PATH uses strategic hiring and staff training to strengthen its capacity to partner with the private sector, because relationships with large-scale manufacturers are critical to scaling up production of its global health technologies. SELCO draws upon the resources of its equity investors to enhance its business model and develop strategies for educating loan officers about the financial profitability of solar lighting. “Awareness of the benefits and viability of solar has to be built up for every new geographical area,” says Hande, “and we need the capacity to do it.” IDEI invests in new partnerships with exporters and farm extension workers to deepen its capacity to educate farmers about what mix of crops to grow depending on their local climate and how to reach lucrative markets. Private Sector Partnerships While many of the organizations discussed are non profit organizations, partnerships with the private sector, including those with local, developing country companies and transnational corporations, have been critical to their success. For

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From Idea to Impact example, Benetech had to build a relationship with General Electric to convince the company that it would not be disadvantageous to allow Benetech access to its proprietary techniques, as long as Benetech’s application of those techniques was confined to the humanitarian market. Similarly, the success of PATH’s project is dependent upon collaboration with the private sector. It must convince international manufacturers to invest in mass production of a new, high-risk, and potentially minimally lucrative product. Because the existing market for the current commercial female condom is small and largely dependent upon purchases by donor agencies, many companies are reluctant to make a deal. According to Michael Free, “Because this technology is largely for use in developing world populations, there is no incentive for investment and, consequently, no further development of product or market by the private sector. The desire for contraceptive barriers that could be controlled by women has renewed interest in the female condom among the public and philanthropic sectors, but the international manufacturing sector, with the means to scale up and achieve widespread impact, remains to be convinced.” In contrast, SELCO’s private sector partnerships have been constrained by government interference in the market. During the past couple of years, the German government’s solar subsidy program has created a shortage of smaller solar panels around the world. SELCO’s suppliers are all based in India, but are selling most of their production to the German market. This has increased the time required for SELCO to obtain parts. Hande is tackling this by investing more intensely with Indian manufacturers, creating long-term inventory plans and diversifying its product portfolio. The success of IDE India, like KickStart, has been its ability to enhance and partner with the local private sector. It has succeeded in convincing small-scale entrepreneurs to invest the capital required to manufacture small dripirrigation kits. Because the capital investment is relatively small and the market is large, these entrepreneurs have been willing to take the risk. The Cost of Market Development The organizations profiled in this article face high market development costs because they are designing new technologies for use in the relatively high-risk environment of developing countries. Benetech anticipates that one of its major challenges will be to generate a shift in perception among humanitarian deminers regarding when an area can be officially declared “demined.” The new technology will remove only active mines, leaving shrapnel, tin cans, and other metal objects. This maximizes the efficiency of clearing but will only work if people have confidence in the technology and change their perception of what constitutes a cleared field. Currently, areas are declared safe only after all metal has been removed, and a pass with a metal detector yields no signal. “We must start by integrating the new technology with existing methods of demining. Only after the deminers have extensive experience that proves a new tool is both safe and successful, will they consider modifying their protocols,” explains Fruchterman. “When the price of a mistake is injury or death, this is a sensible approach.” Thus, developing a market innovations / Davos 2008
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Julia Novy-Hildesley for this potentially superior technology will require time and investment. Similarly, PATH anticipates challenges in achieving widespread adoption of the female condom. Because the female condom cannot be used without the awareness of a sexual partner, it will require mutual consent. Until the technology is commonly used, women are likely to feel uncomfortable or unable to ask a male partner to accept the use of a female condom. PATH is addressing this hurdle by focusing the design and field trials on ease of use and comfort for both men and women to maximize the opportunity that both will have a positive first experience with the condom. In acceptability trials in Mexico, Thailand and South Africa, good comfort and overall sensation for both female and male participants was reported in 96-98% of uses. In addition, PATH develops training materials, promotional strategies and other innovative behavior-change approaches to help service providers and users employ the products effectively and build skills to broach the subject with their partners.8 SELCO’s partnership with SEWA Bank has allowed the company to overcome market development barriers that slowed its business growth over the past several years. Prior to working with SEWA Bank, SELCO had to invest precious equity in training 5,000 rural Indian loan officers, providing information that would convince them to lend to poor people interested in acquiring solar lighting and also to manufacturers and entrepreneurs who would produce and sell the products. SELCO had to demonstrate the technology’s cost-competitiveness against alternatives and the income streams resulting from access to solar lighting, which would enable borrowers to pay back loans. Even after trainings, loan officers were not entirely convinced, and SELCO had to effectively lower interest rates offered by banks by creating separate long-term, low-interest loan funds. These funds covered down payments and provided affordable interest rates for borrowers. SEWA has now taken on financing and technology promotion proving the profitability of solar lighting. For example, in one distribution scheme, a small entrepreneur owns and rents a solar battery and lamp unit. She charges the batteries during the day and rents the solar lamps in the evening to night market vendors, collecting the units in the morning for recharging. These vendors previously rented kerosene lamps for 14 rupees a night; they now pay just 12 rupees for solar lamps. In addition, solar lamps are easier to maintain, do not present a risk of fire, produce no noxious fumes and provide a higher-quality light. Prior to partnering with SEWA, SELCO’s investments in market development reduced the company’s resources for manufacturing, distribution and sales, slowing SELCO’s growth and profits. As Harish Hande of SELCO explains, “In effect, SELCO India used its precious and expensive working capital money to develop the market by creating incentive schemes for the financial institutions and endusers. Such programs were necessary to create faith and trust in a new technology like solar. For rural energy services to succeed, such trail-blazing costs need to be covered through other soft sources, thus not directly affecting the growth of the company.” Tapping into SEWA’s market and its loan funds provides a new avenue

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From Idea to Impact of growth for SELCO: SELCO markets to SEWA’s membership directly and SEWA Bank uses its own and Lemelson funds to provide loans for solar lighting. IGNITING INNOVATION Leaders of non profit and for-profit enterprises in the developing world are creating positive change based on the appropriate design and sale of technologies that generate entrepreneurial opportunity or meet other basic needs of poor people. The experiences of the organizations described in this article demonstrate the importance of effective partnerships among the private sector, those financing the projects, and those implementing them. Organizations require certain types of capital at particular times; PATH and Benetech taught us that high-risk grants for new technology design are particularly difficult to obtain. For market development and expansion, KickStart, SELCO and IDE India illustrated that greater philanthropic resources are required for market development and expansion, and that private-sector financial services must be provided to the end-users and manufacturers who are building the supply chains for important new technologies. Donors and investors must enhance their understanding of the experience of organizations working through the Idea to Impact process to create a seamless pipeline of resources for organizations that are generating positive impact on the ground. To advance this agenda, the Lemelson Foundation recently hosted a meeting of many of the organizations discussed in this article, as well as foundations, banks, and venture capital companies.10 Participants identified strategies to address challenges faced by organizations that advance invention-led development. For example, participants suggested hosting investor forums in developing countries to allow funds to flow more efficiently to implementing organizations, emphasizing that developing-country entrepreneurs often find it difficult to connect with donors and investors in industrialized countries. Recognizing the ability of many organizations to absorb loans and equity investments as well as philanthropic resources, participants also proposed pooling funds to leverage more investment and increase efficiencies by allowing donors to share due diligence and monitoring of funded organizations. In addition, to increase the standardization of information shared with investors, participants suggested that funded organizations define and implement best practices for measuring their social and financial impact. Mentoring and other non-financial services are also extremely valuable. Foundations and other organizations must continue to build networks of support to enhance the impact of organizations pursuing invention-led development. Many institutions have already made significant contributions to this effort. For example, the Schwab Foundation for Social Entrepreneurship provides social entrepreneurs with global recognition and access to its network of investors, transnational companies, and public figures through Klaus Schwab’s annual Davos meeting of world leaders. Ashoka, a non profit organization that honors and funds thousands of social entrepreneurs worldwide, connects its network to pro bono management, legal and marketing mentoring. In this vein, the Lemelson Foundation has created incubators called Lemelson innovations / Davos 2008
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Julia Novy-Hildesley Recognition and Mentoring Programs (L-RAMPs) to provide tailored and catalytic financial and non-financial support to local inventors and entrepreneurs in developing countries whose new ideas and businesses address basic human needs and create sustainable livelihoods for people earning less than two dollars per day. In Chennai, India, the Lemelson Foundation partnered with the Indian Institute of Technology, Madras, one of India’s leading institutions in higher technological education and in basic and applied research,11 and Rural Innovations Network, which provides comprehensive business services to enable rural entrepreneurs to take their innovations to market,12 to competitively select grassroots and student inventors and offer them access to technical and business mentoring that will allow them to take raw concepts from idea to impact.13 By learning about the challenges confronted by global innovators, donors and investors can work together to improve their facilitation of invention-led development. A growing number of for-profit and non profit organizations in the developing world are dedicated to improving the lives of the poor, and an increasing number of investors are interested in making a social impact. With the increased connectedness of local and global markets, there has never been a greater opportunity to build a middle class from the bottom up. Bringing interested investors together with enterprises that create appropriate and affordable technologies allows the nearly three billion people earning less than two dollars a day to build profitable and sustainable livelihoods. Acknowledgments
I thank Martin Fisher, Michael Free, Jim Fruchterman, Harish Hande and Amitabha Sadangi for their ongoing collaboration; they openly shared their experiences which formed the basis of the lessons drawn in the paper. Participants of the October 6, 2005 Lemelson Foundation Thought Leaders Strategy Forum contributed ideas for advancing collaboration between funders and entrepreneurs that are reflected in the papers. Kelly Kost, Pamela Hartigan, Will Novy-Hildesley and Doug Steinberg reviewed, enhanced, and edited the draft. Finally Satheesh Namasivayam and Doug Steinberg helped develop the Foundation’s international funding strategy and Idea to Impact framework.

1. The Lemelson Foundation defines invention as a new idea, product, or service; it defines innovation as a conversion of an original idea, product, or service to a widely accessible and adopted form. It uses the term invention-led development to refer to development that is driven by both invention and innovation. 2. For extensive illustrations of the importance of co-developing technological innovations with end-users, see: Boru Douthwaite. Enabling Innovation: A Practical Guide to Understanding and Fostering Technological Change. (Zen, Books 2002), and Everett Rogers, Diffusion of Innovation (The Free Press, 1995). See also Boru Douthwaite, “Enabling Innovation: Technology- and System-Level Approaches that Capitalize on Complexity.” Innovations 1:4 (Fall 2006), pp. 93-110. 3. See: Lewis M. Branscomb and Philip E. Auerswald, “Between Invention and Innovation: An Analysis of Funding for Early-Stage Technology Development.” National Institute of Standards and Technology, 2002; Penrose, Edith, The Theory of the Growth of the Firm (Oxford University Free Press. 1959); Richard R. Nelson ed., The Rate and Direction of Inventive Activity: Economic and Social Factors (Princeton University Press, 1962); and, Katherine Catlin, and Jana Matthews, Leading at the

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From Idea to Impact
Speed of Growth : Journey from Entrepreneur to CEO (Wiley,. 2001). 4. See <http://www.benetech.org?>. 5. See <http://www.path.org>. 6. See <http://www.sewa.org>. 7. See <http://www.selco-india.com>. 8. See <www.ide-india.org>. 9. Indeed, widescale adoption of the women’s condom will have to overcome stigma attached to condom use and other social barriers. It will not be suited to all contexts, but in the right setting can provide an effective tool in the fight against HIV/AIDS. The greatest potential may be among female sex workers and with committed couples. 10. “Igniting Innovation: A thought leaders’ strategy forum.” October 2005. A final report on the meeting is available on The Lemelson Foundation’s website. 11. See <http://www.iitm.ac.in/> 12. Rural Innovations Network, <http:// www.rinovations.org>. 13. The Indian Institute of Technology, Madras and Rural Innovations Network are implementing an L-RAMP pilot program in Tamil Nadu, India; see <www.lramp.org>. See also an article on the L-RAMP published in The Hindu <www.lemelson.org/news/articles_of_interest_detail.php?id=678>. Individuals recently selected for recognition and mentoring include a young woman who designed an improved asthma inhaler, a middle-class engineer who developed a magnetic fuel efficiency device, and an elderly man who created a fuel-efficient cooker. Each inventor has received a loan and has been assigned an advisory team with whom (s)he has developed a mentoring plan. For example, mentors from the L-RAMP network will guide the inventor of the improved asthma inhaler through validation of the aerosol spray characteristics, improved manufacturing design, and field trials.

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Expanding Possibilities at the Base of the Pyramid
Innovations Case Discussion: KickStart
The last decade has witnessed a seismic shift in our understanding of and approach to poverty alleviation. Driven in large part by the emergence of empowermentbased forms of development practice—most notably, Participatory Rural Appraisal1—and the success of the Grameen Bank and the microfinance movement it catalyzed, it is now well accepted that sustainable poverty alleviation must recognize the poor as central agents in that process. Indeed, in place of the image of the poor as helpless dependants waiting on Western largesse to extricate them from their predicament, the poor are increasingly recognized as highly resourceful entrepreneurs who possess valuable knowledge, resources and capabilities. In turn, business development and enterprise creation driven by the poor has emerged as a powerful philosophy and tool for addressing poverty and marginality. Significantly, this shift has simultaneously altered the role of the development practitioner—from that of a “development doctor,” who diagnoses the poor’s problem and prescribes the solution, to that of “enterprise facilitator”, who assists the poor in acting on their self-defined aspirations. KickStart and its founders demonstrate the power of this enterprise-driven approach to poverty alleviation, as their MoneyMaker™ pump has empowered

Erik Simanis is a Ph.D. candidate in Management at Cornell University's Johnson Graduate School of Management and co-director of the Base of the Pyramid Protocol® Project. He has worked to integrate sustainability and Base of the Pyramid concepts into corporate strategy as a consultant to Dupont, SC Johnson, The Solae Company, and ECOS Corporation, among others. Stuart Hart is the Samuel C. Johnson Chair in Sustainable Global Enterprise and Professor of Management at Cornell University. Before coming to the Johnson School, he taught strategic management and founded both the Center for Sustainable Enterprise (CSE) at the University of North Carolina's Kenan-Flagler Business School, and the Corporate Environmental Management Program (CEMP) at the University of Michigan. This case discussion originally appeared in the inaugural issue of Innovations. © 2006 Tagore LLC
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Expanding the Possibilities at the Base of the Pyramid over 30,000 income-poor people to start or expand their own income-generating businesses on their own terms. Much as microfinance loans make possible a wide variety of businesses, so, too, do KickStart technologies. By simply making KickStart technologies accessible to the poor through local market outlets, KickStart provides an enabling tool that expands the poor’s opportunity set and, consequently, their ability to provide for their own needs. Indeed, MoneyMaker pumps are used in a variety of income-generating activities—from expanding food crop production, to launching plant nursery business, to washing cars and even to providing and selling drinking water. As KickStart founder Martin Fisher observes, the combined impact of these thousands of locally spawned businesses produces country-level effects of significant proportion. The enterprise-driven suc[T]he massive opportunity for cess of organizations such as corporations presented by the KickStart and Grameen Bank has also contributed to a silent [Base of the Pyramid] is revolution taking place in cormatched by an equally porate boardrooms. Stung by the dual recognition that their daunting set of challenges. core market—the highest 20% of income earners on the globe—is saturated and offers limited future growth opportunities and that serving the rich at the exclusion of the poor will fuel an increasingly global backlash,2 multinational corporations (MNCs) are turning to the 4 billion poor that comprise the “Base of the Pyramid” (BoP) as a viable market.3 By learning to create business models and offerings that serve the needs of those at the BoP, the MNC opens up a market of massive growth potential while demonstrating a commitment to serving a diversity of needs and values. But the massive opportunity for corporations presented by the BoP is matched by an equally daunting set of challenges. First, the cost structure and material intensity of MNCs’ current business models preclude their easy extension to BoP markets. For though MNCs’ customers account for little more than 20% of the world’s population, these customers account for almost 80% of the resources consumed on the planet. In addition, relative to wealthy consumer markets, BoP markets are characterized by a completely different set of geographic (e.g., predominantly rural based), structural (e.g., absence of roads, telecommunications network), institutional (e.g., absence of Western property rights regimes) and cultural (e.g., different life aspirations) factors. Clearly, serving BoP markets sustainably requires a radical change in how corporations think of and do business.

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Erik Simanis and Stuart Hart It is with this in mind that we turn to consider the successes, as well as the untapped opportunities, that KickStart’s experience provides. For it is from pioneering organizations such as KickStart that corporations can gain valuable insight into alternative business approaches and models for sustainably serving BoP markets. WHAT IS “APPROPRIATE TECHNOLOGY”? How has KickStart succeeded in designing and disseminating a technology (the MoneyMaker pump) that has manifested such a tremendous impact on the lives of Kenya’s rural poor? What can corporations looking to serve the BoP learn from In theory, it is [Kickstart’s] KickStart’s experience? At first blush, and based on unique combination of design the information in the case, and marketing characteristics it would seem that the foundation for KickStart’s that convert otherwise success is rather straightforward: The organization inappropriate technologies and has created “truly approdevelopment strategies into priate” technologies and marketing strategies based potent, poverty-alleviating on the needs of the rural mechanisms. Yet ... the evidence poor. In other words, the configuration of their just isn’t there to support it. products and the way those products are advertised and disseminated are better suited to the unique needs of the rural poor, their socio-cultural structure, and their environmental conditions than other technology-based development offerings. Let’s explore this assumption. The KickStart case argues that income-generating technologies for the rural poor need to be simple to use and easy to repair, labor and time intensive in their use, priced sufficiently low to allow individual ownership, have low energy (nonhuman) requirements, and be environmentally sustainable. Ostensibly, such technologies do not exist and require Western engineering capability to produce. An appropriate marketing strategy would focus on the individual buyer and not impose any “arbitrary” ownership forms (e.g., women’s groups, collectives). In theory, it is this unique combination of design and marketing characteristics that convert otherwise inappropriate technologies and development strategies into potent, poverty-alleviating mechanisms. Yet, as appealing as the simplicity of this answer might be—for, if correct, global poverty alleviation would entail the application of a fairly straightforward set of principles—the evidence just isn’t there to support
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Expanding the Possibilities at the Base of the Pyramid it. First, we can point to a number of successful examples of technology-driven micro-enterprise creation among the rural poor that utilize technology designs and/or marketing approaches that diverge from those of KickStart. Let’s look in more detail at the cases of GrameenPhone and n-Logue, as they stand in stark contrast to KickStart’s experiences with its MoneyMaker pump. GrameenPhone, launched in 1997 in Bangladesh, outfits women entrepreneurs or “phone ladies” in rural villages with an off-the-shelf mobile phone and a solar recharger unit, the cost of which (approximately $175) is financed through microloans from Grameen Bank. The phone ladies retail the phone service to people in the villages where they live. The performance of Grameen Phone has been nothing but astounding. By August 2004, there were some 75,000 phone ladies with each One of the greatest sources of operator generating additional value delivered by the cell income of approximately $1000 per year. Recall that the per capiphone and internet access to ta income in Bangladesh is $286 the rural poor is time based. per year.4 Through the phone ladies, half of Bangladesh’s rural population now enjoys access to telephony. And Grameen Phone’s revenues are estimated at half a billion dollars. The India-based company n-Logue, also a privately-owned rural telecommunications company, piloted a locally engineered wireless-in-loop (WLL) voice- and data-splitting technology in India in 2001 called corDECT. The company relies on a micro-franchise model to equip rural entrepreneurs with a computer, monitor, printer, digital camera, back-up battery and application suite, all in local language. A corDECT wall set connects the franchisee to a central node that provides access to India’s internet backbone and national telecommunications network. In addition, the kiosk franchise owners receive six months of unlimited internet access, a marketing kit and introductory training. The cost of the package is approximately $1,200. Franchisees generate income by selling a variety of internet-based services,5 telephony, computer training, digital photographs and video showings. By 2004, n-Logue was operating in seven states and 1,900 villages, and expecting to enter an additional 4,000 villages in 2005. How do GrameenPhone’s and n-Logue’s technologies stack up against the criteria outlined in the KickStart case? First, it’s worth stating explicitly that, in both cases, all or part of the core technology offering is an existing, off-the-shelf technology (e.g., cell phone, computer) previously utilized only by the wealthiest of people. It was not necessary to redesign either the cell phone or the computer to make them appropriate for the rural poor. Although n-Logue’s extension of internet connectivity to rural areas indeed required the development of a “rurally-specific” technology, the technology is clearly not mechanically simple—nor one easinnovations / Davos 2008
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Erik Simanis and Stuart Hart ily repairable by anyone other than a highly trained engineer. The same would go for the cell phone and computer. And although technophiles would argue that the cell phone and computer are easy to use relative to a MoneyMaker treadle pump, they certainly require training.. Contrary to KickStart’s design assumptions, one of the greatest sources of value delivered by the cell phone and internet access to the rural poor is time based. Through cell phones and internet, poor rural farmers are able to get timely, up-to-date information on everything from crop prices to crop insect pests and even livestock illness, thereby allowing farmers to command higher prices for their crops and tend to crop disease or livestock illness before incurring heavy economic losses. In addition, phone and internet access save rural farmers the time (and expense) of journeying into town. Two days spent in transit are two days away from the farm, thereby jeopardizing crop yield and income. Impact assessments of Grameen Phone’s pilot study indicated that each call placed in the rural village saved the user $2.70 to $10, which translates into 2.5% to 10% of monthly household income.6 Indeed, the rural poor experience opportunity costs as much as or even more intensely than wealthy people. Energy-wise, both the cell phone and the n-Logue computer system are dependent upon electricity. Cognizant of the unreliability (and even outright absence) of rural electrical grids, each of the businesses addresses this gap by simply providing a mobile energy source as part of the technology package. And in Grameen Phone’s case, the energy source relies on solar power. From a pricing standpoint, it’s not clear if the $175 cost of the cell phone kit is a priori “affordable,” given that the annual per capita income in Bangladesh is $286. Relative to the MoneyMaker pump, which retails at $88 (by virtue of grant subsidies) in Kenya—a country whose per capita annual income is comparable to that of Bangladesh—the cost of the phone kit is seemingly pushing the threshold of affordability. At $1,200, n-Logue’s computer franchise package for India’s rural poor appears absurd. However, ex post, the cost of the technology packages is clearly affordable, as the revenues generated by the micro-businesses are sufficient to pay for the financing cost of the technology while leaving profit. The important point is that “affordability” is not inherent to a technology—affordability is a function of the business model within which the technology is embedded. Let’s briefly turn our attention to the issue of marketing and dissemination strategy, particularly in the case of Grameen Phone. As stated in the case, KickStart argues strongly against “arbitrary” segmentation perpetuated by development professionals (e.g., women) and “Marxist-based” models of collective ownership. Such approaches not only fail to reach the right customers, they also create mis-aligned incentives, inevitably leading to what economists call moral hazard. Yet Grameen Phone and Grameen Bank, as many are aware, target women for its customers. They do so in the belief—supported by empirical studies—that women, more so than men, invest additional income in their children’s health and education. In addition, Grameen Bank, which finances the phone purchases, utilizes a solidarity lending model in which a group of women collectively become the guaran78

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Expanding the Possibilities at the Base of the Pyramid tors of unsecured loans issued to individual women in the group. Conventional economic wisdom suggests that such a loan scheme—which removes a large part of the risk associated with an individual’s loan—would be ripe for abuse. However, Grameen Bank’s loan repayment rate stands above 95%, a rate far better than that of traditional banks. The success of the solidarity lending model—and Grameen Bank’s and GrameenPhone’s business model—is dependent upon the communal ties that exist among women in rural Bangladeshi communities. Indeed, the assumption of individual self-interest and rent-seeking that underlies traditional banking approaches raises significantly the cost of doing business (as they require intensive background screening, paper work, demonstration of collateral, and credible threat of legal recourse) and, thereby, raises the price of loans beyond the reach of the poor. As we’ve seen, if we were to extract a set of “appropriate” technology design and marketing approaches from the success cases of Grameen Phone and n-Logue, our list would be practically the reverse of KickStart’s. But there is yet another reason to doubt that any such criteria form the foundation for KickStart’s success— for there are examples of failed micro-enterprise development interventions that compare favorably with KickStart’s criteria. The animal-drawn wheeled toolcarrier—the subject of Paul Starkey’s 1988 study7—was designed as a multipurpose farming tool to boost farming productivity, primarily in Asia and Africa. The toolcarriers could be used for everything from plowing, seeding, weeding and transport. As Chambers recounts, the toolcarriers “were designed by agricultural engineers, developed and tested in workshops and on research stations, and then passed on to farmers for trials and to manufacturers for production.”8 The resources and brainpower that went into some three decades of research and development on the toolcarriers are astounding. Starkey estimates that the development costs (in 1987 prices) were over $40 million, involving hundreds of senior and junior staff at multilateral institutions such as the International Crops Research Institute for the Semi-Arid Tropics (ICRISAT).9 By most estimates (prior to Starkey’s 1988 publication), the animal-drawn wheeled toolcarrier was an “appropriate” technology that blended Western design capability with local environmental conditions. At the time, it compared favorably with KickStart’s current criteria. Critically, the toolcarrier’s central purpose was to boost farming productivity and efficiency and, hence, generate additional income. Economic forecasts from a research station in Senegal suggested that the wheeled toolcarriers would “allow cultivated surfaces to double…while at the same time allowing returns to both area and labour to increase.”10 An ICRISAT analysis claimed that the additional incremental profits generated by the toolcarriers would pay for the $1,000-plus costs of the equipment within a year’s time. Given the success of n-Logue’s $1,200 computer franchise package, these forecasts certainly sound plausible. The design relied on Western engineering capability and research, much of which took place on agricultural research stations dotted across the developing

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Erik Simanis and Stuart Hart world. Even the design principles articulated by Jean Nolle, a French agricultural engineer and pioneer in the development of toolcarriers for the better part of three decades, included simplicity of design, multi-purpose use, and standardization of components.11 Ruggedness and simplicity of use and ease of manufacture and repair were central concerns. As well, the toolcarriers did not require electricity or fossil fuels, simply animal power. Much like KickStart, many dissemination strategies, particular during the 1960s and 1970s, relied on private-sector manufacturing and distribution. Private sector-led initiatives could be found in India, Botswana, Brazil, Mexico, Senegal and Cameroon. During the 1980s, a shift toward government and aid-sector distribution of agricultural implements shifted trading patterns, with manufacturers of toolcarriers moving out of direct sales to focus on governmental and aid agency contracts. In the end, however, the wheeled toolcarriers were flatly rejected by farmers, who argued that single-purpose implements better suited their needs and that the toolcarrier’s cost was too high. Once again, ex post, one can easily identify a host of design flaws that might explain its failure. But the point remains that had KickStart’s criteria been in place three decades ago, the same outcome would have resulted: The toolcarrier would have been deemed appropriate and launched into the market with expectations of success. Yet, if this example isn’t sufficiently convincing—as we recognize that our and Starkey’s readings of this technology and its history are but one of many—there is another organization whose technologies adhere letter for letter to KickStart’s design and marketing principles but that have failed to catalyze significant rural micro-enterprise development: KickStart itself. For it is important to remember that no other KickStart technology—which among others include an oilseed press, a soil block press, a hay baler, and a pit latrine slab—has had an effect remotely comparable to the MoneyMaker pump on rural micro-enterprise development and, consequently, on rural poverty reduction. As its 2003-2004 annual report indicates, over 98% of the organization’s unit sales (9,007 out of a total 9,189 units sold) are generated by a single product type: the micro-irrigation technologies. And the MoneyMaker line of pumps was not KickStart’s first product released into the market—so success doesn’t stem from longer market exposure. There simply is no easy way to explain the disparity in impact among KickStart’s own technologies. What this brief analysis reveals is that KickStart’s success has little to do with having hit upon some sacred, infallible set of design and marketing criteria that are inherently “appropriate” for the rural poor—otherwise, the pump’s success would extend over to KickStart’s entire suite of technologies. Indeed, the very use of the moniker “appropriate technology” often relies on a tautological logic: If a successful business incorporates a technology, the technology (and its dissemination strategy) is deemed appropriate; if no profitable business model can leverage the technology, it is relegated to the status of “inappropriate.” Yes, all of the factors and criteria identified in the KickStart case inform a business model and how the end80

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Expanding the Possibilities at the Base of the Pyramid user (the rural poor in this case) implements a technology, but they do not a priori determine business success or failure. They merely establish the context within which the entrepreneur innovates. Appropriateness, therefore, is not determined by the technology or the marketing approach but by the imagination of its user. REAL OPTIONS FOR REACHING THE “BASE OF THE PYRAMID” Back to our original question: Why has KickStart been successful, and how can companies learn from their experience? Clearly, KickStart is accomplishing something that few other organizations—for profit or otherwise—can claim. Boosting a country’s GDP by 0.5% while serving its poorest sectors is no small feat! But if the success of the MoneyMaker pump (and all other technologies) in catalyzing micro-enterprise has little to do with ingenious product design or marketing (or prescient knowledge of profitable business opportunities for that matter), where then do we turn? Before we address this question, let’s remind ourselves how difficult KickStart’s strategy for it is to build a new business, whether you are a multinational alleviating poverty through corporation entering a new-prodtechnology-based microuct market or a micro-entrepreneur in Kenya. The failure rate of startup enterprise formation businesses in the U.S. has been estiprovides an excellent mated to reach 85% in certain sectors, despite the resources people example of this real-options have available to them relative to the rural poor. “Good ideas” are a strategic framework. dime a dozen—turning an idea into a profitable business is where the rubber meets the road. Within such a context, the linear and highly regimented planning (and design) models that constitute the heart of much managerial and administrative training—both of business and development professionals—are likely to fail. It takes a different kind of organizational strategy, one that accepts and integrates ambiguity and uncertainty, not masks it behind a façade of numeric certainty. KickStart’s success, we believe, is the result of such an organizational strategy, one which we shall call a “real options” strategy.12 A strategy is distinct from a “business model.” KickStart’s business model consists of the organization’s particular configuration of resources and assets by which it manufactures, markets, finances, and distributes its pumps and other technologies. A strategy, by contrast, outlines how a firm intends to achieve its stated mission over time. Key strategic processes include defining the scope of the organization’s activities, the allocation and targeting of funds, and the choices one makes regarding organizational size and structure. innovations / Davos 2008
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Erik Simanis and Stuart Hart The notion of a real-options strategy takes its name and underlying logic from the “financial option.” A financial option explicitly recognizes the value of uncertainty (volatility) and time and the relationship between the two. Its appeal as a logic for guiding organizational strategy stems directly from its ability to value uncertainty. As we’ve argued above, new enterprise creation is a prime candidate for such an approach, particularly at the BoP. Fundamentally, a real-options strategy responds to uncertainty through a staged process of rapid, low-cost continuous learning supported by a flexible resource allocation and organizational structure. Small-scale experimentation and low-cost “probes” are the tools that enable such learning. Within a real-options logic, organizational flexibility is of central concern. As such, investments are targeted into establishing a core-capabilities platform from which the organization can respond in multiple directions based on new information. By extension, in place of a single-product approach, which can lead to over-commitment, a portfolio of products and technologies would be developed and tested, thereby spreading risk while increasing the number of “probes” in the market. Within a real-options framework, product or business failures are not considered wasted efforts, but valuable sources of information. Organizational growth and expansion—in people and infrastructure—would be limited until the experiments and small-scale pilots yield sufficient insight into the business model to justify scaling up or discontinuing. As the wheeled toolcarrier example demonstrates, having the organizational flexibility to terminate a low-value project is as valuable as the opportunity to scale-up one that shows promise. And the scale-up process itself follows an incremental approach, avoiding the all-or-nothing investment decisions which lock the organization into a single business model from the start. KickStart’s strategy for alleviating poverty through technology-based microenterprise formation provides an excellent example of this real-options strategic framework. The trial-and-error approach that the case alludes to conceals a deeper strategy that leverages the KickStart’s core competency in producing durable, culturally-sensitive, mechanically operated technologies within a highly flexible organizational design that facilitates rapid, low-cost learning. A visit to KickStart’s corporate headquarters in Nairobi quickly supports the notion that the organization’s resources are focused on harnessing and expanding its technology-development capability. Most of the organization’s formally trained personnel work in its Tech-Dev department (as do its ex-patriots), and a significant portion of its office space goes toward this function. And “cultural capital” clearly resides within TechDev, as decision-making power flows from Tech-Dev to the field. KickStart also maintains organizational flexibility and low experimentation costs by driving most of its operations through a variable-cost model. Manufacturing is outsourced. Products are sold through independent dealers. The Marketing/Sales group relies heavily on commission-based employees. The Impact Monitoring department is a recent phenomenon that has developed as demand for the pumps has increased, along with donor requests to learn the impact of their funds.
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Expanding the Possibilities at the Base of the Pyramid Unlike many NGOs, KickStart does not invest significant funds, research or activism into development issues. As the case suggests, KickStart does not believe in extensive training or skills development (other than operation of its equipment), does not focus on establishing “women’s self help groups,” nor address itself to a host of other potential domains (e.g., nutrition, health). KickStart believes in these important issues, but does not feel it possesses the capacity to address them effectively. In addition, the group’s philosophy focuses on the individual as the locus of change. Again, the critical implication is that KickStart maintains very low overhead, giving it the organizational flexibility to experiment and learn. KickStart maintains a portfolio of products that include an oilseed press, the soil block press, the treadle pump, and the hay baler, among others. The organization continues to develop additional technologies, many of which leverage a common compression technology. The products share a suite of common characteristics: all are manually operated and require, at most, two people to function; they are ergonomically designed and easy to operate; and durability and ease of repair are made possible by designs that require few moving parts. By maintaining a portfolio of technologies, KickStart gains greater market knowledge through its multiple touch points with the market and increases the likelihood that a successful match will occur. It’s instructive to recall that KickStart’s first technology was not the micro-irrigation pump, but the oilseed press (which only sold 49 units in Kenya in 2004 compared with 9,007 micro-irrigation pumps). Had KickStart bet the farm on its oilseed press—much as the developers of the wheeled toolcarrier— KickStart would not be in the position it is today. The value of a real options strategy for serving BoP markets is that it increases the probability that an organization will develop a product or service that a poor person or community will successfully embed into a profitable, wealth-generating local business. And as KickStart and other pioneering social entrepreneurs have demonstrated, demand for their products and services is ultimately dependent on the ability of the end-user—the owner of the MoneyMaker pump or the cell phone—to fashion a wealth-creating micro-enterprise. But, as we’ve suggested, catalyzing these micro-enterprises is not something amenable to deliberate, deductive planning, nor a natural outcome from a technology’s design characteristics, nor based on how we may market them. Yes, these factors comprise the boundary conditions within which business models are developed, but they do not determine them. As such, there is no silver bullet technology for dealing with the uncertainty of new enterprise creation. But there are strategies that can help organizations manage such conditions. KickStart’s real-options strategy is one such model.
1. Robert Chambers, Whose Reality Counts: Putting the First Last, (London: ITDG Publishing: 1997). 2. As demonstrated by the intensification of anti-WTO, WEF, and IMF protests, from Seattle, Davos, Prague, and Cancun to, most recently, Hong Kong. Furthermore, today’s demonstrators are as likely to include smallholder farmers and Third World women’s coalitions as they are American college students and European “Greens.” 3. C. K. Prahalad and Stuart Hart (2002), "The fortune at the bottom of the pyramid,"

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Strategy+Business 26: 54-67; C. K. Prahalad, The Fortune at the Bottom of the Pyramid (Philadelphia: Wharton School Publishing, 2004); Stuart Hart, Capitalism at the Crossroads (Philadelphia: Wharton School Publishing, 2005). 4. Hart, Capitalism at the Crossroads. 5. n-Logue facilitates the provision of various internet-based services, including education and training, telemedicine and health care, and agricultural and veterinary services. 6. Hart, Capitalism at the Crossroads. 7. Starkey, Animal-Drawn Wheeled Toolcarriers: Perfected yet Rejected (Braunschweig, Germany: Friedr. Vieweg & Sohn, 1988). 8. Chambers, Whose Reality Counts, p. 12. 9. Ibid. 10.Starkey, Animal-Drawn Wheeled Toolcarriers, p. 122. 11. Ibid, p. 16. 12. See Hart, Capitalism at the Crossroads, pp. 196-198.

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V. Kasturi Rangan and R.D. Thulasiraj

Making Sight Affordable
Innovations Case Discussion: The Aravind Eye Care System
About 40 million people in the world are blind. The prevalence of blindness in most industrialized countries of Europe and North America varies between 0.15% and 0.25%, compared with blindness rates of nearly 1.5% for the developing countries in Africa, Asia and Latin America. While agerelated macular degeneration, diabetic retinopathy, and glaucoma are the dominant causes in developed countries, cataracts are the major cause of blindness in the developing countries, accounting for nearly 75% of all cases in Asia. A cataract forms as the natural lens of the eye clouds over time, and has to be surgically removed and replaced by an artificial one. The causes of cataracts are many, but lack of proper nutrition and the effects of tropical weather are certainly two of the more significant. In 2006, an estimated 20 million people were blind from cataracts worldwide, more than 80% of them in developing countries. In 2006, India had nearly 7 million cataract-blind individuals, with roughly 3.8 million new cases occurring annually.1 With a population of over a billion, and a per-capita income of about $600/year (PPP $3,600), nearly 25% of Indians were considered to be below the poverty line, but much larger numbers (approximately 50%) were at income levels that would place treatment at private eye clinics beyond their reach. In theory, anyone who is unable to afford payment is eligible for free surgery at government-run district hospitals but in practice, a vast num-

V. Kasturi “Kash” Rangan is the Malcolm P. McNair Professor of Marketing at the Harvard Business School. Until recently the chairman of the Marketing Department (1998-2002), he is now the co-chairman of the school's Social Enterprise Initiative. R. D. Thulasiraj is Executive Director of the Lions Aravind Institute of Community Ophthalmology (LAICO). Mr Thulasiraj is also the Chairman of International Agency for Prevention of Blindness-South East Asia Region (IAPB-SEAR). Mr. Thulasiraj received a MBA in Management from Indian Institute of Management, Kolkata(Calcutta). This case narrative appears in volume 2, number 4, of Innovations; A case narrative describing Aurolab, a subsidiary of Aravind, was published in volume 1, number 3, of Innovations with the title “Making Sight Affordable (Part I).” The Schwab Foundation for Social Entrepreneurship has recognized R.D. Thulasiraj and the late Dr. Govindappa Venkataswamy as Outstanding Social Entrepreneurs.
© 2007 V. Kasturi Rangan and R.D. Thulasiraj innovations / World Economic Forum special edition
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Figure 1. Aravind Eye Hospital Locations ber of poor people prefer to pay a small fee to get better quality care at an NGO. Some government eye hospitals have reputations for offering good service, but overall the poor consumers prefer private or voluntary eye hospitals because the services are more reliable and overall outcomes better.2 The country’s capacity to perform cataract surgeries has surged from about 1.2 million a year in 1991-92 to nearly 5 million a year by 2006, much of it coming from the catalytic effort of entrepreneurial organizations such as the Aravind Eye Hospital. Roughly 25% of the work is done in the government sector, 40% by the NGOs, and 35% by private clinics. There are many examples of excellent public health delivery models around the world, but rarely do we see one that has been able to grow steadily over three decades, and yet simultaneously maintain, even increase, the excellent quality of its service. Aravind is an exemplar in this regard. Even more interestingly, it is fueled by a self-funding model: roughly 40% of its patients, those “paying” for its services, provide the profit margins to deliver a high-quality service for the rest of the 60%, “non-paying” poor patients. This paper attempts to dissect what we have learned from Aravind’s success for the benefit of healthcare professionals managing other similar public health systems. The first author, Kash Rangan, started his work with Aravind almost 15 years ago with the development of the first business case study of its workings. The second author, Thulasiraj, the nephew of Aravind’s founder, has been a part of the hospital group’s senior leadership team from the time of its founding.

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Making Sight Affordable

Figure 2. Income and Expenditure Note: The dollar to rupee exchange rate varied over the time period. It was about Rs 12 = $1 in 1980, about Rs 25 = $1 in 1993, and Rs 45 = $1 in 2006. THE FOUNDING OF ARAVIND In 1976, a retired ophthalmologist, Dr. G. Venkataswamy (better known as Dr. V.), then 58 years old, founded the Aravind Eye Hospital in Madurai (a bustling town of 3.5 million people in the southern state of Tamil Nadu) to address his mission of eradicating “needless” blindness in India and indeed all over the world. Starting with 11 beds in the living room of his home, he recruited his extended family to join in his mission. Today, with 3,500 beds in five hospitals, it is one of the largest eye care systems in the world. Figure 1 shows Aravind Eye Hospital locations in India. In the most recent fiscal year (2006-2007), Aravind screened 2.3 million outpatients and performed 270,000 surgeries. Over the last 30 years since its founding, Aravind has screened 22.37 million outpatients and performed 2.8 million surgeries. One of the truly astounding aspects of this high-performance model has been the self-sustaining fiscal engine that has driven Aravind’s impressive growth. Figure 2 shows how its revenues and expenses have evolved since its founding in 1976. Because Aravind was set up as a charitable trust (i.e., as a nonprofit) the surplus has been constantly fed back into the system for improvements and expansion.

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V. Kasturi Rangan and R.D. Thulasiraj Learning-by-Doing Throughout its first three decades, Aravind’s strategy was very much shaped by an experimentation model: key ideas floated by one member of the group would be tried out, though not always with a fully fleshed out implementation plan. Early results would then be analyzed and a revised strategy readied, and the process repeated till tangible results emerged. The hybrid funding model itself was the result of such a strategy molding process. During the early years, 1976-78, Dr. V. was not very successful in raising money to support his vision of providing free care for those who would not be able to afford the fee, so he took a detour and arranged to build the ground floor of the “fee-for-service” hospital. But even then the senior management team had the vision to lay the foundation so that the facility could be expanded upwards. From the surplus of the ground floor operation, the first floor was built, and so on, till the five-story main hospital was readied. The free hospital was built following the completion of the main hospital using the cash flow generated from earned revenues. After it had served paying customers in its first few years, as a strategic necessity, Aravind learned the many advantages of the paying customer beyond merely providing funding sustenance; now the hybrid strategy of combining specialty clinics with cataract treatment began to gel. This then led Aravind to structure a unique, cutting-edge clinical practice environment as a way to attract and retain doctors. The same spirit of learning by doing has also pervaded many of Aravind’s other strategic forays. When Aravind formulated its early strategy on eye camps, the “yield” was below 20%. That is, less than one in five potential patients actually availed of the offer of free surgery. Through a process of client research its field personnel discovered the many barriers that poor rural people faced in making the choice to have the surgery. It added services—food, lodging, and transportation—to address exactly those constraints. Today the acceptance rates are over 90%. Through a similar process of trial and error the yield at refractive camps (those where eye glasses are prescribed and fitted) have surged from less than 10% in 2000 to over 80% in 2006. Aravind now takes with it a selection of frames and lenses, including the equipment to make adjustments and fittings to deliver the prescriptions on the spot. A small amount of custom glasses alone are mailed to the patient from a central facility. But trial and error also means that unsuccessful experiments must be terminated. In the 1980s, to make it convenient for rural people to accept the surgery, Aravind engaged in several surgical camps on-site. That is, the outreach organization would temporarily convert a facility, such as a school building, into a surgical facility, and Aravind doctors and support staff would do the surgery. Soon Aravind realized that the medical outcomes were hard to manage because of the variable quality of the surgical environment. So Aravind abandoned the surgical camp model and converted to a screening camp only model.

Making Sight Affordable

Figure 3. Virtuous Cycle of Performance at Aravind SUCCESS DRIVEN BY VISIONARY LEADERSHIP AND FIVE KEY STRATEGIC CHOICES Dr. V. died in July 2006, but for most of the 30 years since the hospital’s founding, he was undoubtedly the system’s visionary and architect. It may be tempting for writers, especially those who have personally interacted with Dr. V. and experienced the breadth of his vision, his boundless energy, and his enormous will power, to ascribe Aravind’s success primarily to his leadership qualities. But many other significant forces also influenced Aravind’s success, including the contributions of several key family members who were important members of the group’s core leadership team.3 Moreover, Dr. V. was acutely aware of the importance of management systems as a way to scale the model. He also knew that Aravind had to be molded into a learning organization, so that it could grow rapidly to achieve its audacious ambitions. Above all, he knew that if the organization was to succeed, it needed a leadership team to assume responsibility for its growth. The success of Dr. V. and Aravind lay in their masterfully constructing—over many years—a health care system in which many components were strategically designed and brought together. Underlying the development of that system were numerous innovations and strategic choices. Some are based on hard-nosed economic reasoning and others have to do with the development of management processes that consistently align the organization with its mission. Every one of those elements is tightly interwoven into a virtuous cycle of performance, reinforcinnovations / Davos 2008
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V. Kasturi Rangan and R.D. Thulasiraj ing and amplifying their individual contributions. Five key strategic choices are particularly notable. The first strategic choice key to Aravind’s success has been the organization’s unstinting focus on the elimination of cataract blindness. In founding Aravind, Dr. V. could have gone in many directions to eliminate blindness. He chose cataract blindness. That first singular choice was the most important in Aravind’s development, and the rest of its later strategy was predicated on it. The organization’s second [D]uring those early days, one key strategic choice—to purof Dr. V’s main obsessions was sue a “hybrid” business model—was initially driven by to study the principles that necessity. While Aravind’s mission from the outset was to enabled retail systems, such as serve the under-served, particMcDonald’s and Sears, to ularly the rural poor, Dr. V.and his early core management attain scale... [I]f Aravind was team (his brother, Mr. G. truly to have an impact, it had Srinivasan; his sister, Dr. Natchiar and her husband, Dr. to design a system to take care Namperumalsamy; and Dr. of the millions of rural poor Nam’s sister, Dr. Vijayalaksmi and her husband Dr. M. who were cataract blind. Srinivasan) recognized that in order to achieve this mission they needed funding. Lacking other options, they decided to raise revenue by building a clientele of paying customers seeking specialized services. They soon recognized that their improvised, hybrid business model had many advantages over the alternative of offering only one level of service to patients unable to pay; earning revenue to cross-subsidize their core mission was only one of the many benefits. (See the text box above titled “Learning by Doing.”) The core motivation behind the hybrid operating model was the ambition to reach a scale of operations that matched the scale of the challenge. Surprising as it may seem, during those early days, one of Dr. V’s main obsessions was to study the principles that enabled retail systems, such as McDonald’s and Sears, to attain scale. Given India’s population demographics and disease incidence, if Aravind was truly to have an impact, it had to design a system to take care of the millions of rural poor who were cataract blind. That led Aravind to adopt and refine the channel of “screening camps” as a way of reaching out to the rural poor, as described further below. Having put in place a strategy for gaining volume, the next big challenge lay in building the capacity to take care of the massive volume of cataract surgery that was being targeted. This led to Aravind’s third key strategic choice: to design an
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Making Sight Affordable operational system that would be low-cost, without compromising on the quality of care. The design of an “assembly” line system was a direct outcome of this effort. Clearly a low-cost assembly line system would produce quality outputs at affordable cost only if the components going into the assembly were high quality at low cost. This logic led Aravind to its fourth key strategic choice: vertical integration of key production inputs. Ultimately none of these systems would have had staying power without the fifth key choice: to have doctors and support staff work together as the human engine to design and run such a system. The healthcare delivery model needed to be supportive of the highly disciplined and motivated work force. This was the behind-the-scene crucial fuel that provided the energy to sustain the other four key elements of strategy. Every one of these strategic elements that we have briefly alluded to was critical to Aravind’s success, as Figure 3 indicates. If even one element failed, the entire system could unravel, but if they all clicked the synergy would be exponential. We attempt to explain each of these factors in more detail in the following paragraphs.4 1. A Predominant Focus on Cataract Treatment In practice, Aravind is a multi-faceted research and clinical institution with many centers of excellence in ophthalmic specialties, such as Retina and Vitreous Surgery, and Laser Procedures, but in principle it remains a large scale “focused factory,” emphasizing cataract surgery. A little over two-thirds of all Aravind surgeries are for cataract removal, for good reason: cataracts are by far the leading cause of blindness in India, and therefore the quickest route to making a dent in the blindness problem. So even though Dr. V.’s ambition called for the organization to take on the elimination of blindness as its overarching “big mission,” in reality the organization focused on cataract treatment. Nor did the organization get deflected in making “prevention” a significant piece of its programming. Because of Aravind’s wide reach into rural communities, it may seem well suited to carry out the critical functions of education and information dissemination, but those in its target audience comes to its camps much later in the cycle after they have incurred the affliction, rather than before. Every year, Aravind conducts several studies, as part of its public health research program, that investigate the causes of blindness, including nutrition, lifestyle, culture, and customs, but once again these activities are not a significant part of its core programs, which are focused on cataract treatment. In 2000, recognizing that its outreach program could benefit the huge numbers of those who would need prescription glasses, Aravind started a Refraction Camp service. In 2006 alone, it ran 1,442 such camps, screening 411,486 people and fitting about 60,000 with prescription glasses. This kind of laser-like engagement is valuable, especially in the delivery of public health. Causes of illnesses are complex, and often one cannot undertake treatment without engaging in prevention. But it may not be possible for any one entity to cover the full span from prevention to treatment. Many different institutions and organizations will all have to work in a coordinated fashion to cover the entire innovations / Davos 2008
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V. Kasturi Rangan and R.D. Thulasiraj spectrum. Aravind’s focus was “cataract surgery.” In essence, even when Aravind extended itself through refraction or diabetic retinopathy outreach camps, it stayed very faithful to its strategy model. Patients identified as needing further treatment at either of these camps were provided a definitive solution within hours when fitting glasses or within days in the case of diabetic retinopathy. More recently Aravind has moved into the treatment of another eye ailment, diabetic retinopathy, which, like cataract, is widespread in India. As the name indicates, some diabetic patients will develop a condition in the retina that leads to the bleeding of blood vessels. Unless treated with laser procedures in a timely fashion, the ailment can result in permanent loss of eyesight. In India, the World Health Organization (WHO) estimates that currently 3.2% of the general population, or about 32 million people, have diabetes. Roughly 20% of them would have developed diabetic retinopathy and among these, 20% would require active treatment such as a laser procedure. The WHO also estimates that in the next 25 years the prevalence of diabetes in India will increase to 5.6% of the projected population of 1.4 billion, or about 80 million persons.5 In the 2006-2007 fiscal year, over 70,000 outpatients were screened for this ailment (through mobile screening camps and patient visits to one of Aravind hospitals), and nearly 3,500 were identified as needing treatment. 2. Client Segmentation and Quality Assurance The core mission of the hospital and the primary purpose of its founding was to address the needs of the vast numbers of poor, who live mainly in rural areas. Recognizing that surgical centers in urban centers would not be able to attract the vast masses of the rural poor (about two-thirds of India’s poor), Dr. V. pioneered the massive use of eye screening camps to reach out to the rural poor and bring into the base hospital those selected for surgery. Instead of waiting for those in need to come to its door, Aravind conducts eye camps in rural areas to find patients. Medical teams work closely with community leaders and service groups to set up camps that screen hundreds of people in a single day. Free screening camps are held every day, and while Aravind provides the staff and the medical equipment, community partners like the Lion’s Club, charitable organizations, or local philanthropists publicize and organize the camp and provide food and busing for those selected for surgery. The same afternoon or evening of the camp, those selected for surgery are then transported by buses to a base hospital for surgery the following day. (Aravind recognized the value of partnerships with local communities and philanthropic organizations to gain scale, especially in reaching out to poor patients in far-flung villages.) In the most recent year, 2006-07, Aravind offered 2,049 outreach screening eye camps. Of the 270,000 surgeries performed, over 110,000 were admitted through these outreach activities and received free surgeries. These admissions and another 35,000 walk-in patients to the “free section” in the base hospitals accounted for about 60% of all surgeries performed.6 Paying patients made up approximately 40% of the total pool. These are
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Making Sight Affordable patients who walk into one of the five hospitals seeking the high-quality services they would seek in a private clinic. Such customers are provided a differentiated service in both the outpatient and inpatient clinics. A dedicated part of the hospital is devoted to their care and recovery. The paying segment is crucial to Aravind’s strategy for two reasons. First, patients pay market prices for their eye care because Aravind is the quality leader in its field, and the income generated subsidizes the organization’s core mission. Second, paying customers set high demands on quality care (at least higher than non-paying customers), and those standards are used as a benchmark for nonpaying customers. Because the paying patients are so central to its funding model, Aravind provides them a differentiated service: beds (as opposed to floor mats), optional air conditioning and semi-private bathrooms. But in spite of such differences in the pre- and post-operative services, the same team of surgeons provides the surgery. Doctors rotate between the “free” and “paying” hospitals on a set schedule, so that whether senior or junior, every doctor treats patients at eye camps and in surgical procedures. Because Aravind’s paying patients subsidize its nonpaying patients, it avoids some of the critical problems of funding sustainability that other nonprofits and NGOs face on this front. But Aravind’s paying patients play an important quality assurance role, and an even more crucial professional development role. Without the earned-income pool of paying patients, market feedback would be muted. If that occurred, the discipline needed to maintain high-quality standards would diminish, and so would the treatment of poor patients. Partly to address the market needs of this funding segment, Aravind offers a comprehensive variety of non-cataract specialty clinics. Retinal detachment corrections, vitreous surgery, laser procedures, and other special treatments make up nearly 25% of Aravind’s services. Aravind’s doctors are challenged to master new skills for these specialist disciplines, which helps them remain committed to Aravind. Without such intangible benefits, doctors could well be tempted by the higher salaries at private clinics. Many surgeons might not consider cataract surgery, alone, to be professionally challenging and rewarding, even if it provided the spiritual satisfaction of serving the poor and needy. 3. A Laser-Like Focus on Operational Efficiency and Cost Control During the 1970s and 1980s, India had only about 12,000 ophthalmologists, which severely handicapped its capacity to treat its blind. It was this “production” bottleneck that Dr. V. addressed by his innovative “assembly” line system for surgery. Patients were readied for surgery in groups, with qualified ophthalmic assistants doing almost all the preparatory work including the anaesthetizing, so that surgeons could focus on the surgery itself. When the procedure is completed, appropriate supplies are quickly provided as the next patient is brought in and the treated patient is escorted to the recovery room. Each operating room, except those used for complicated surgeries such as retinal detachment, usually had two or three operating tables as a way of efficiently utilizing the OT supporting staff. At each innovations / Davos 2008
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Figure 2. Comparison of Costs (U.S. and India)
Sources: Naeim A. 2002. Healthcare Cost-Effectiveness Analysis for Older Patients: Using Cataract Surgery and Breast Cancer Treatment Data. RAND publication RGSD-168 [top]. Aurolab. 2004 [bottom]. Reproduced from “Making Sight Affordable (Part I): Aurolab Pioneers Production of Low-Cost Technology for Cataract Surgery,” by Mahad Ibrahim, Aman Bhandari, Jaspal S. Sandhu, and P. Balakrishnan, Innovations 1:3 (Summer, 2006), pp. 25-41.

operating table, there are multiple sets of instruments and support staff to ensure that the waiting time between surgeries is almost zero. The same principle is also applied in the outpatient examinations: trained support staff carry out all the routine diagnostic procedures, some of which tend to be quite time consuming. The

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Making Sight Affordable ophthalmologists perform only those tasks, such as surgery or diagnosis, which require good clinical judgment based on their medical knowledge. This process not only enhances the utilization but also improves the quality. Both of these in turn reduce the cost of care. Aravind’s process of readying the patient for surgery, performing the surgery, and getting the patient through recovery is all configured like a modern assembly line. So while the average ophthalmologist in India performed about 400 cataract surgeries a year, an Aravind doctor performed about 2,000: an efficiency factor of about 5. Much of the efficiency can be attributed to the superbly constructed assembly-line process, even though the Aravind surgeons, because of their training and long work hours, perform more surgeries compared to their Indian counterparts. The factors behind this level of efficiency can be broadly grouped into the following categories, listed in the order of importance: • steady flow of patients—keeping patient supply line busy; • surgical flow, which ensures minimal waiting time between surgeries; • well-trained surgical assistants and adequate staffing; • detailed logistics planning ensuring zero downtime for want of supplies or equipment; • daily micro-planning to match the surgical load to staffing and supply requirements; and • surgeons’ skill and stamina. As a result of all these factors, by 2006, Aravind’s cost of providing cataract surgery was about $18 per person—including the intra-ocular lens (IOL). In comparison, the cost of surgery in the U.S. is about $1,800 and the lens alone could cost as much as $150. Studies of patient outcomes have shown that the quality of care in Aravind Eye Hospitals is comparable to that in top hospitals, not only in India, but in the U.S. and other developed countries as well. See Figure 4. 4. Vertical Integration As shown in Figure 4, two important cost elements are personnel and the critical components in the surgery: in this case the salaries and wages of the doctors and nurses and high-tech essentials like the IOL. An essential part of the Aravind model is to leverage the doctor’s time by providing him/her the support of highly efficient and trained ophthalmic assistants (nurses). But doing that required hiring and training large numbers of assistants and retaining them. Such a large pool of talent was not easily available, so Aravind chose to create its own supply. Similarly, later in its growth phase, as surgical techniques and technologies evolved, Aravind was caught in a huge quality gap between the paying and the poor, because it lacked an essential component in the surgery for the poor: the intraocular lens. Again Aravind chose to innovate boldly in order to fulfill its mission. We briefly discuss those two initiatives as illustrations of its operational excellence. Nursing Staff: The clinical ophthalmic assistants, often referred to as nurses, continue to be the backbone of Aravind’s clinical operations. Each year over 300 young women, aged 18 to 23, from nearby villages are selected to undergo two innovations / Davos 2008
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V. Kasturi Rangan and R.D. Thulasiraj years of training at Aravind before they are hired there full-time. Since the hospital is spread across 5 locations, the recruitment pool comes from the service area of these hospitals. Most of these young women have barely passed high school, and under normal circumstances would not have found any meaningful employment in the village. Going to the nearby city to look for a job is a viable option but not entirely accepted due to cultural and social norms of most village dwellers, partly because of the real or anticipated fears of working in a large city, especially for unaccompanied young women. The training is given free and the women also receive free housing and a stipend. During the training, the emphasis is placed equally on developing skills in ophthalmic techniques and learning how to deliver those skills in a compassionate, patient-centric way. After the first six months of common training, each person is channeled to develop her skills in a specific area such as outpatient services, wards, operating room, refraction, patient counseling, housekeeping or medical records. Once they successfully complete training (over 98% do so), they are all absorbed into the Aravind system. Many families see Aravind’s structured training program and supervised living accommodation at the nurses’ hostel as the ultimate solution to gaining employment, vocational training, and income in a safe environment. After training, most such qualified women spend several years serving at Aravind, picking up confidence, skills and money. Their loyalty to the institution is demonstrated by the relatively low turnover: only 10% annually. Most go back to their families after three to five years of service at Aravind to marry and settle down. IOL manufacture: In the early 1990s, the preferred surgical technique for paying patients and in private clinics in India was ECCE (extra-capsular surgery with intra-ocular lens). This surgery was inevitably performed with an operating microscope: the surgeon left the posterior capsule intact and then inserted the IOL. The outcome for patients was far superior, but Aravind was handicapped by a lack of resources (operating microscopes, training for surgeons and the availability of cheap IOLs). But Dr. V., in his drive to provide quality care for the poor, drove an ambitious vertical integration program. The primary hurdle to IOL adoption in India at that time was price. IOLs sold for nearly $150 apiece in the U.S. and Western Europe, making IOL manufacturing among the most profitable segments of medical device manufacturing. In the early 1980s, strong profits in North America and Europe enabled American IOL manufacturers to donate some lenses to Aravind and other charitable eye hospitals. As Aravind’s surgical volumes grew, however, the donor organizations could hardly keep up. Only paying patients were offered the IOL option at a fee. Although IOL prices were coming down, Aravind and its patients, especially the poor, could not afford to buy the implants on the open market. Moreover, as the IOL implant became available, patients in their 40s and 50s came in for surgery, having heard that they could regain their vision fully and could go back to their livelihoods. Dr. V. and his colleagues looked for a way out. IOL manufacturing was considered extremely high-tech at that time. It required the latest in precision machin96

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Making Sight Affordable ing, sterile techniques, and quality control. While a few Indian companies were specializing in ophthalmic products, even fewer had yet ventured into IOLs.7 In 1992, based on the need for affordable IOLs, Aravind, with help from external supporters (David Green from Seva Foundation in the U.S.), began a process of technology acquisition that resulted in setting up Aurloab, an internal manufacturing capacity under the auspices of an independent charitable trust. Today, that facility produces more than enough quality lenses at an affordable cost to meet all its needs It sells the excess to other hospitals and NGOs in India, and the margins go to further support its core mission.8 5. Hardwiring the Spirit for Service Over the years, as we pointed out earlier, Aravind has constantly reinvested its operating surplus to acquire the latest technology and equipment, even while being very innovative in keeping costs to the efficient minimum. But in a highly service-oriented business such as eye care, especially when the majority of customers are from the poorer segments of society, what keeps the system humming is the people: the vast cadres of doctors and nursing staff that make the strategy happen. By 2006, the Aravind system had nearly 125 ophthalmologists, 615 clinical nursing staff, 480 people supporting other functions, 70 individuals directly involved in outreach activities, and 130 people in administration, totaling over 1,400 people engaged in the mission. It is a family business, but only about 35 of Dr. V.’s family members are part of the operation. How can such a huge system run on the philosophy of its founder and core management team, when it calls for extraordinary attention to efficiency and dedication to service quality? The answer is that throughout the system Aravind has inbuilt institutional mechanisms to motivate its human resources. For instance, its doctors are encouraged and supported in research activities, which can involve training in cuttingedge techniques. Given its size and reputation, Aravind has been able to attract doctors from leading academic institutions around the world to visit and spend some time training its doctors and doing research. The same is true for technologies from leading equipment suppliers. Aravind is often the lead user for advanced technologies or treatments. All of this, along with the satisfaction of providing people the gift of being able to see again, is the source of the doctors’ motivation. The nursing staff, too, as we pointed out earlier, is treated with care and attention to their own development. In a service business the welfare of the service provider is the key antecedent to the welfare of the client, and at Aravind this principle is thoroughly institutionalized. GOING TO SCALE It is important to recognize that Aravind’s strategy model was shaped by trial and error; it was a classic case of learning by doing. As a consequence, the core management team was in complete harmony with its direction, with Dr. V. being the chief architect and keeper of its mission. But even as the strategy was being jointinnovations / Davos 2008
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V. Kasturi Rangan and R.D. Thulasiraj ly sculpted, each key member took on primary responsibility for an aspect of the strategy and its implementation. For example, Dr. Natchiar oversaw the clinical and service side of the operations, including the crucial task of recruiting and training the nursing staff. Dr. Namperumalsamy oversaw the clinical specialties and advanced training for doctors, along with the connections to leading research and innovations in the field. As the group’s current chairman, he has been investing in its research capabilities. Mr. G. Srinivasan provided the oversight for the expansion and maintenance of physical plant. Dr. Vijayalakshmi and her husband M. Srinivasan provided the leadership with respect to cataract surgery and its advances. Thulasiraj provided the leadership in organizing outreach activities, and later for training outside providers who wished to learn from Aravind. Others, too, were handpicked by Dr. V. for special tasks. For example, Balakrishnan, with a Ph.D in engineering, was attracted from his U.S. job to take over the leadership of Aurolab, the manufacturing arm. As new hospitals were added, a second-generation team from Madurai would be transferred to the new location to get it launched. Because of their significant experience with the operating procedures and principles at Madurai, the translation was usually smooth. Interestingly, most discussions of strategy were informal within the core leadership group, and often took place outside the work environment. There was a tacit understanding of, and empathy for, each other’s perspective, so much so that strategy formulation was a group affair. There was harmony and coherence at the top. A key requirement for scaling is standardizing core activities. The nature of the screening activity at eye camps, or for that matter the surgical procedures for cataracts, are highly amenable to such value-engineering techniques. But that alone would not ensure a smooth scaling of the system. The surrounding activities that comprise the end-to-end system have to be standardized as well. Here is where Aravind has been innovative in its design of its healthcare delivery model. It is all boiled down into a routine: First, through word of mouth, and then through the discipline of formal analysis and written documentation, every activity is orchestrated, starting with how the eye camp is promoted, how the patients are brought in, and how the logistics is organized, all the way to how the medical screening occurs, and how patients are selected and readied for the trip to the main hospital. The same applies to the actual surgical procedure, and the pre- and post- surgical processes at the main hospital. LAICO (Lion’s Aravind Institute for Community Ophthalmology) came into existence in 1992, essentially to promote best practices in the running of an eye hospital. Internally, with ambitious plans to expand to other major sites like Coimbatore, the senior management felt the need to formalize the lessons it had learned. Even then, those in the center realized that much of the hospital’s cost leverage came from its systems perspective, not just the routinization and standardization of its treatment protocol. And the knowledge gained could not only readily be applied to Aravind, but perhaps could be transferred to other like-minded institutions as well. Over the last 15 years this direction has translated into a number of structured training programs, consulting and capacity building activi98

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Making Sight Affordable ties, research and publications. LAICO has been in the forefront in promoting best practices, especially in the area of management. Its most significant work and contribution has been in the area of capacity building in other eye hospitals. This came out of the realization that most eye hospitals in the voluntary and the government sector were under-performing when benchmarked against their own capacity and the unmet eye-care needs in their own service area. LAICO has worked with over 225 eye hospitals to enhance their capacity, essentially in cataract services. While most of these hospitals are in India, about 40 are in other countries, including Tanzania, Sri Lanka, Nepal, China, Indonesia, Bolivia, and Sub-Saharan African nations. Studies have shown that on an average, the participant hospital’s productivity has jumped by 50% on most factors a year after the appropriate lessons have been implemented in each of these hospitals. In 2006, not satisfied with its reach and expansion, Aravind set a goal of performing one million surgeries a year by the year 2015. The senior leadership group has put together a strategy to achieve this through the concept of “Managed Hospitals,” which involves staffing and managing the day-to-day operations of an eye hospital that is not owned by Aravind. In this partnership model, the partner manages the investments and creates an enabling interface for the hospital’s effective functioning. A core team from Aravind Eye Hospital would manage the staffing through local recruitment, selection and training at Aravind Eye Hospital. The hospital would be run as if it were an integral part of Aravind’s own network of hospitals. In the pilot phase, three hospitals in India (at Kolkata in West Bengal, Amethi in Uttar Pradesh, and Amreli in Gujarat) are functioning in this mode. The next great “learning-by-doing” experiment has thus been launched. If successful, an exemplar system will achieve another level of scale, with millions more cured of blindness.
1 Krisnan, Pavithra. Infinite Vision. Aravind Eye Care System; Br J Ophthalmol. 1990; 74 (6):341-3. 2. The Lancet • Vol 355 • January 15, 2000: 180-4 3. Dr. V’s sister, Dr. Natchiar; her husband, Dr. Namperumalsamy (Nam), now the hospital group’s chairman; Dr. V’s brother, Mr. G. Srinivasan; Dr. Nam’s sister Dr. Vijayalkshmi; and her husband Dr. M. Srinivasan, along with Dr. V’s nephew, R.D. Thulasiraj, have all played important roles in building the institution. The second- generation team is now very active in the development and implementation of its strategies; among them are Dr. Aravind, Dr. Prajna, Dr. Kim and his wife Dr. Usha, Dr. Kalpana, Dr. Ravindran, Dr. Balakrishnan, and R.D. Sriram. 4. For a more conceptual explication of the Aravind strategy model, also see V.K. Rangan, “Lofty Missions, Down-to-Earth Plans.” Harvard Business Review 82, no. 3 (March 2004). 5. Source: Global Prevalence of Diabetes—Estimates for the Year 2000 and Projections for 2030; Sarah Wild, MB, BCHIR, Ph.D, Gojka Roglic, MD, et. al; Diabetes Care, Vol. 27, No. 5, May 5, 2004: http://www.who.int/diabetes/facts/en/diabcare0504.pdf 6. Roughly a third of the 60% “free” patients paid a small amount, equivalent to $10, and the rest paid nothing. 7. Ibid. 8. For more on Aurolab, Mahad Ibrahim, Aman Bhandari, Jaspal S. Sandhu, and P. Balakrishnan, “Making Sight Affordable (Part I): Aurolab Pioneers Production of Low-Cost Technology for Cataract Surgery,”Innovations 1:3 (Summer, 2006), pp. 25-41.

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Geoffrey Tabin

The Cataract Blindness Challenge
Innovations Case Discussion: Aravind Eye Care System
The first Champilimaud Award for the “contribution to vision in the developing world,” accompanied by a prize of Euro 1 million, was given in 2007 to the Aravind Eye Hospitals in Tamil Nadu, India. They could not have made a better choice. Aravind Eye Hospitals are the highest volume cataract surgery facility in the world. Their five hospitals examined over 2.3 million people and performed over 270,000 surgeries in 2006. Aravind is not only the highest volume cataract surgery system in the world but also a trendsetter that has lifted the quality of cataract surgery in India and set a new paradigm for delivering high volume, high-quality surgery to the poor in a self sustaining manner. The founding genius was a spiritual guru for all who now work in international eye care. Dr. Govindappa Venkataswamy, affectionately known by family and friends as “Dr. V,” passed away at age 87 in July 2006. He was born in 1918 in a poor farming village. There was no school in his village. After tending the water buffalo in the mornings, he would walk more than three miles to school every day. When a school finally came to his community, there were no writing materials and the students learned to write with sticks in the sand on the floor of their thatched roofed schoolroom. Despite these obstacles, the brilliant young Venkataswamy earned a scholarship to Stanley Medical College in Madras. Because of three cousins who died during childbirth, he chose to specialize in obstetrics. In his final year of training Dr. V was stricken with a severe form of rheumatoid arthritis. The young Venkataswamy was hospitalized for nearly two years. Agonized by constant, severe, physical pain he watched helplessly as his fingers twisted and deformed to the point where he knew his body could not function Geoff Tabin is Professor of Ophthalmology and Visual Sciences at the University of Utah and the John A. Moran Eye Center in Salt Lake City, Utah. Dr. Tabin is CoFounder and Co-Director of the Himalayan Cataract Project, which strives to eradicate preventable and curable blindness in the Himalaya through high quality ophthalmic care, education, and establishment of a world-class eye care infrastructure. He was the fourth person to climb the "7 Summits," the highest point of all seven continents; and has pioneered difficult technical rock, ice, and mountaineering routes on all seven continents including the East Face of Mt. Everest. Dr. Tabin is a graduate of Yale College, Oxford University (on a Marshall Scholarship) and Harvard Medical School. This case discussion appears in volume 2, number 4, of Innovations. © 2007 Geoffrey C. Tabin 100 innovations / World Economic Forum special edition

The Cataract Blindness Challenge delivering babies. He sought spiritual solace through the philosopher Sri Aurobindo at his ashram in Pondicherry. His meditation led him to a new direction, a quest to “not aspire to some heaven, but to make every day life divine.” He found his new purpose in ophthalmology. He taught himself new techniques to perform delicate eye surgery and designed special instruments to fit and work with his crippled hands. After completing his ophthalmology residency, he entered government service. In 1976, at age 57, Dr. V was forced to retire from his job as a government service ophthalmologist. Two years earlier, he had visited America and dined at a McDonalds. He became obsessed with how McDonalds was able to deliver millions of hamburgers with the same excellent quality, quickly and efficiently, to every customer. He decided that he should be able to deliver a consistent product of excellent cataract surgery, quickly and efficiently, to all the poor blind people in need in India. Thin and wiry, barely five feet six inches tall, with graying hair and his frail body obviously twisted by arthritis, Dr. V still radiated a quiet, gentle confidence that rallied the talents of family members and colleagues. Less than a year out of retirement he opened the first Aravind hospital, named for Auribindo, a twelvebed eye hospital in his brother’s home in Madurai. He set about to bring McDonalds efficiency and consistency to cataract surgery delivery. The history of the Aravind System is well chronicled in the accompanying article. One of the keys to their success was delivering a reliable product. Dr. V developed an assembly line method of serving up sight restoring cataract surgery. Eye care is one of the greatest public health challenges for the twenty-first century. Fifty million people in our world suffer in needless darkness. The vast majority will remain blind until they die. Ninety percent of this blindness could have been easily prevented or treated. Half are from treatable cataracts where inexpensive surgery can restore perfect sight. Several studies have shown that sight restoration with cataract surgery is among the most cost-effective interventions in health care. Preventing visual loss from other major blinding diseases—trachoma, onchocerciasis, and vitamin A deficiency—ranks with childhood vaccinations as among the most efficacious prophylactic treatments. Although the numbers are daunting, eliminating blindness from our world is a realistic goal. The World Health Association and International Association to Prevent Blindness have set a goal for overcoming needless sight loss by the year 2020. Despite advances in other areas, the number of people blinded by cataracts continues to increase. The number of cataract surgeries performed on people with mild visual impairment is increasing every year. However, the number of people rendered completely blind continues to grow. If we continue to operate at our current rate, with increasing life expectancy, the number of people blinded by cataracts will double by 2020. Advances in health care technology over the past century have led to marked improvements in the treatment of many conditions. Ophthalmology, in particular, has seen fantastic advancements that have led to improved outcomes for a wide variety of maladies. From laser treatment of retinal disease, to ultrasonic microininnovations / Davos 2008
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Geoffrey Tabin cisional cataract surgery, the quality of modern eye care has increased dramatically each year. However, these new technologies have also led to a steady rise in health care costs. In the developed world cataract surgery in particular has become ever more sophisticated and refined and ever more expensive. With increased public awareness that most people see well, and resume full activity soon after modern, state-of-the-art cataract surgery, patients in the Western world now come for cataract surgery as soon as they experience mild blurring. Ultrasonic phacoemulsification cataract removal with the placement of a posterior chamber intraocular lens implant has become the most frequent operative procedure performed in America with an annual cost to Medicare of 3.5 billion dollars. The main thrust of research in cataract surgery has been on creating incrementally better outcomes through ever more sophisticated and expensive techniques. As the technology continues to improve, the costs continue to rise. Many of the best doctors in the developing world want to emulate the methods performed by their colleagues in the West. The middle and upper classes of even the least developed nations demand, and are willing to pay for, what they perceive to be the latest and greatest surgical methods. Meanwhile the barriers to cataract care for the majority of the world’s poor are becoming ever more daunting Despite the incredible success and improvements in cataract management in the developed world, most people who are blind from treatable cataracts are being left behind and will die before they ever see a doctor. Moreover, if we apply the same standards for when a patient is considered ready for surgery that we use in the United States to the destitute of the world, then the number waiting for cataract surgery is staggering. If we decide to operate when a person has difficulty working at a job demanding reasonable vision, the number of poor people requiring surgery is well over 100 million! The gap between those who are totally blind and need surgery to survive, but are unable to attain it, and the wealthy of the world who receive expensive surgery for mild visual problems, continues to widen. There are several reasons why the poor are unable to obtain care. There are economic, social, and environmental barriers that must be overcome and addressed when designing a public health cataract intervention program. First and foremost is providing top quality surgery. The greatest requirement in having poor patients come for surgery is to provide them with superb visual restoration. Even the poorest of the poor recognize quality. When a neighbor or a friend has highquality surgery it leads to other people seeking care. If the surgical outcome is bad, then patients will not come. Next there needs to be excellent management of human resources to maintain the high quality while delivering care with maximum efficiency in a cost-effective manner. Use of human resources and the training of ophthalmic assistants, technicians, nurses, and lay helpers can increase public awareness and accessibility for all people. Finally, strategies must be implemented for cost recovery to allow the highest quality of care to be delivered to the poor in a sustaining fashion. With a small charge to those patients who can pay, and an enormous volume of surgery, free care can be provided for the destitute. Highquality care, training, education for the patients, and cost recovery from patients
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The Cataract Blindness Challenge who can afford care all combine to make the Aravind Hospitals the leader in cataract care to the poor in India. The Aravind approach has been called compassionate capitalism. Not only do they provide excellent free care but they have solved the issue of sustainability. At the core of their success was developing “Aurolab,” which manufactures and distributes needed pharmaceuticals, disposables, and most importantly lens implants for cataract surgery. With Fifty million people in our Aurolab-produced products and an efficient system, Aravind has brought world suffer in needless the cost of a single sight restoring darkness. The vast cataract surgery to under 10 dollars per surgery. Then with an enormous volmajority will remain blind ume, the 30 percent of the patients until they die. Ninety who can pay not only subsidize the free care for the remaining 70 percent of percent of this blindness patients but also allow the hospital to expand and remain state of the art. could have been easily The lens of the eye is similar to a prevented or treated. peanut M&M’s candy. It has an outer shell called a capsule surrounding a hard peanut, the lens nucleus, that is encased in a soft cortex of protein. With a cataract, the normally clear crystalline proteins in the nucleus and cortex become opaque. Early cataract surgery involved slicing the eye almost in half, removing the entire lens complex, and then giving thick, “Coke bottle” aphakic glasses to help focus light. In the best of hands, the results were moderate and visual recovery slow because of high astigmatism induced by the large wound and distortions of the image seen through the thick glasses. A major advance occurred when a British Surgeon, Harold Ridley, noted that a Royal Airforce pilot from World War Two had a small chip of windshield in his eye for more than twenty years without causing inflammation or damage. He postulated that he could make a replacement for the natural lens of the eye from the material of the windshield. This revolutionized cataract surgery. Sir Harold Ridley’s idea has led to the great advances in cataract surgery. Ophthalmologists now make a tiny self-sealing incision in the eye and a circular opening in the capsule (candy shell). The nucleus and cortex are removed and a replacement lens with the power calculated to give the patient excellent vision is placed back in the capsule in its normal anatomic position, restoring natural vision. Unfortunately, the cost of the replacement lens implants manufactured in the developed world was prohibitive—well over a hundred dollars for the least expensive brands. In order to provide cost-effective care, Dr. V. realized that the cost of the intraocular lens implant used to restore best quality vision after cataract surgery had to be reduced. In conjunction with Aravind, he began Aurolab which manufactured high-quality lenses for 5 dollars in Madurai. Aurolab then expandinnovations / Davos 2008
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Geoffrey Tabin ed to produce excellent low cost sutures for eye surgery, pharmaceuticals, and disposables for surgery. They now sell full surgery packs with everything needed for one cataract surgery for 10 dollars. Again, with an enormous volume and a highquality product Aravind’s compassionate capitalism has allowed care to extend beyond their own bases in Tamil Nadu. Doctors, nurses, and ophthalmic assistants from all over the world now come to Aravind for training. Meanwhile they have developed a great local network of outreach vision centers to screen patients. They perform outreach eye camps in the poorest areas of Tamil Nadu and bus patients who are blind to Aravind for their surgery. A combination of trained patient and family counselors, and attention to details such as feeding the family members who accompany the blind person back to Aravind for surgery, have led to a marked increase in cataract surgery volume. Like McDonalds, Aravind has become the brand name even the poorest of India’s poor can trust. Aravind has also served as an inspiration and stating point for other systems. The Tilganga Eye Care Hospital in Kathmandu Nepal, in conjunction with the Himalayan Cataract Project of the USA and Fred Hollows Foundation of Australia has achieved similar success. Led by Dr. Sanduk Ruit, who is one of the most brilliant innovators in ophthalmology, he is a master at delivering state of the art, Western standard-care, at a low cost and providing the best possible care to the poor. Dr. Ruit spent time at Aravind and brought many of their ideas to Nepal, including starting a factory to produce low-cost lens implants. Similarly, many of his surgical innovations have found their way back to Aravind and are now standard procedure. However, the topography of Nepal is different from India. It is difficult to bus poor patients into Kathmandu due to the lack of roads and isolation of many of Nepal’s poorest villages. Moreover, there is not a sufficient population density to support an ophthalmologist in the hilly regions. The strategy Tilganga adopted is to train ophthalmic assistants to be based in the mountains providing primary eye care, giving spectacles, and screening for eye disease. When a sufficient number of people in any given region is blind from cataracts a mobile team comes to the patients. Dr Ruit has perfected the art of setting up a sterile operation theater in the most remote settings and providing outreach microsurgery with the same quality as hospital-based surgery. Like Aravind, Tilganga has also emerged as an international training center for high-quality eye care. The Tilganga model is now being exported to many parts of Africa where similar geographic challenges prevent patients from reaching care. Meanwhile the Aravind sytem is spreading throughout India and extending into China. Not long ago in Nepal and most of India it was an expectation that as people grew older their hair would turn white, their eyes would turn white, and then they would die. Although death is still inevitable, thanks to Aravind Eye Care blindness in old age is no longer a certain outcome of a long life in Southern India. The challenge today is to extend that success to other regions of the world.

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Victoria Hale

Seeking a Cure for Inequity in Access to Medicines
Innovations Case Narrative: The Institute for One World Health
The top five infectious disease killers in the world are HIV/AIDS, tuberculosis, malaria, respiratory infections, and diarrhea. None of these, not even HIV/AIDS, has received sufficient focus by the pharmaceutical industry to meet global health needs. Though these diseases have severe global social and economic consequences, very few effective treatments are available. Further, there are insufficient incentives for industry to invest in developing new safe, affordable and effective treatments. Over 60% of the world’s population lives in the places where these infectious diseases are most prevalent: the tropics. These regions in the middle band around the globe—places such as sub-Saharan Africa, the Indian sub-continent, South East Asia, and parts of Latin America—have high population densities, high poverty rates and climates that are favorable to insects that transmit disease. Each year, millions of lives are lost to infectious diseases. Why, in the 21st century, is it that in some places people can get medical treat-

Victoria Hale is founder and chief executive officer of the Institute for OneWorld Health (iOWH). Dr. Hale has been elected to membership in the Institute of Medicine of the National Academies, is the recipient John D. and Catherine T. MacArthur Foundation Fellow (2006), and has been selected as an Ashoka Fellow. She received the Executive of the Year by Esquire Magazine (2005), The Economist Innovation Award for Social and Economic Innovation (2005), and the Skoll Award for Social Entrepreneurship from the Skoll Foundation (2005). Dr. Hale established her expertise in all stages of biopharmaceutical drug development at the US Food and Drug Administration (FDA) and at Genentech, Inc., the world's first biotechnology company. Dr. Hale earned her Ph.D. in Pharmaceutical Chemistry from the University of California, San Francisco. This case narrative appears, accompanied by a case discussion authored by Wesley Yin, in volume 2, number 4, of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Victoria Hale as an Outstanding Social Entrepreneur. © 2006 Tagore LLC innovations / Davos 2008

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Victoria Hale ment for nearly any condition, or even for a mere complaint, while in other places in the world millions of children die from diarrhea? The reason is simple. The therapeutic drugs that exist today are produced by for-profit pharmaceutical companies. These companies operate according to a very strict business model that requires a certain return on investment to shareholders for any project undertaken. Adhering to this business model leads these companies to pursue drugs for wealthy countries, focusing on heart disease, diabetes, cancer and so-called ‘lifestyle’ drugs. These targets of opportunity are consistently more appealing than taking on the challenge of treating tropical infectious diseases in places [F]ully one-third of the where other challenges, such as the lack of markets and distribuworld’s population lacks tion networks, also exist. access to essential medicines, As a consequence, fully onethird of the world’s population and in the poorest regions of lacks access to essential mediAfrica and Asia, this figure cines, and in the poorest regions of Africa and Asia, this figure rises to one-half. rises to one-half. Between 1975 and 1999, out of 1,393 new drugs developed, only 13 were designed to treat tropical diseases. That is less than 1 percent, even though tropical diseases account for more than 90 percent of the worldwide disease burden. More broadly, only 10 percent of the US$70 billion spent on health research worldwide each year is for research into the health problems that affect 90 percent of the world’s population. The idea behind the Institute of One World Health is to look at this so-called “90/10 gap” as evidence not only of past failure, but also of future opportunity. Without question, pharmaceutical companies need to make profits to make drugs. The research that goes into discovery, design, and testing for safety and efficacy is expensive. If we can find ways to redirect back to global health even a fraction of the intellectual property and human resources of the global pharmaceutical community, we can make a real difference. That is our aim. Today, iOWH has a staff of 80, in offices in the US and in India, with the scientific and policy expertise needed to identify new drug opportunities, produce a product development plan, and shepherd drugs through the regulatory approval process. IOWH also has an array of research and development partnerships that work with us to develop a range of products for a variety of diseases. And we have formed the partnerships we need to manufacture and deliver the medicines we produce.

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Seeking a Cure for Inequity in Access to Medicines THE BEGINNING: “YOU HAVE ALL THE MONEY” Back in 2000, I was riding in a taxi and chatting with the driver, an African immigrant. He asked me what I did for a living. I am very proud of the work I do so I was happy to tell him that I am a pharmaceutical scientist. I was taken aback when he responded by breaking out into a fit of laughter. When he finally regained his composure, he remarked with a shake of his head: “You guys have all the money.” All the money, yes. But to what end? His comment crystallized the growing discomfort I had felt at the imbalance of resource allocation that was so evident in my chosen field of work. I recalled another moment of troubling introspection I had experienced not long before, while I was working at the Food and Drug Administration. I came across the fact that up to one in five children in subSaharan Africa does not live to see his or her fifth birthday. And each year in the developing world, 10 million people die from neglected diseases, diseases for which no effective treatments exist or are in development. After my taxicab epiphany, I had an increasingly difficult time keeping these numbers out of my head. The pride I felt in being a pharmaceutical scientist became overwhelmed by feelings of embarrassment at being part of an industry that was not taking full responsibility for the diseases of the world. I thought to myself, if there is anything that I can do personally to change things, how can I not do it? In further considering the problem, I began to wonder if it might be possible to take the profit imperative out of the drug development equation. Could I create a process for developing drugs, including testing them and getting them approved and manufactured, that would make them as safe and effective as any blockbuster drug, but affordable enough for the poorest of the poor? Is it possible to organize pharmaceutical development around the objective of human impact rather than profitability? I resigned from my position at Genentech and I took two years to simply consider the parameters of the challenge. Travelling around the world was an eyeopening experience, helping me better define the questions in mind and confirming my deep commitment to my pursuit. After a great deal of time and expense, I began to see a way forward. In July 2000 I founded the Institute for One World Health (iOWH), an entirely new kind of pharmaceutical company. THE EXPERIMENT: A NON-PROFIT PHARMACEUTICAL COMPANY The pharmaceutical scientists who work at iOWH share a belief that their work can change the world and save lives. Of the many possible paths one could imagine toward this goal, the one we have taken is the development of a sustainable non-profit pharmaceutical company focused on neglected diseases. It is not possible for a non-profit pharmaceutical company to follow the standard big pharma business model. The big pharma model typically starts with basic

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Victoria Hale science and discovery in the laboratory and exploring educated hunches. When promising results are identified, they are taken through the lengthy and expensive process of drug formulation and sequential testing in petri dishes, animals, and humans. Only one drug in 10,000 that is discovered actually makes it to clinical trials. Only one drug in ten that makes it to human testing makes it to the market. Compounding the risk, of the few drugs that actually reach the market, 70% fail to recoup their R&D investments. In many cases, drugs are cast aside by standard, for-profit pharmaceutical firms for reasons having nothing to do with their potential to benefit people. For example, some drugs are simply not profitable in any known application. Others may not compete successfully with other known candidates for a given disease. Still others are discarded because they have unacceptable side effects for the population the drug will treat, but may be acceptable for other populations. (For instance, a new antibiotic that causes sleepiness may be unacceptable for people who need to drive or go to work while taking the drug. But for a malaria patient or for a bedridden patient facing certain death from an infectious disease, sleepiness may be a perfectly acceptable side effect.) IOWH has sought a different path. For starters, we do not operate any of our own laboratories. Instead, we have pursued a strategy of networked innovation, with an emphasis on streamlining the traditional process of bringing drugs to market. We streamline in many ways, of which partnership is the most important. We partner with investigators in the public and private sector to discover new compounds with potential for treating neglected diseases. We partner with forprofit pharmaceutical companies to try to find opportunities to match their castoffs—abandoned, discontinued or no longer profitable drugs—with neglected diseases. And we partner with manufacturers, non-government organizations (NGOs), and local infrastructure service providers to manufacture drugs and deliver them to patients. Our core operations involve using our R&D experience to coordinate and collaborate with these partners and, most importantly, identifying the technological leads and securing the funding to create—and seize—opportunities to save lives. (See Figure 1.) We also aim to streamline the clinical trials process wherever possible. This of course does not imply that we cut corners in terms of safety. Rather, if we don’t need to do as many trials—perhaps because our drugs do not compete with existing drugs—then we don’t. Finding a late-stage drug to take over the finish line enables us to get the most from our investments. Also, when we bring a drug to a developing country’s regulatory approval boards, we work with the agency to find the most straightforward path to satisfying the regulatory requirements that will prove safety and efficacy. Ultimately, we still have to do many studies, just as any other pharmaceutical company must do, and these studies can cost tens of millions of dollars. These costs have been one of the biggest challenges to our model. What replaces profit when you remove it from the equation? We account for success in human terms and we value each life equally rather than weighting them in terms
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Figure 1. The Funding Model.

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Victoria Hale of ability or willingness to pay. We were working for the same global public health outcomes as philanthropic organizations like the Bill and Melinda Gates Foundation. We were pioneering a new business model that groups like the Skoll Foundation and Schwab Foundation were looking to foster. Philanthropic funds would be our main source of revenue, and capital would be put to work to achieve a social return on investment. But a shared sense of mission alone was not enough to persuade our current partners at the Gates Foundation and elsewhere to support us in the earliest stages of our development. What was required at the outset was a setting that would enhance our prospects for success, enabling us to overcome the scientific, financial, regulatory, and even political hurdles inherent in the development of drugs for neglected diseases. For OneWorld Health, that setting was Bihar, India. The disease was visceral leishmaniasis (VL), also known as “black fever,” or Kala-Azar by those whom it afflicts. MATCHING PROMISING DRUGS WITH NEGLECTED DISEASES Paromomycin is an antibiotic developed by Pharmacia (now Pfizer), which discontinued it in the 1970s because it was no longer profitable. This drug floated to the top of our list of drugs to treat neglected diseases because it had such great potential. It had been a very effective and safe antibiotic, so much of the expensive testing had already been completed. Moreover, an African researcher had discovered that paromomycin had a powerful effect on a disease called Visceral Leishmanaisis, a fatal disease for which safe, effective and affordable treatment options were urgently needed. Consequently, Pharmacia granted the rights to paromomycin to the World Health Organization (WHO). The WHO had put some efforts into using paromomycin to treat VL, but ultimately abandoned the effort. VL is the second most deadly parasitic disease in the world. It is a devastating affliction. Caused by a parasite spread by a common insect in the tropics called the sand fly, the disease attacks the bone marrow and destroys the body’s ability to produce red and white blood cells. This leaves the patient extremely vulnerable to infection. Similar to AIDS patients, those with Kala-Azar almost always die of a side infection they simply cannot fight. I visited with patients suffering from Kala-Azar in Bihar, India where it is most prevalent, though the disease is also common in Nepal, Bangladesh, the Horn of Africa and Brazil. This region of India hosts the poorest of people who have been without food for years of their lives. Those afflicted with the disease are emaciated except for their large bellies, where the parasite hides, enlarging the liver and spleen. Witnessing the consequences of this illness was an indelibly marking experience. In Bihar, a hundred million people are at risk for Kala-Azar. Approximately 1.5 million people are infected with the disease. There are 500,000 new cases and 300,000 deaths each year. Existing therapies are so expensive that families have
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Seeking a Cure for Inequity in Access to Medicines been put three generations into debt to treat and save a relative. In contrast, the promise of paromomycin was a cure from Kala-Azar for between US$10 and US$15. Because my staff and I had experience with drug development and the regulatory process in various settings around the world, we entered into the project with full awareness of the obstacles that faced us in seeking to turn paromomycin into a drug for Kala-Azar, and then getting it approved. Among the many obstacles, one had more to In August of 2006, the do with politics than science: it Paromomycin IM Injection might be termed the “Constant Gardener” factor. The Constant was approved by the Drug Gardener, a novel by John le Controller General of India Carré, tells the tale of a multinational drug company that took for the treatment of visceral advantage of the political vulnerability of a particular group leishmaniasis (VL), the of people in Africa to test a new medical name for Kala-Azar. drug with known adverse consequences. Precisely because the novel reflects aspects of reality and past experience, Western pharmaceutical companies seeking to test drugs on populations in poor places anywhere in the world are often received immediately with suspicion. Lack of trust makes such projects difficult for for-profit pharmaceutical companies—in some cases, simply infeasible. We also came to Bihar as outsiders. But we came with a goal not of increasing the value of shares, but instead sharing the value of cures. With our public health mission irrevocably encoded into our non-profit form of organization, we were able to overcome the Constant Gardener factor. The mutual trust that we cultivated over a period of time allowed us to move forward with our trials even in the most challenging rural environments in Bihar. Reaching our initial goal—conducting clinical trials in Bihar for treatment of Kala-Azar —took four years. When, at last in 2004, I went to a hospital in India during a trial of our drug, the experience was exciting but also frightening. We had one chance to get this right and show that we could repurpose a drug to treat a disease the world had forgotten. To fail would in some ways be worse than not having tried at all, as we would potentially discourage future efforts. Seeing patients treated with our drug suddenly sitting up, awake, aware, even hungry, provoked an indescribable feeling of elation. We submitted the drug to the Indian government for regulatory approval in 2006. In August of 2006, the Paromomycin IM Injection was approved by the Drug Controller General of India for the treatment of visceral leishmaniasis (VL), the medical name for Kala-Azar. The approval of Paromomycin IM Injection came less than three months after the submission of the application for approval, which was innovations / Davos 2008
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Victoria Hale prepared by iOWH in collaboration with our partner, Hyderabad-based drug manufacturer Gland Pharma Limited. The drug is expected to be a key tool for India’s National Vector Borne Disease Control Programme (NVBDCP), which aims to rid the country of VL by 2010. We also expect the drug will be used in disease control programs in other leishmaniasis-endemic countries. Gland Pharma will make the medicine available at cost, for approximately $10 per treatment course, a significantly lower price than currently approved VL therapies. While we saw the approval of Paromomycin IM Injection for treatment of VL as a sufficient proof-of-concept for a non-profit pharmaceutical model, the following months brought further validation of our work. In May 2007 the WHO announced the inclusion of Paromomycin IM Injection on their list of Essential Medicines. Then, in June 2007 the New England Journal of Medicine published our Phase 3 findings, communicating to a broad audience within the medical community, from its most reputable journal, the particulars of the approach we had taken. THE PHARMACEUTICAL VALUE CHAIN For all the milestones we reached and the corresponding sense of accomplishment we experienced in 2006, we also ended the year facing a stark reality: it is one thing to develop and manufacture a drug that works, but it is quite another to get that drug to those who need it. As difficult as it is to discover a promising approach and then develop a drug, the final stage of delivering treatment can be the most difficult. Drug distribution must be done by local healthcare workers in local clinics. It involves getting the drug to the right places, storing it safely, and then administering it to people who have been properly diagnosed. In the case of Kala-Azar, our strategy of matching an orphaned drug to a neglected disease had worked, but it remained unfinished. As we sought avenues for addressing the challenge of delivery, we began to broaden our thinking about how to approach the challenge of reducing inequities in treatment. It became clear to us that, in order to have our desired impact, we would need to develop the capability to engage at multiple stages along the pharmaceutical value chain. (See Figure 2.) In the case of paromomycin and VL, we started out in the late stages of research and development with our Phase 3 trials. Then we partnered with Gland Pharma and the International Dispensary Association (IDA) for manufacturing. Now, we are working on a plan to distribute and deliver those drugs to the beneficiaries, the people of Bihar. To test our plan, we opened a liaison field office in the city of Patna in Bihar, India to oversee a Phase 4 pharmacovigilance and access program for the paromomycin treatment, which is administered as a once-a-day injection for 21 days. Working with the principal investigators who are experts in the treatment of VL and nongovernmental organization (NGO) partners, this Phase 4 Program will investigate the safety and efficacy of treatment with the Paromomycin IM Injection in progressively more rural areas in Bihar. The first module of the program will enroll approximately 500 patients to provide addition112

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Figure 2. The Pharmaceutical Value Chain. al safety data on the treatment. Over the course of the two-year trial, up to 1500 additional patients will be included in two subsequent access modules that will extend the network of treatment facilities, providers, and related logistics systems into the most rural areas of Bihar. This is an innovative access model for administering Paromomycin IM Injection that uses an outpatient setting to diagnose and treat impoverished patients and advanced data transmission technologies for pharmacovigilence in the remote areas where VL is endemic. To deliver drugs to these remote and difficult-to-reach locations, iOWH is seeking to make use of existing infrastructure already put in place by NGOs. In this case, an existing force of healthcare providers that provide women with prenatal care will use a hub and spoke model to carry drugs from a central location to outlying destinations. We will train the clinicians and rural healthcare providers at local centers in the administration of the drug. The trial is an example of how iOWH is extending its partnerships all the way to the village level. Indeed, our work would be nearly impossible without local partners and our in-country presence. While establishing a distribution and delivery network is extremely challenging due to the unpredictable nature of these rural areas and the lack of services in them, this step is also the most critical of all those that iOWH takes in terms of its mission to save lives. Beyond the obvious effect of the drugs and their ability to cure patients, the very existence of the drugs can have a ripple effect in a community. It brings hope to family members who no longer face the choice between extreme debt and the loss of a family member. It also brings new knowledge and innovations / Davos 2008
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Victoria Hale power to clinicians, who can now diagnose people, knowing that there is an accessible cure to their devastating disease. Our goal is to refine an effective and transferable access model, enabling us to saves lives, to bring social change to families and communities and to expand our reach beyond India and into other regions burdened by infectious disease. If we are successful, this new product will build demand for new markets along the way. From the manufacturing center in Hyderabad to the bedsides of patients, this drug will create a demand for transport, delivery, and storage. Local communities become part[I]t is one thing to develop ners with iOWH by providing and manufacture a drug that these services and providing medcare. When a local communiworks, but it is quite another icalbecomes healthier both physity to get that drug to those who cally and economically, the result can be a profound and far-reachneed it. As difficult as it is to ing. In addition to affecting discover a promising change in rural areas, projects in approach and then develop a this part of our value chain also affect positive change in the drug, the final stage of developed world by addressing delivering treatment can be the emerging problem of what we call innovation pile-up. There are the most difficult. many innovations coming from scientists and engineers who are developing new tools to prevent and treat patients. But getting these drugs and innovations out of the warehouse and to the patient is often the most challenging part of the problem. When this problem isn’t tackled, these innovations pile-up and become a burden and a disappointment that could, eventually, squelch the creativity of those scientists who invented them. By building channels for these innovations to flow through, iOWH can help prevent innovation pile-up. THE DOORS ARE OPEN As we have sought a non-profit approach to working with innovators to find treatments for neglected diseases, we have observed a change in the attitudes of our forprofit counterparts. In 2000 and 2001, when first began talking with pharmaceutical companies about our vision for a different approach to drug development, the response to the pitch was skeptical, to say the least. We were asking for these companies to surrender to us parcels of hard-won intellectual property. Even if they weren’t using the property, the request was bound to meet with considerable resistance—which it did.
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Seeking a Cure for Inequity in Access to Medicines Over the past six years, the reception we receive has changed considerably. Pharmaceutical scientists within the conventional drug companies understand the challenge we are seeking to address, and, more importantly, can see the value of the approach we propose. Some want to participate in iOWH during a sabbatical or through fellowships. Others offer themselves as resources to be available to help guide us. Even at the corporate level, there is an openness and willingness to talk. We now have access to these companies. They want to know how they can contribute. Where the doors of collaboration appeared less than a decade ago to be shut, today they are open. The result of this turn-around is that it makes our search for the next matchup of an orphaned drug with a neglected disease that much easier. We have two more in the works already. These new partnerships hold the promise of producing therapies that will cure people afflicted with malaria—the most deadly parasitic disease in the world—and diarrhea. Our malaria program efforts fall solidly on the manufacturing and distribution links of the value chain. We are focusing on developing a supply chain for a crucial malaria drug ingredient. The project involves a unique three-way partnership between the iOWH, the University of California, Berkeley and Amyris Biotechnologies. The partnership leverages new technology from Berkeley professor Jay Keasling and Amyris Biotechnologies that allows an anti-malarial drug precursor, artemisinic acid, to be manufactured using genetically engineered yeast. Keasling and colleagues first described this new technology in the April 12, 2007 issue of the journal Nature. Prior to that discovery, only plants produced the compound, making it an expensive and unreliable ingredient for a mass-produced drug. Despite this technological advancement, challenges remain. The yield of artemisinic acid will need to be improved substantially in order to be economically acceptable for large-scale manufacturing. Moreover, iOWH must guide the resulting drug through regulatory approval and contribute to its effective integration into the global market. We look forward to continued progress this year with Amyris and UC Berkeley toward our goal of introducing microbially-derived semisynthetic artemisinin into Artemisinin-based Combination Therapies (ACTs) by 2010. Our diarrhea program falls on the other end of the value chain. It focuses on discovery. In 2006 the Bill & Melinda Gates Foundation awarded us a US$46 million grant to develop wholly new treatments to complement traditional approaches for fighting diarrhea. Diarrheal diseases are a leading cause of death in children under the age of five worldwide, killing an estimated 2 million children each year. Typically, children die of complications from dehydration. Therapies exist that help rehydrate these children, but no effective therapy exists to stem the loss of fluids in the first place. Our efforts will focus on developing safe, effective and affordable new antisecretory drugs that inhibit intestinal fluid loss. These novel anti-secretory drugs will be deployed as an adjunct to oral rehydration therapy for the treatment of innovations / Davos 2008
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Victoria Hale acute secretory diarrhea, which is responsible for nearly 40% of reported cases of diarrheal disease globally. During 2006, the iOWH Diarrheal Disease Program initiated several new collaborations which include BioFocus DPI, who will apply their medicinal chemistry and early stage drug development expertise to identify new anti-secretory drugs, and the International Center for Diarrheal Disease Research in Bangladesh (ICDDR,B), who will conduct pre-clinical studies. BUSINESS SUSTAINABILITY: THE MONEY CHALLENGE The business of creating new drugs is slow and expensive. It involves great diligence and care because of both cultural and ethical considerations involved in treating patients with new medicines. We have proven that our model is effective, but not yet that it is sustainable. A critical challenge in our next stage of development will be to transition from exclusive reliance on philanthropic support and to a model which combines grant-funding with revenues through sales. With regard to philanthropic gifts and grants, we are increasingly aware of our need to develop a funding pipeline to support our products development in each stage. iOWH could, for instance, invest its funds in identifying good leads for the orphaned drug-orphaned disease match-ups with the most potential. We would then bring these leads and targets to outside funders who would help fund the development of the drug, and to a likely different set of partners who would help manufacture and distribute it. With regard to sales, we have started to consider the applicability of a crosssubsidization strategy: sales of a product to those able to pay can help cover costs of providing therapies to those unable to do so. The approach is sound and welltested. (See, for example, the case in this issue on the Aravind Eye Hospital.) While visceral leishmaniasis almost exclusively afflicts the poorest of people, such is not the case is not with all neglected diseases. Malaria affects the middle and upper classes. So does diarrhea. Similarly, a compound could be developed with for the same indication in two regions of the world. This so-called dual market approach has the potential to earn revenue and have public health impact. Of course, we did not create iOWH to be yet another revenue-maximizing drug company. Our non-profit model enables us to fulfill our mission to make drugs that are not only safe and effective, but also affordable and accessible to all. In order to do this important work far into the future, expanding our reach and impact, we must continue to seek innovative ways to grow and sustain the organization. NEGLECTED NO MORE The Institute for One World Health is not the cure to global inequities of access to medicines. If it is part of the solution, it will not be because of what we are able to accomplish in isolation. Rather, it will be because others innovate at least as aggressively as we have sought to, mobilizing resources, forming partnerships, affecting

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Seeking a Cure for Inequity in Access to Medicines changes in policy, and creating new paradigms that work for the poor, rather than against them. My own belief, however, is that new technologies, creative organizational structures, and necessary re-alignments of incentives will be insufficient to bring about such change unless all are combined with one other essential element: moral outrage. When even a single life is wasted for want of a treatment that, if available, could be provided for less than the cost of a box of Band-Aids, we as a global community have failed. To address this failure will require an effort distributed across the globe, from village clinics to corporate boardrooms—and it will necessitate great humility and compassion. It may begin with the work of organizations such as ours in building awareness and creating new opportunities for action. But it ends only when neglected diseases, and the people they afflict, are neglected no more. Acknowledgements I am grateful to Jim Hickman, Ahvie Herskowitz, and Beth Doughterty for their assistance in writing this case.

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Dener Giovanini

Taking Animal Trafficking Out of the Shadows
RENCTAS Uses the Internet to Combat a Multi-Billion Dollar Trade
Innovations Case Narrative: RENCTAS
Animal trafficking, the third largest illegal trade in the world after drugs and arms, is a US$20 billion business. Brazil is estimated to account for up to 15% of this illicit global trade.1 In Brazil alone approximately 38 million animals are poached every year, posing a deep threat to regional and global biodiversity. The trade is as wasteful as it is massive; nine out of ten animals die while being captured or transported, often in torturous circumstances. Animal trafficking is threatening Brazil’s biodiversity at an alarming rate. Over the past 10 years, the official list of Brazilian animals threatened by extinction has nearly doubled. Today, over 600 species are on this “death row.” Animal trafficking has played a significant role in the growth of this list. Many species run the risk of disappearing exclusively as a result of their illegal trade. In addition to contributing to the reduction of biodiversity, wild animal trafficking is responsible for the transmission of diseases and disproportionately harms poverty-stricken communities. As Environmental Secretary in the municipality of Três Rios, a small city in the southern Brazilian state of Rio de Janeiro, in the mid-1990s, I was alarmed by a growing number of incidents involving captured wild animals in my jurisdiction. Dener Giovanini is founder of the National Network for Combating Wild Animal Trafficking (RENCTAS). Prior to founding RENCTAS, Giovanini was Environmental Secretary of Três Rios, a city in the Brazilian state of Rio de Janeiro. In 1999 he was elected an Ashoka Fellow, and subsequently honored as a Schwab Social Entrepreneur. In 2003 he was named co-winner of the United Nations Environment Program (UNEP) Sasakawa Environment Prize, among the world’s most prestigious environmental awards. This case narrative originally appeared in volume 1, number 2, of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Dener Giovanini as an Outstanding Social Entrepreneur. © 2006 Tagore LLC innovations / Davos 2008
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Dener Giovanini Sensing a problem of significant magnitude, in early 1999, I founded an organization to address animal trafficking at the local level. My two colleagues, Raulff Lima and Sergio Peixoto, and I named our organization the National Network to Fight the Trafficking of Wild Animals (the Portuguesa acronym is RENCTAS). In seven years, RENCTAS has become the leading force combating illegal animal trafficking in Brazil, and is among the major organizations of its type globally. When we began, animal trafficking was a non-issue in Brazil. Today it is a public concern addressed regularly on Brazil’s major news outlets. We have worked to effect this change by documenting the particulars of the trade, enhancing public awareness, educating law enforcement officials, influencing legislation, and shaping public policy. Central to these successes is our use of the Internet to convert animal trafficking from an unknown and un-quantified issue to a high-priority item on the national policy agenda. A BURGEONING TRADE CAUSING ENVIRONMENTAL, SOCIAL, AND ECONOMIC DAMAGE While animal trafficking has escalated dramatically in recent years, it is not a 20thcentury phenomenon. Five hundred years ago, when Europe began colonizing the world, voyagers returned with unknown animals as evidence of having discovered new continents. These animals drew attention and curiosity in Europe, and were soon exhibited and traded in the streets.2 The possession of wild animals was a symbol of power, wealth, and nobility. This status and curiosity fueled the creation of a profitable business. Brazil has long been a prime source of “exotic” animals. With an area covering more than 8.47 million square kilometers, Brazil has one of the richest fauna worldwide. It has the greatest number of species, with approximately 3,000 terrestrial vertebrates and 3,000 fresh water fishes.3 Brazil is the richest country in mammal diversity, with 524 species4 and ranks third in birds, with nearly 1,677 species, 5 fourth in reptiles, with 468 species, and first in amphibians, with 517 species.6 Traffickers plunder Brazil’s living resources for four markets. The first market is made up of collectors and private zoos. Although these collectors and private zoos hold illegally extracted animals, many in fact have government authorization to operate. Private collectors are generally extremely wealthy individuals who maintain collections for reasons of vanity. Although this is a serious problem in Brazil, the problem is far more extensive abroad since these collectors are out of the reach of Brazilian law. Supplying private collections is perhaps the most destructive type of wildlife trafficking because its primary focus is the most endangered species; the rarer the species the higher an animal’s value. The lear’s macaw, for example, fetches US$60,000 on the international market. The second trade, biopiracy, extracts chemicals from animals for research and production of medicines. This industry is growing daily, with the incursion of illegal researchers within Brazil in search of new species. Huge revenues are garnered from these activities. The nigriventer spider venom is coveted for research on a new
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Taking Animal Trafficking Out of the Shadows and more effective analgesic substance, with a value of up to US$4,000 a gram and the market value for hypertension drugs uniquely derived from one Brazilian snake species is US$500 million. Biopiracy is supported through a complex operational system that navigates loopholes in laws and discrepancies in international accords. Many animal and plant-based chemical substances leave one country illegally but arrive at their final destination as legal. This occurs, among other reasons, because the informaAnimal trafficking, the third tion-sharing among largest illegal trade in the world nations is still deficient. Many countries allow piratafter drugs and arms, is a US$20 ed animal materials to enter billion business. Brazil is their territory, unaware of their illegal origins. The estimated to account for up to organized gangs who operate in this market deploy 15% of this illicit global trade. In diverse types of fraud, from Brazil alone approximately 38 falsification of documents to bribing public officials. million animals are poached In some cases animal or every year, posing a deep threat to plant products are even patented, which requires regional and global biodiversity. years to resolve through international courts. Pet animals are the third market. Boas, turtles, macaws, marmosets, and many other creatures are captured; the few that survive end up in private homes in the United States, Europe, Asia, or elsewhere. The fourth category, fauna products, consists of parts of animals, such as reptile skins or bird feathers, which are used as ornaments and in crafts that cater to the fashion market. Within Brazil, most stolen animals are transported by trafficking networks operating across highways in trucks, buses, and cars. Corruption and fraud often facilitate the process. According to the Brazilian Federal Police, smuggling is likely to be supported and facilitated by government officers assigned to strategic positions such as ports, airports, and customs offices; on the international side, researchers acting for international traffickers use government-issued credentials. Also, “animal laundering” is carried out in Brazil through zoos or so-called scientific, conservationist, or commercial breeding grounds which provide false certificates claiming that animals were born in captivity. Even when animals are recovered during busts or sting operations, many cannot be returned to nature. Close to 60% are found in conditions so poor as to make their return impossible. These animals must spend the rest of their lives in captivity. Brazil’s animal trafficking supply chain flows through three groups: suppliers, innovations / Davos 2008
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Dener Giovanini middlemen, and consumers. Suppliers are usually extremely poor people from the backlands of Brazil for whom the fauna trade is a supplementary source of income. The middlemen range from regatões (boatmen of the Northern and Mid-Western regions), to farmers, truck and bus drivers, and street peddlers. Small and medium traffickers connect these rural middlemen with the larger, international networks. Large-scale international traffickers operate globally and deploy the same smuggling and corruption tools as other international trafficking networks. Some zoos and breeding grounds also participate at this level. On the consumer end, animals and animal products land in homes, zoos, aquaria, circuses, private collections, tanneries for industry, fashion stylists and producers, and pharmaceutical industry. Like the drug trade, animal trafficking capitalizes on an asymmetric economic relationship between the source, usually developing countries with fragile and under-funded enforcement capacity, many of whose citizens desperately need income, and the demand, wealthy countries with purchasing power. This disparity brings corruption, further eroding the ability of Brazil and other developingcountry governments to build strong and accountable institutions. The responsibilities of the various enforcement agencies are fragmented geographically by local, national, and regional jurisdictions and bureaucratically by “silos” of operation. Their lack of coordination undermines the ability of enforcement agencies to take on the complex networks used by traffickers to move animals from their point of capture or breeding to the final purchaser. An alarming development with far-reaching consequences for Brazil and other nations is the integration of trafficking activities, especially between animal trafficking and the drug trade.7 For example, officials in Miami recently apprehended a shipment of snakes together with packages of cocaine. As animal traffickers become part of larger and more violent global criminal organizations, their capacity to outgun and outmaneuver enforcement efforts grows. One area where animal trafficking differed notably from the drug trade was in the degree of public awareness of the scope and scale of the problem. In Brazil in the late 1990s, the animal trade was unknown. Ignorance of the problem spanned all regions and socio-economic strata of Brazilian society. For example, in an article published in a daily newspaper an economist and former elected representative was quoted criticizing Brazilian environmental enforcement because it arrested a German trafficker. According to him, the intention of the “poor fellow” was to help Brazil get rid of such plagues as spiders and other venomous animals. The animal trafficking business operated almost entirely under the radar. USING THE INTERNET TO GATHER AND ORGANIZE INFORMATION ABOUT THE TRADE When Raulff Lima, Sergio Peixoto, and I started RENCTAS in Três Rios in 1999, information technology, including the Internet, was not part of our plan. Our small team began by delivering workshops on the animal trafficking problem, and
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Taking Animal Trafficking Out of the Shadows we began collaborating with law enforcement groups and environmental agencies locally and nationally. We also provided support to research projects concerning conservation of endangered species and carried out national awareness campaigns. Yet in trying to bring attention to the problem, we were confronted with indifference caused by a sustained lack of information. Many of the advocacy and training activities in which we engaged were fairly traditional for non-governmental organizations (NGOs) at the time. However, from the outset, the other critical component of our work was researching and investigating trafficking activity so we could report it to the enforcement authorities for action. Initially, all our research, tracking, and reporting of the illicit animal trade was paper-based. This changed late one Saturday night in our first year of operation. I was home when I received a call at 10:00 p.m. from a police officer at an international airport. She had just apprehended a foreign citizen who had in his suitcase nearly 500 toads and 200 snakes. He was bound on a flight to a European destination. As this individual was claiming that he was unaware that taking these animals out of the country was illegal (a common ploy by traffickers), the officer urgently needed to corroborate whether he had been involved in other criminal trafficking activity in Brazil, as this would escalate the gravity of the charges. Without this evidence, the police would be required to let him go after a brief detention and confiscation of the animals. With the clock ticking, I quickly called several colleagues away from their normal Saturday night festivities and together we began to search frantically through our piles of files containing approximately 30,000 papers. At 5:00 a.m., having given up, I sat in my chair, despondent—and saw the paper I had been looking for, face up on the floor among all the other papers. Having found the needle in the haystack, we immediately phoned the police officer, who told me that, regretfully, they had just released the suspect due to lack of evidence proving deliberate intent to traffic animals. At that moment we realized the imperative of collecting information electronically. Soon thereafter we purchased database software and computers, and digitized our records. Nevertheless, the story of the snake-trafficker resolved itself favorably. One year later, I received a phone call from a judge in the Amazonian city of Manaus, who had participated in one of our training workshops. She informed me that the following day she would make a judgment on a case involving a foreign citizen who claimed no knowledge of Brazilian law regarding animal transportation. Three minutes later I had pulled the records on the individual, the same who had gotten away the year before! This time, the government had the information it required to press the case. This “back end” database allowed us to track larger volumes of criminal activity; however, we quickly discovered that criminals didn’t appreciate being tracked. At that point our base of operations was very local (in the state of Rio de Janeiro) and very high-profile through talks we gave, our interactions with law enforcement, and so forth. One day I was in a local hotel giving a speech when through a door I saw a gun pointed at my head. The message was clear; the traffickers were innovations / Davos 2008
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Dener Giovanini giving me a “last chance” to withdraw our activities. This threat, coupled with an increasing volume of e-mails from citizens and collaborators, made clear the advantages–and necessity–of “going virtual.” Although we were dragged by circumstance and frustration into the information age, once online we were deliberate and aggressive in how we used our new capacity. From this point forward we chose the Internet as the primary venue for our work. The original core model of our virtual operation consisted of a website we developed to allow ordinary citizens to report tips–instances of animal capture, sale, transport, or illegal breeding. RENCTAS investigated the tips and passed the findings to local law enforcement for action. Our investigators also began using the Internet to scour auction sites, chat rooms, and pet and collector bulletin boards for clues to illegal animal trafficking. RENCTAS also employed old-school investigative tools such as the telephone and even a CB radio to speak with truckers. The Internet, however, proved the most efficient and effective way to gather information. As those who live by the sword die by it, those who trade on the Internet can also get caught in it: One of our techniques for identifying middlemen and sellers has been to pose as buyers on some of the more than 5,000 animal sites that cater to animal traffickers. The Internet has also provided a higher degree of anonymity to those wishing to report animal trafficking crimes without being detected, as they might be by walking into a local police station in a small town. But even with the Internet, we must be careful. Given the risks inherent with digitally storing personal information, all tips are immediately taken off computers and stored separately in safe locations to protect the individual informers. By the late 1990s, e-activism was nothing new. What was novel, however, was our approach to it. Many NGOs were active online through chain-letter petitions, letter-writing campaigns, and general list-serv-based forums for discussion. These activities tended to be one-directional, directed at already mobilized constituents, and they rarely linked the common citizen to tangible results. In contrast, we internally mandated that each tip receive a personalized response and gave priority to updating our tipsters on the results of their contributions. It was clear to us that virtual and anonymous online interactions required heavy personalization to effectively build a community base. TAPPING THE STRATEGIC LINK BETWEEN VIRTUAL INTERACTIONS AND MEDIA DISSEMINATION From this model of heavily personalized online information brokerage, two challenges began to emerge. First, although RENCTAS could investigate many local cases, enforcement spanned many local, sub-national, and national government levels in Brazil, a huge country. A second growing challenge for our investigative staff of two was the sheer volume of tips, which were coming into our system at an average of 30 per day. The problem of improving our coordination with government enforcement agencies was partially addressed by our move, after one year of
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Taking Animal Trafficking Out of the Shadows operation, from the state of Rio de Janeiro to Brasilia, the country’s capital, in January 2000. This gave us proximity to the federal government’s federal police and environmental agencies such as IBAMA (Brazilian Institute for Natural and Renewable Resources) and the Ministry of Environment. Our move to Brasilia also coincided with a shift in the balance between virtual and traditional interactions. While we maintained our website for tip-gathering and for nationThe tips we received related, wide reach—continuing to brovariously, to each point along ker information between citizens and law enforcement officials— the traffickers’ supply chain, we began to leverage the value of that capacity in novel and power- from source to final buyer. We ful ways. The tips we received began to translate the related, variously, to each point along the traffickers’ supply information in those tips into chain, from source to final buyer. a clear picture of the trade. We began to translate the information in those tips into a clear picture of the trade. By aggregating the bits and pieces we gathered through the Internet, we achieved an understanding of the process of animal trafficking unsurpassed by anyone except, perhaps, the traffickers themselves. We used this aggregated information to tell a compelling, and tragic story. In January 2000, at the same time as our move to Brasilia, Brazil’s largest television network, Rede Globo, broadcast a five-part series on animal trafficking called “Life for Sale” based on the work of RENCTAS.8 In addition to dramatically boosting awareness of the problem, the Globo series generated an explosion of 28,000 new tips, queries, and other information through the RENCTAS site from throughout the country. In the Brazilian print press, coverage of animal trafficking in the country’s four leading daily newspapers multiplied fourfold between 1999, the year of RENCTAS’ inception and 2006. RENCTAS and the problem it combats have been featured in the leading international press as well, including The Economist, the BBC, National Geographic, and the Christian Science Monitor. One reason our media work in Brazil has been so effective is that we have appealed to a sense of national pride in one of our most distinctive attributes: our biodiversity, as symbolized by beautiful and unique animals. Appealing to the emotional side of the problem also served another purpose: it gave us political coverage and thus protected us from counterattacks, be they from corrupt officials or the traffickers themselves. Increasingly we learned to manage the interplay between our Internet work and press coverage of animal trafficking. For example, each time a story appeared in a local newspaper, our staff sent e-mails with a link to the article to our subscribers, encouraging people to write the newspaper to thank them for covering innovations / Davos 2008
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Dener Giovanini the issue. This positive reinforcement motivated more coverage that, in turn, drove even more traffic to RENCTAS. The dynamic between Internet and media ultimately served our goal of creating awareness of a formerly invisible issue. The next question was how to translate this awareness into changes in policy and practice. We came to understand that many of the visitors to our website were environmentalists who would respond to pleas for action. Using postings on the home page of the site along with the “push” of e-mail messages to over 60,000 subscribers, we developed the capacity to galvanize people to respond to specific issues or threats. For example, at 9:00 a.m. one morning we learned that a measure with harmful implications for wildlife conservation would be discussed and decided upon that day at 11:00 a.m. in one of the Brazilian government agencies. We posted the news on our site and via our e-mail listserv. By 10:30 a.m. 25 activists dressed in black RENCTAS “uniforms” and wearing dark glasses were flashing cameras at the participants arriving at the meeting. Our goal was to apply pressure on decision makers by evoking an intimidating image, while suggesting that their picture might appear in the media associated with an unpopular decision. We succeeded in influencing the outcome of this policy decision with only five minutes of effort that morning. We increasingly use this type of “power of persuasion” to accomplish our goals. RENCTAS AND BRAZIL’S GOVERNMENT In our early efforts to build relationships with local, national, and international government organizations, we found that government attitudes about the problem encompassed everything from inertia to outright obstruction by officials who were probably compromised by the trafficking trade. We developed a two-pronged approach to meet this challenge. First, we discovered pockets of enthusiasm among lower-level government technical staff, many of whom were committed to saving the environment. In contrast to many more combative Brazilian activist NGOs at the time, we were cooperative with the government. At the same time, RENCTAS never accepted government grants or program support to ensure its complete autonomy. This stance has played a key role in building trust and respect with government officials, who realized that RENCTAS was not after their money. Our strategy of collaborative autonomy allowed us to build support from the bottom up in ministries and police agencies. We combined this with top-down political pressure generated by the increasingly visible cycle of media publicity and the growing volume of tips and other forms of citizen involvement flowing into RENCTAS through the Internet. RENCTAS and the animal trafficking problem in Brazil could no longer be ignored. As a result of our efforts, the Brazilian Parliament created an Inquiry Commission to investigate the problem and the Federal Police launched and implemented a national campaign against animal trafficking. Interpol, the Brazilian Federal Police, IBAMA (the Brazilian national environmental agency), the U.S. Department of Justice, CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora, headquar126

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Taking Animal Trafficking Out of the Shadows tered in Switzerland), WEG (Wildlife Enforcement Group, New Zealand) have all grown to depend on RENCTAS for information and collaboration. As time progressed, RENCTAS has increasingly diversified its operations and has taken on training programs for police, hosted international conferences, and published a book detailing the levels and patterns of animal trafficking.9 KEEPING PACE WITH AN INCREASINGLY GLOBAL AND INTEGRATED TRAFFICKING NETWORK Just as the Internet has evolved, so have we. While we continue to use the Internet to drive enforcement, media coverage, activism, and public policy domestically and internationally, we are also expanding our use of Web conferences and instant messaging to interact online in realtime with our collaborators. We are also expanding As with all other forms of global our use of “just-in-time” criminal networks, from drug activism, relying especially on our advocacy e-mail list of traffickers to terrorists, animal 60,000 thousand activists for trafficking networks increasingly pointed, rapid mobilization focused on public policy deploy technology to their decisions. Ironically, while it was advantage to circumvent local the traffickers who drove us enforcement and to capitalize on to the Internet in 1999, now we have driven them into the lack of both legislation to more virtual spaces. The regulate their online activities clearest evidence of this is the disappearance of open marand government informationkets in Brazil where, until a sharing to pursue them. couple of years ago, one could purchase huge varieties of birds, reptiles, and even primates. As with all other forms of global criminal networks, from drug traffickers to terrorists, animal trafficking networks increasingly deploy technology to their advantage to circumvent local enforcement and to capitalize on the lack of both legislation to regulate their online activities and government informationsharing to pursue them. Our challenge is to keep pace with them, which we do by increasing our undercover presence in their online worlds. We are also working to influence government regulation over these activities; most recently we succeeded in providing the Brazilian justice ministry with information on over five thousand violations based on our research of offers of illegal animal sales on the Internet. One of our most significant recent actions has been to move directly into the distribution channels by partnering with transportation companies that have innovations / Davos 2008
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Dener Giovanini served, often but not always unwittingly, as the conduits for animal trafficking. We currently partner with the Itapemirim Group, one of Brazil’s largest passenger transportation companies. Itapemirim was even considered an “accomplice” of traffickers by some sectors of the government and society since its buses were often used by traffickers. This bad publicity eventually compelled Itapemirim to rethink its position in the market. By partnering with RENCTAS, the firm and its clients, suppliers, and employees have been educated to realize that they were victims, not villains. We have conducted a massive joint PR campaign to raise awareness among the company’s drivers and passengers about animal trafficking. A second effort to reach into the traffickers’ transportation networks in Brazil involves our collaboration with the Martins Group, one of Latin America’s largest trucking firms which travels over all of Brazil’s roads. The company’s entire team of truck drivers has been provided with awareness training. The aim of our partnerships with both Itapemerim and Martins is to make it more difficult for animal traffickers to use transportation networks to transport animals. By educating the drivers, cargo handlers, those in management positions, and even the firms’ clients, we increase the level of vigilance and make it more difficult for all of these people to be co-opted into the animal-trafficking process. This, in turn, leads to fewer denunciations (tips) linked to specific buses or trucks (due, we believe, to reduced trafficking) which in turn translates into better business for the transportation companies. LOOKING AHEAD Our work has garnered public recognition. In 1999 I was honored to be awarded a fellowship by Ashoka for my work with RENCTAS, and in 2003 I received the United Nations Environment Programme (UNEP) Sasakawa Environment Prize, considered the highest distinction for environmental work in the world. In 2004, Former Brazilian president José Sarney, then leader of the Brazilian Senate, bestowed upon me the National Congressional Medal. At this ceremony he summarized what we do: The great merit of RENCTAS was, without doubt, to show Brazil a country we didn’t know. Today the trafficking of animals has come out from the shadows thanks to the light that RENCTAS cast upon it to be seen by all except those who refuse to look. Indeed, lifting the curtain on this activity in Brazil is an important accomplishment. However, just as trafficking is both global and domestic, our work increasingly involves both spheres. The challenge at home still looms large. Perhaps our biggest barrier is the relative lack of a civic and philanthropic culture to support wildlife preservation in Brazil, among other things. Getting companies and citizens on board in sustainable ways is a huge uphill battle in a country with a limited history in philanthropy or corporate responsibly. Many of our future efforts in Brazil will be directed in this area. On the global front, we must raise awareness among
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Taking Animal Trafficking Out of the Shadows the consumers of animals and their products. Currently we are working with the Brazilian Foreign Ministry to conduct an awareness campaign abroad with posters, brochures, and other educational materials through our embassies worldwide. Unfortunately, the accomplishments of RENCTAS and our colleagues in other organizations can not ensure the survival of the 600 Brazilian species now on extinction’s “death row,” nor can they ensure the sustainability of our planet’s biodiversity. As with arms and drugs, traffickers service a demand. Until citizens— particularly individuals and institutions in industrialized countries—hold themselves and their governments fully responsible for curtailing consumer demand for illegally traded animals, the traffic will continue. Acknowledgements I thank Winthrop Carty for his work in translating this paper from the Portuguese, and providing invaluable assistance in framing and organizing the ideas presented. I also thank Ashoka for their support along multiple dimensions, including the development of a previous case study of RENCTAS.10
1. Rocha, F.M. (1995) Tráfico de Animais Silvestres, WWF. Discussion Paper. 2. Hagenbeck, C. (1910) Animales y Hombres. Hijos de Carlos Hagenbeck. Editores, HamburgoStellingen, . 483. 3. Mittermeier et al, (1992) “O País da megadiversidade”. Ciencia Hoje (14): p. 20-27, 81. 4. Fonseca et al, (1996). Lista Anotada dos Mamíferos do Brasil. Ocasional Paper no. 4, April, Conservation Internacional. 5. Sick, H. (1997) Ornitologia brasileira. Nova Fronteira, Rio de Janeiro, p. 912. 6. Mittermeier et al, 1992 7. This relationship is documented in the final report of the Brazilian Congress’s Parliamentary Inquiry Commission on Animal Trafficking. 8. “Vida a Venda” in Portuguese. 9. “First National Report on Fauna Traffic in Brazil.” Available in PDF format from <http://www.renctas.org>. 10. Additionally, this article drew from a report written by Shannon Walbran, then of Ashoka in 2002 and from a case study co-authored by Stanley Yung, then of Ashoka, and Winthrop Carty, then of the Ash Institute at Harvard University. For more about Ashoka see <www.ashoka.org>.

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Jerry Mechling

Tools for Compliance in a Networked World
Innovations Case Discussion: RENCTAS
Dener Giovanini's story of RENCTAS (the Portuguese acronym for National Network to Fight the Trafficking of Wild Animals) is compelling and inspiring. Using modern communications skillfully and with great personal courage, the leaders of RENCTAS have shown that a few good people can virtually move mountains, even against the money and guns of the third biggest illegal trade in the world (after illegal arms and drugs). But what are the more specific lessons from RENCTAS? What explains what happened? Where will the lessons from animal trafficking in Brazil lead next? This paper argues that key lessons from RENCTAS are about the power of the Internet to: a) make access to services and participation in the counter-trafficking effort significantly easier and safer than it otherwise would be; b) improve the transparency of trafficking activities, both for individual cases and the larger system; and c) communicate the emotions of the story, supporting adroit use of video and pictures to mobilize Brazilian pride and their desire to protect their amazing native animals. Those three capabilities—for access, transparency, and emotional communications—explain much of what RENCTAS has been able to accomplish. They will continue to be important for controlling animal trafficking and—more broadly— for other efforts to gain compliance with social norms and laws. At the same time,

Jerry Mechling is a Lecturer in Public Policy and Director of the e-Government Executive Education Project at the Kennedy School of Government, Harvard University. A Fellow of the National Academy of Public Administration and four-time winner of the Federal 100 Award, he was formerly a Fellow of the Institute of Politics, served as an aide to the Mayor and Assistant Administrator of the New York City Environmental Protection Administration, and served as Director of the Office of Management and Budget for the City of Boston. He received his BA in physical sciences from Harvard College and his MPA and PhD in economics and public affairs from the Woodrow Wilson School at Princeton. This case discussion originally appeared in volume 1, number 2, of Innovations. © 2006 Tagore LLC 130

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Tools for Compliance in a Networked World easy access combined with transparency and emotional communications carries risks as well as rewards, especially for minority rights and privacy. Good governance will require that we learn how to use these relatively new capabilities both wisely and well. In that context, let's look at the RENCTAS case, what explains it, and how we might use its lessons in other settings. RENCTAS—SUBSTANTIAL AND EFFICIENT PROGRESS With 38 million animals worth US$3 billion poached in Brazil every year, the illegal trade in animals was a major and growing problem in 1999 when Dener Giovanini, Raulff Lima, and Sergio Priexoto formed RENCTAS in the relatively small municipality of Três Rios. How could three people with little authority hope to put a dent in a large illicit industry willing to protect its turf, if necessary, with guns? A more detailed examination shows an even more discouraging situation. Despite the size of the problem, there was little public awareness or support in Brazil for aggressive enforcement of the anti-trafficking laws. Given the money available, along with the poverty of many of the Brazilians needed as suppliers or middlemen, recruitment into trafficking was easy. Members of the bus, trucking, and law enforcement communities had been significantly corrupted, especially at ports where many of the animals were shipped out of the country. Foreign consumers—typically quite rich in comparison to their Brazilian suppliers—wanted entire animals as show-pieces or pets, or simply needed animal parts to feed various fashions or for the exotic chemicals used for medicines or research. Law enforcement personnel were fragmented into small jurisdictions and didn't share information nearly as well as the criminals they were supposed to stop. In the past seven years, however, much has changed. Awareness of the problem has been greatly increased, helped considerably by a five-part series on animal trafficking ("Life for Sale") by Rede Globo, Brazil's largest television network. Print coverage is up by a factor of four, including international coverage in the Economist, National Geographic, and the Christian Science Monitor. Previous to much of this coverage, public participation in enforcement increased dramatically, with individuals reporting suspected cases of poaching and some 60,000 Brazilians signed up to receive blog postings and other information on the battle. From this group, individuals are being readily recruited to write letters to newspapers and legislators and to support events such as public hearings, etc. Participation and awareness have created a positive feedback cycle, with each leading to an increase in the other. Beyond the general public, others are now being recruited to improve enforcement and compliance with Brazil's anti-trafficking laws. Bus drivers are being trained about the trade and how to thwart it, supported by a partnership by RENCTAS with the Itapemirim Group, one of Brazil's largest passenger transinnovations / Davos 2008
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Jerry Mechling portation companies. Similar efforts are proceeding with the Martins Group, one of Latin America's largest trucking firms. Efforts are also reaching outside Brazil to put heat on consumers in Switzerland, the U.S., and elsewhere. Working from the ground up, RENCTAS has produced credible analysis making the trafficking industry more accessible to an aroused public. Giovanini was awarded prestigious prizes by Ashoka and by the United Nations Environment Program. Despite the progress, the trafficking problem remains. Some 600 animals in Brazil remain on the endangered species list. The animal trafficking industry seems to be merging with drug trafficking, which may make it more vicious and difficult to control. Still, given that so much activity has been generated so quickly and by so few in the core organization, RENCTAS must be judged incredibly efficient and effective. What has made them so successful? EXPLAINING WHAT HAPPENED Through insight, skill, and courage, Giovanini and RENCTAS have mobilized a large and dispersed group of supporters to stand up to criminals and make it harder and more costly to carry out illicit trades. Many factors may be needed to properly understand the varied elements of the story. However, three that seem particularly important—for RENCTAS and for other cases where people have been mobilized to support a new activity—are accessible, transparent, and emotional Internet-enabled communications. Accessibility The Internet globally is on the road to becoming pervasively accessible. In Brazil that doesn't mean "anytime/anywhere" availability (compared to the extreme penetration of broadband in South Korea, for example), but it does mean that Internet-based services are often more accessible than those offered only on paper or face-to-face. Internet communications can also be anonymous and speedy at great distances compared to other forms for recruiting and involving people in anti-trafficking activities. Note that, when they began, RENCTAS worked largely through speeches and public seminars, where they urged people to report suspected traffickers directly to the police. While initially effective—at least at gaining the attention of the traffickers— the public meetings generated counter-threats from traffickers. Turning to recruitment via the Internet made it much easier for potential supporters to contribute safely and with relatively little effort. They didn't need to report to possibly corrupt police, or travel to a special location. They merely needed to report suspicious incidents to the RENCTAS web site, and the rest was handled on their behalf. RENCTAS protected anonymity while passing cases to the police, reporting back to the informant, and keeping data handy for later analysis. Web-based and push communications from RENCTAS also made it easier for

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Tools for Compliance in a Networked World police, bus drivers, truck drivers, and others to stay connected to the movement. Accessibility has been the prime benefit of global e-government for the past decade and more. Net-delivered services are available 24/7 "online, not in line." People have learned to both appreciate and expect the convenience. More recently, people are learning that some kinds of group participation can be fit into small blocks of time. You can get email on your Blackberry at the supermarket. That lets you keep up with some of the things that used to require a trip and a meeting. For RENCTAS, this has allowed them to keep involved supporters who, absent the Internet, would have found it too risky or time-consuming to be of help. A web site in Idaho offers another case that seems to be a frontrunner at mobilizing the public by making demands for time and energy modest and digestible. The site seeks to engage a balanced sample of individuals willing to vote in the state primary elections and also devote one hour per year to issues coming before the legislature. Keith Allred, the site's founder, meets with legislative staff and leaders to scope out 20 or so issues likely to be decided in the upcoming session. He summarizes each issue along with the most prominent positions taken (roughly a page per issue). He tries to ensure that those taking the various positions accept the validity of his summary. He then asks participants to use their promised hour to study the issues and tell him what they want the legislature to do. He analyzes his results for issues where the public response is clear (70% or more for one position) AND is different from what those at the capitol think will come out of the legislative process. What he wants, in short, is to get the voice of the common interest heard more clearly by the legislature (and by the media and the public). In the past year, several positions he has identified in this way have won out over positions supported by the most powerful and successful lobbyists in the state. Making participation accessible can be powerful. Transparency The Internet and computer-based tools can also be used to increase transparency in otherwise complex and confusing situations. Data can be indexed and analyzed so it can be found, and so individual pieces can be aggregated into meaningful bigger pictures. Both capabilities were important for RENCTAS. The case notes a major motivating event early in Giovanini's work when he couldn't find a file soon enough to meet legal requirements and a poacher therefore had to be released. That got him to computerize all his records for rapid retrieval, updating, and sharing over the net. RENCTAS used this retrieval, updating, and sharing to maintain records that provided feedback and reinforcement to field informants. While informants remained safely anonymous, they could see what happened to their tips, and could also see how their group in the aggregate was having a major impact. Beyond simple aggregations, computers were used to collect new data and massage it into a better understanding of the entire trafficking industry. Sleuthing innovations / Davos 2008
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Jerry Mechling via the web allowed RENCTAS to get clues on the enemy (e.g., via undercover work in chat rooms where exotic animals were being sold). Adding their own data to what they acquired over the web (and elsewhere), they were soon able to understand more of the trafficking trade than was visible to most of the Brazilian authorities. This made RENCTAS a valuable source of research. It also gave them legitimacy with television people and the press. Those people, in turn, wrote stories that fed back to improve RENCTAS' legitimacy with the public. The data that RENCTAS was able to assemble and analyze made new things visible, for example, to senior managers within the Itapemirim and Martins groups. These people could suddenly see the extent to which their buses or trucks were implicated in illegal activities. Perhaps more important, RENCTAS analysis could communicate the vulnerability that firms would face with an aroused public that was also beginning to see and understand the data. Transparency led, as it typically does, to heightened accountability. Movement from analysis to transparency to accountability and responsiveness was precisely what happened years earlier in the U.S. when the Toxics Release Inventory data was made public in 1987. The law required firms to report their toxics emissions to EPA. It then required EPA to make all the data available to the public in computer-readable form. This reporting allowed a variety of groups inside and outside of government to make it easy for individuals and community groups to find out about emissions from plants near where they lived or worked. It also allowed senior managers in those firms to find out about plants that were bad polluters in comparison to other plants. The increased transparency led in many cases to a quick assumption of accountability and "voluntary" corrective actions that had not been possible before. Because of the transparency, the public paid more attention, and because of the public's attention, the firms abated their pollution. Making the system transparent can be powerful. (A number of the factors mentioned about the RENCTAS story are summarized in Figure 1.) Emotional Communications While we typically use logic to rationalize decisions, we actually make those decisions emotionally. Emotion drives our wants and desires, thus structuring and motivating our decisions. Text is efficient and effective for conveying concepts. While text can also be powerful emotionally, much of our brain is wired for other signals. Visual inputs get much attention, as do sounds and smells and taste and touch. RENCTAS has long understood—at least implicitly—that the story of animal trafficking and why it must be stopped needs to be carried by more than the data. The RENCTAS site has accordingly used the Internet to tell stories and illustrate with pictures. More recently, as the Internet increasingly supports broadband, fullmotion video and sound are frequently used for engaging story-telling. Such communications carry emotional connections. They help explain how
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Tools for Compliance in a Networked World

Figure 1. Elements of the Animal Trafficking System in Brazil. RENCTAS has engaged and motivated its supporters to proudly protect Brazil's animals. RENCTAS was particularly wise after their move to Brasilia to reach out to the government-oriented television media located there. Much as RENCTAS had earlier made reporting easy for the public they had wanted to recruit as informants and supporters, in Brasilia they also made it easy for television reporters to develop stories and visual materials. The television in turn had a huge impact on public awareness. Stories and other emotional material have been central to human communications since the post-hunt campfires organized before writing was even invented. We interpret body language, voice, and facial expressions and are moved. As the internet supports video more pervasively, it is becoming increasingly important as an organizing tool. For example, the Internet's ability to carry emotion to a dispersed audience was recently used to stop a proposed water desalination plant in Monterrey Bay, Mexico. The construction proposed by Toyota in Japan would have become the world's largest desalination facility and created more than a thousand long-term jobs. The issues raised were largely environmental, focused on effluents in the Bay. The environmental community used the Internet effectively to mobilize support against the plant. They brought activists including Hollywood actors down to the bay and took video of the humpback whales who calved in the waters there. They used these videos effectively along with a letter-writing campaign to thousands of mid-level managers at Toyota back in Japan. What is interesting for this analysis is that the emotional campaign—carried largely by pictures, video, voice, and humpback whale sounds—was promoted primarily by people outside of Mexico rather than locals, yet was effective politically within Mexico. The plant was scuttled. Communicating emotional connections can be powerful.

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Jerry Mechling LESSONS AND ISSUES The RENCTAS story primarily illustrates the power of Internet-enabled accessibility, transparency, and emotional connections. So, where might we apply this power in the future? One place would be the additional opportunities to fight animal trafficking in Brazil. Legislators and staff are a target that has not been given much attention in the RENCTAS case so far. There are also other parts of the animal trafficking system not reached. Not much has been reported, for example, about efforts to engage suppliers. While middlemen like bus and truck drivers are probably more costeffective targets (better organized and depending less on kick-backs from the trafficking industry), it might also be possible to influence suppliers, perhaps through a divide-and-conquer strategy of recruiting some as paid informants. Beyond Brazil, but still on the trafficking problem, it might be possible to use Internet communications to further attack consumer markets for exotic animals in Europe, North America, and Asia. Giovanini established a number of partnerships apparently for that purpose, and these relationships might be deepened and made more active. For what other locations and what other issues might we make progress using Internet-based tools to mobilize and coordinate supporters? Much is already being done with "Neighborhood-Watch" programs of various sorts that could be expanded with Internet and other information technologies. The RENCTAS approach of calling for reports of suspicious activity, protecting informants with anonymity, and feeding case developments back to the informants could obviously apply elsewhere. So could aggregating data into the bigger analysis and developing stories to make the work emotionally engaging and "sticky." As a variant, it may soon be possible to acquire technology cheap enough for non-governmental groups to deploy digital sensors of various sorts. We might expect a Neighborhood Watch group to use video cameras to record everything that happens in specified places. It is now being done in shopping malls, and may well move outside. As activities become more visible and transparent, individuals can be expected to feel more pressure to comply with the dominant culture and the law. This may increase compliance but may also encourage illegal surveillance and a tyranny of the majority. It may be good in some cases and bad in others. Figuring out which is which, and how we can govern these fundamental issues of social organization, will be a major challenge for the not-so-distant future. We'll need respectful and effective dialog and decisions on how we want to proceed.

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Tools for Compliance in a Networked World CONCLUSION: BALANCING COMPLIANCE AND DIVERSITY The RENCTAS case offers a compelling story of how the Internet can be used to mobilize supporters. RENCTAS supporters greatly expanded the impact of the work that RENCTAS did on its own. Much was accomplished in a short period of 7 years. Generalized just a bit, the problem that RENCTAS addresses is a quite general one: How can we mobilize and sustain support from those at a distance who have little time to give? The problem of dispersed support and concentrated opposition is a classic leadership challenge. Fortunately, we have recently developed Internet tools that can help. Using the Internet, we can make it easier for supporters to participate, even from a distance and even part time. We can make the system transparent and understandable from the small local incident to the large system and trends. We can include sights and sounds that carry emotions as a critical tool for keeping supporters engaged. Easy access, improved transparency, and emotional communications make it easier to mobilize support and, among other things, to enforce compliance with laws and norms. We need that. At the same time, we don't want the rigidity and even tyranny that can come with a too-zealous focus on compliance. We also need diversity of opinion and behavior and the continued innovation that diversity supports. In an increasingly networked and changing world, we will need to continually construct and reconstruct a proper governing balance between compliance with norms and respect for diversity and innovation. RENCTAS has used its new tools for compliance in order to support a diversity of wildlife in Brazil. Those of us learning from RENCTAS will also need to keep the balance between compliance and diversity in mind. As we get better using technology to mobilize dispersed supporters, we will also need safeguards against improper and illegal use of these systems.
1. See <http://thecommoninterest.org> to explore this application. 2. See <http://www.epa.gov/tri/>; the early experience is described in "The Toxic Release Inventory: Sharing Government Information with the Public". (KSG case no: 1154.0) 3. This experience was discussed at an unpublished workshop at the Kennedy School of Government, Harvard University. A paper based on ideas from the conference, but not specifically the case described here, is Levitt, James and Charles H.W. Foster. "Reawakening the Beginner's Mind: Innovation in Environmental Practice." Discussion Paper 2001-7, Cambridge, MA: Belfer Center for Science and International Affairs, Kennedy School of Government, June 2001.

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Carter Roberts

Establishing and Strengthening Wildlife Enforcement Networks
Innovations Case Comment: RENCTAS

Dener Giovanini does an excellent job of describing the challenges—and risk— faced not only by RENCTAS, but by all conservationists who seek to protect wildlife from illegal take and trade. And like the illegal trade of drugs and guns, wildlife smuggling is a global business—one that often goes hand in hand with other criminal activities. There is also no doubt that the smuggling of illegal wildlife products is a multibillion dollar business. However, the $20 billion figure so often cited as an estimate for the value of such trade does need to be re-examined. Using data from the early 1990s, TRAFFIC, the wildlife trade monitoring network of World Wildlife Fund and IUCN, originally generated that estimate for the value for all wildlife trade, both legal and illegal, excluding commodities like timber and fish. The figure gained wide currency and was frequently quoted—and ultimately misquoted—as the value for illegal trade alone. The true value of illegal wildlife trade may, by now, indeed be that much. But we really don't know the exact number. What we do know, however, is some of the same criminal syndicates dealing in drugs and arms smuggling are also involved in the illegal wildlife trade. From Asia to Africa to the Amazon, drugs, guns and animal parts are smuggled through the same networks, down the same jungle trails and often by the same people. The profits from one activity may finance another in a criminal cycle that weakens legal norms and saps the natural resource base. Drug cartels in Peru, for instance, are involved in mahogany smuggling. There is one difference between the drug trade and the trade in wildlife: You can't buy heroin on e-Bay. But, as our TRAFFIC investigators found out a few years ago, you can buy animal products like ivory—much of it from sources that are believed to have obtained it illegally. Therein lies the challenge. The Internet has transformed the world of wildlife smuggling in ways both good and bad. Conservationists have become cyber sleuths, with dedicated groups like RENCTAS creatively using the Internet for both Carter Roberts is President and CEO of the World Wildlife Fund-US. This comment originallly appeared in volume 2, number 1/2 of Innovations. © 2006 Carter Roberts
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Strengthening Wildlife Enforcement Networks investigative and informational purposes. Giovanini notes that the Internet has also helped in another way—offering a higher degree of anonymity, and therefore personal safety, to people passing along tips about instances of illegal animal trafficking. Yet this anonymity is double-sided, for equally cyber savvy smuggling networks also use it to create and expand their markets. WWF began using the net as an investigative tool in the early 1990s, when our “Eyes and Ears” Campaign, a pilot project in the U.K., set up a web-based reporting system to receive tips and keep track of suspicious activity related to wildlife. Initially, most of the “tips” we received concerned common species that could be traded legally. But as both the Internet grew and public awareness increased as a result of our efforts, we began to see a profound change. On the one hand, the quantity and the quality of the information we received grew enormously. On the other hand, we soon discovered that the trade itself had also moved online. The change, since the early days of the Internet, has been staggering. Today, much of the trade in wildlife is initiated on websites and negotiated via email and instant messaging. As the battle lines shift from the jungle to the chat room, the challenge moving forward lies in figuring out how to stay a step ahead of the traders. Our own conviction is that the Internet may help us to win some battles but will not win the war. What else must we do? It is generally acknowledged, among conservationists and law enforcement officials, that the best way to combat the wildlife trade is by following it from source to consumer and by putting intervention points in place along the way to impede it. If a shipment is missed at export it may be caught upon import. The key here lies in establishing and strengthening wildlife enforcement networks. A good example is the Association of South East Asian Nations Wildlife Enforcement Network (ASEAN-WEN). Established little more than a year ago, it is already showing how working together within a region can achieve real results and deter wildlife criminals through cross border initiatives. It is a model that South America could easily adopt. Conservation groups also need to network better. The models developed by national and regional groups like RENCTAS, and international ones like WWF, should be better integrated so that we can share information and coordinate our efforts across country and regional boundaries. This is what we've been asking governments and law enforcement agencies to do for years. Let's stop asking and show them how to do it.

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Developing Information Technology to Meet Social Needs
Innovations Case Narrative: Benetech
Technology can be an immense force for good in the world. However, if a technology innovation doesn’t generate major financial returns, it rarely is pursued. Overcoming market failure in socially beneficial applications of information technology is the objective of my organization, Benetech. We build innovative technology solutions and widely promote entrepreneurial models for developing projects in the nonprofit community. Benetech was founded as a nonprofit social enterprise in 1989 to pursue the making of affordable reading machines for the blind, because the market wasn’t interesting to my original, venture-capital backed, company. We’ve since branched out into three major fields in the social sector, helping provide technology solutions to people with disabilities, human rights groups and environmental groups. This case study will present Benetech’s history and show how we’ve adapted the high tech company to developing technology for social causes. Benetech is a strong example of social entrepreneurship. We are part of a growing movement of people taking new approaches to solving social problems. A hallmark of this movement is approaching these problems in partnership with the communities we want to help. This approach melds features from business and the social sector, creating hybrid solutions. In some cases, the people we want to serve are our customers, providing the market-based feedback that keeps us focused on the needs of our users. In other cases, there is no revenue model, but the value A technology entrepreneur and engineer, Jim Fruchterman has been a rocket scientist, founded two of the foremost optical character recognition companies, and developed a successful line of reading machines for the blind. He is now a leading social entrepreneur through his deliberately nonprofit technology company, Benetech. Benetech concentrates on applying technology to human rights and literacy for people with disabilities. Fruchterman has won numerous awards for his work, including the 2006 MacArthur Fellowship and the Skoll Award for Social Entrepreneurship in 2004 and 2006. This case narrative appears, accompanied by a case discussion authored by Gregg Vanderheiden, in volume 2, number 4, of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Jim Fruchterman as an Outstanding Social Entrepreneur. © 2007 Jim Fruchterman innovations / World Economic Forum special issue

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Jim Fruchterman exchanged is still real and shapes our accountability to our partners. In general, social entrepreneurs are tackling market failures, meeting needs where business entrepreneurs are unlikely or unwilling to fulfill. Yet, treating the communities we serve more like customers than the recipients of charitable beneficence reflects the new realities of global society. More to the point, it works. FROM CALTECH TO ROCKET SCIENTIST TO ENTREPRENEUR As a Caltech engineering student in the 1970s, I had the privilege of meeting and working with brilliant and inspiring teachers. My fellow students were all linked by our love of science and technology for its own sake. We didn’t know or care about business: we wanted to win the Nobel Prize in one of the sciences. The challenge was coming up with an original idea, and it was difficult imagining how this would ever be possible when you were rubbing shoulders with faculty as brilliant as Richard Feynman (the Nobel Laureate in Physics). My breakthrough moment came in a Modern Optics class. We were learning about optical processing using Fourier transforms, and the example was how to build pattern recognition systems for smart missiles. The missile in question would have a camera in its nose, and the pattern recognition system would have a representation of the target: say, a tank or a bridge. When the target came into view, the missile would recognize the target, lock on, and swoop down and blow it up. I went back to my dorm room, wondering if there just might be a socially beneficial application for this exciting technology. And then it came to me: you could recognize letters and words instead of tanks or bridges, and then read those words aloud to a blind person. It was electrifying: I had an actual idea! I didn’t even know any blind people. Of I course fell in love with my first idea. My professor was encouraging, but realistic, and the proposed design wasn’t going to work all that well. However, it stuck with me, and I began to think that it might be possible to come up with more ideas. I went on to Stanford University to start working on a Ph.D. in 1980, and began to hear about Silicon Valley and business. In quick succession, I co-founded an entrepreneurial talk series at Stanford, was hired by the second speaker in that series, dropped out of school and joined a fledgling Valley rocket company as its electrical engineer. The rocket blew up on the launch pad (not an electrical problem!) and the company blew up along with it. We then started our own rocket company with my former boss from the first rocket company, David Ross, but no investors were willing to provide the $300 million in financing we were seeking. After struggling with this for months, Dave suggested we meet with a colleague of his, Eric Hannah, who was a chip designer for Hewlett Packard. The three of us met in a restaurant, and Eric described his vision of building a chip that did a specific application very well, rather than a general purpose chip like a CPU or a memory. When I asked what application he had in mind, he said that he wanted to build a chip that could read any text. My reaction was instant: “You could build a reading machine for the blind with that chip!”
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Developing Information Technology to Meet Social Needs To make a long story short, the three of us started Calera Recognition Systems together and ended up raising $25 million in venture capital. We invented the first successful omnifont character recognition technology: a machine that could read just about any machine-printed font without requiring human training. This technology had many commercial applications: scanning contracts for lawyers and claim forms for insurance companies, and routing the mail for the post office. But, the reading machine for the blind was always the application that had my heart: I wanted to see us build that. My passion was shared by the rest of the team at Calera, and the marketing and engineering teams got together and built a prototype as a secret project. The moment of truth came in a board meeting where we demonstrated the prototype to our venture investors. The prototype, which at the time cost $50,000, took a page of text and ran it through the scanner, taking a digital photograph of the page. The optical character recognition turned the picture of the page into a word processor text file, just as if someone had typed it in by hand. Then, a voice synthesizer read the text aloud in a very mechanical voice. The board was intrigued, and asked me (then the VP of Marketing) how large the market was for reading machines for the blind. My answer was roughly one million dollars per year. This was met with silence in the boardroom. Calera’s investors understood why this was exciting as a product, but were also quite clear that a $1 million per year market was not the $100 million per year market they had been promised. To get the returns they needed on a $25 million investment, they needed us to focus on that larger market. And they didn’t want us to dilute our focus with a much smaller opportunity such as a reading machine for the blind. I reluctantly understood their position. We owed them our concentration on making their investment worthwhile. But I was still disappointed. Helping the blind was such a cool application, but not lucrative. How could we still do it, even though it wouldn’t make a lot of money? Gerry Davis, who was the software licensing lawyer for Calera, was sympathetic to my problem. His idea was that we could start a deliberately nonprofit technology company to make reading machines for the blind. It would be structured as a charity corporation, but operate like a technology company, designing and building products for the blind. We hadn’t heard of anyone doing this, but Gerry thought it would be possible and offered to take it to the Internal Revenue Service as a pro bono project. Soon thereafter, it came time for me to move on from Calera after working there for seven years. The new CEO was very concerned about the possibility of me competing with Calera or hiring away the engineers. So, in exchange for a noncompete and a no-hire agreement, I obtained Calera’s agreement that I could start a nonprofit to make reading machines for the blind, since they were clear that they didn’t want to take on that product themselves. Gerry Davis’ law firm convinced the IRS to approve our application as a charity and Benetech was born.

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Jim Fruchterman ARKENSTONE READERS I named the new organization Arkenstone, after the gem in J.R.R. Tolkien’s The Hobbit. Arkenstone surprised me: it was the only technology company with which I had been associated that exceeded the expectations in its business plan. We hit five million dollars in revenue in our third year and were actually profitable. Our approach was considered highly innovative in the field of adaptive technology for people with disabilities. From my background in the tech industry, I was simply using lessons I and other tech entrepreneurs had already learned. So much innovation is actually borrowing a great idea from one field and applying it to another. And so it was for Arkenstone. Arkenstone innovated in three major ways: platform-based design, financial structure, and a user-centered approach. Together, these helped us revolutionize the availability of reading systems to blind people around the world, bringing this capability to at least 100 times more people. Platform-based Design When we started, there was an existing reading machine for the blind, the XeroxKurzweil Reader, which was a fine piece of engineering. However, it was custombuilt for the blind. Low production volumes made it very expensive to produce and at least $10,000 to purchase. Our first innovation was to build our reading machine based on the emerging personal computer platform. Initially, this was the IBM PCAT platform. We knew that every year PCs would get better and cheaper. Our initial reading machine had four major components: the PC, the Calera OCR board, a DECtalk voice synthesizer board, and a Hewlett Packard scanner. Together, these three additional pieces turned a standard PC into a reading machine. You could put a piece of paper or a book on the scanner, press the space bar on the PC, and sixty seconds later the DECtalk would be reading the page aloud to the user. Because it was based on a PC, it cost less than $5,000 to buy a reading system when we launched it in 1989. And, over the next ten years, that price went from 5K to 4K to 3K to 2K to 1.5K to 1.2 thousand dollars. Each time the price went down, our unit volumes went up and our revenues stayed about the same. As a result, more and more people got the benefit of this technology. Financial Structure I had spent five years as Calera’s Chief Financial Officer, which helped me understand the challenges of starting a new venture. We knew we couldn’t raise money from venture capitalists: the returns weren’t there. It didn’t even occur to us to talk to foundations. So, we structured Arkenstone based on trade credit. We didn’t offer our customers credit; they had to pay for the reading machines when they bought them with cash or credit card. Calera, Hewlett Packard and DEC all allowed us to pay them in 45 to 60 days. This difference in payment terms provided us with enough capital to build a $5-million- per-year venture with only a $2,000 loan from me to start up. We were still undercapitalized, but it was enough to run the operation.
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Developing Information Technology to Meet Social Needs User-centered Approach At the time we launched Arkenstone, the companies that made products for the disabled sold “over the heads” of the users. The equipment was so expensive that it made more sense to sell to government agencies and have the agencies give them to the users. Of course, the users had relatively little say over what equipment they received. They were expected to be happy with whatever they got. The industry also avoided hiring people with disabilities for direct sales. It was highly ironic that companies selling technology to empower people with disabilities didn’t feel comfortable empowering them to the extent of hiring them for these jobs! Arkenstone changed both of these dynamics. By bringing the price point under $5,000, be brought a reading machine within the financial reach of far more individuals and families. Rather than government agencies, the vast majority of Arkenstone’s sales in the first few years were to individuals and families. And we changed the direct sales structure. When you’re selling a product that costs over $10,000, you can afford to send direct sales people (employees) out to sell them. We knew from the PC industry that as prices fell below $5,000, a direct sales force stopped making sense. So we created a dealer channel. But not just any dealer channel. The majority of our dealers were people with disabilities themselves. They did a terrific job for us: within three years they created the largest company making reading machines for the blind. And, of course we paid a lot of attention to our users in the product design. We quickly replaced our front-end software (which I had written) with a better frontend designed by one of our blind dealers. Our first hire was a blind technologist from Hewlett Packard. User-centered design is a common phrase in technology today, but it was revolutionary in 1989 in the field of technology for the blind. Focusing on the users in all these noteworthy ways was core to our success. Arkenstone’s Success Arkenstone quickly became the largest maker of reading systems for the blind. We had assumed that the market was only $1 million per year, but we were wrong. Within three years we were doing $5 million in annual sales. Part of the reason for this was that many, many blind people had wanted the Xerox/Kurzweil reading machine, but couldn’t afford it. Once we brought the price under $5,000, suddenly they could afford these machines and they bought them. Arkenstone is still the only high tech venture I’ve been associated with that actually exceeded its business plan partly because our expectations were set so low. Arkenstone rapidly expanded outside the United States. As soon as we sold an English-reading machine, we had interested customers in many countries. When we added Spanish, we enlarged our market even more. Soon, Arkenstone became a leading machine in Canada, the UK, South Africa, Germany, France, Italy, Portugal and so on. We adapted the reading machine to read almost all of the western European languages. We eventually had users in sixty countries reading a dozen different languages.

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Jim Fruchterman Using our inside track of information from our contacts in the technology industry, we knew that character recognition would soon move from a specialized circuit board to a software-only solution which would decrease prices even more. We developed and launched Open Book, the first talking Windows software product for the blind. It was available both as a bundled reading machine for the blind with a small keyboard, and as a software package that turned a PC into a reading system. After five years, we surveyed our customers. We learned some astonishing things. First, we found that our technology abandonment rate after one year was under 10%. Over 90% of our users were still using their reading machine one year after purchase. We felt that compared very favorably compared to other assistive technology, which often has abandonment rates over 50%.1 By selling reading machines rather than giving them away, we believed we engaged our users in much more depth. Second, we found that roughly 15% of our users weren’t blind at all: they had learning disabilities such as dyslexia. We had heard stories of dyslexic users, but we had no idea that they represented such a large percentage of our users, with no effort on our part and with a product that in retrospect was poorly suited to the needs of someone who could see, but struggled to read. It turned out that one feature was key. Our Open Book software highlighted each word visually as the voice synthesizer read it aloud. That way, a low vision (or dyslexic) user could see and hear the word at the same time. Multi-modal input turns out to be a key part of many techniques for teaching reading skills to students with dyslexia. The rest of the user interface was, however, designed for someone who couldn’t see and used the keyboard exclusively to interact with our software. We had to redesign it completely for the needs of these different users, people who could see and preferred a visual interface that used the computer’s mouse. We built a completely different product on top of the same character recognition and voice synthesizer technology. Its name came about as a play on technical words. During that time, word processors were touting that What You See is What You Get (WYSIWYG), pronounced whizzy-wig. We wanted our dyslexic to get the interface they needed, so it became nicknamed WYN: What You See is What You Need. By the time it came to launch the product, we liked the codename so much we ended up settling on WYNN: What You Need Now. The interface could be completely driven by the mouse, and the visual display could be extensively modified to fit the user’s needs. The user could see the page as a picture, with the text and graphics together, with the words being spotlighted as spoken on the picture of the page of text. Or, they could see a text version of the page, with the color scheme, size, spacing and font adjustable for each person. We prototyped it with learning disabled students at the University of California, Berkeley. These were very bright students who entered Berkeley and suddenly came face to face with the fact they couldn’t keep up with the greatly increased amount of reading (and lacked access to the relatives who had read to them in high school). These students helped us build what turned out to be a great product for helping them get through school.
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Developing Information Technology to Meet Social Needs We also made a modified version of our reading system for senior citizens. Although seniors represent the majority of the blind, they had always been a small part of Arkenstone’s users. PCs were intimidating, especially for a cohort of seniors that had not used computers in the workplace. So, we hid the PC and scanner inside a wood-veneered box and called it VERA, for Very Easy Reading Appliance. We wanted it to look like high-end stereo equipment. Each of these reading machines aimed at different segments of people who couldn’t pick up and read a printed book or document. By the end of 1999, Arkenstone had sold over 35,000 reading machines all over the world. It was an exciting venture, but not all of the things we tried went well. Arkenstone’s Challenges Even from the early days, we saw social needs where we thought technology could be well applied, needs the market was also failing to meet. In the early 1990s, I was interested in helping the human rights movement, as I discuss below in more detail. We also had lots of ideas for new products to help the blind. One of our first five Arkenstone users said the following to me: “All my life, I have wanted to read a book and drive a car.” He continued, “Now, thanks to Arkenstone I can read a book. When are you going to help me drive a car?” Our first employee, Mickey Quenzer, was blind and took the bus to work. One day, he arrived late and was complaining bitterly about the bus driver who had dropped him at the wrong stop. “If I ever get to drive a car, I’d like to run that guy over!” I know that Mickey was kidding, but it made me think about what it would take to help deal with the problem of personal mobility. We broke the problem into orientation - where am I and how do I get to where I want to go, and mobility - how do I actually travel between here and there safely? Hearing about the Global Positioning System, it occurred to us that a talking GPS locator would be very helpful to blind people. Doing some research, we found that a visually impaired graduate student, Charles Lapierre, in Canada was also working on this problem for his master’s thesis. Charles joined us via our Canadian development partner, VisuAide; together with two other Arkenstone engineers, we got a patent on a talking GPS locator for the blind, which we ended up naming Strider (another Tolkien reference). A talented blind executive, Mike May, was our Vice President of Sales, and he fell in love with the product. However, it was challenging to finance this project. Our reading machine business was operating close to break-even, and we diverted engineering resources away from our core business onto Strider. This created an opportunity for a new competitor in the reading machine field, Ray Kurzweil’s second reading machine company, to gain ground, which increased the financial pressure on us. Finally, something had to give. We had to lay off some of our staff, which was personally very painful. Our entire team was dedicated to our mission and we had let them down. We also put the Strider project on ice. Mike May, who had agreed that Strider wasn’t going to make money in the short term, asked to spin the

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Jim Fruchterman Strider project out of Arkenstone because it was too important to let die. After several years barely surviving, Mike’s perseverance paid off and he was able to secure a multi-million dollar federal research project which carried the project until it became the viable and successful enterprise it is today. We refocused our team We had come face-to-face with on the reading systems and one of the biggest problems of regained our momentum in our core business. But, we social enterprises. Low had come face-to-face with profitability makes it well-nigh one of the biggest problems of social enterprises. Low impossible to find the funds to profitability makes it wellinvest in new projects. nigh impossible to find the funds to invest in new projects. I found this personally frustrating, because I had been doing the same thing for a decade. Although the work was rewarding, I wanted new challenges. We needed to do more. THE BENETECH INITIATIVE In the late 1990s, I started working on a new concept to enlarge Arkenstone’s work, code-named the Benetech (short for “beneficial technology”) plan. I wanted to develop software for human rights groups and create more technology for disabled people. Unlike my college days, where I despaired of ever having a good idea, I now had many good ideas. They were good ideas for projects that made social sense, but not business sense. It was relatively easy to come up with good social enterprise ideas, since the lack of a profit motive frequently thinned the number of competitors to worry about to zero! My challenge was finding money for these new projects. My idea was that this money would come from my financially successful peers, the newly minted dot-com billionaires. Unfortunately, the dot com-ers were all busy making their money and weren’t ready to give it away to someone like me. About this time, an experienced executive named Richard Chandler talked to me at a disability technology trade show. He wanted to know if I wanted to sell Arkenstone to him. I told him to go away, that we were a nonprofit and weren’t interested in selling. But, Chandler was persistent. He had started Sunrise Medical, a large company serving people with physical disabilities. He had created it by buying several other companies and building the combined entity into a Fortune 500 company. He wanted to do the same thing in the vision impairment field, and planned on buying up the leading companies in each major product segment of equipment for the blind. He asked me what my dream was, and I described my goals. Chandler offered to pay $5 million for the Arkenstone business (including the name), and would allow me and the engineering team to stay inside the nonprofit. I grabbed
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Developing Information Technology to Meet Social Needs this opportunity. Selling a nonprofit is more complex than selling a for-profit. We needed to convince the office of the California attorney general that doing this deal was in the best interest of the public. One way to think of a nonprofit is that it’s owned by the taxpaying public and needs to be operated for the benefit of society. Our case to the attorney general was straightforward. Before the deal, one social enterprise; after the deal, three social enterprises (one for-profit run by Chandler and two nonprofit projects run by us). Also, we committed to keep all of the funds in the social sector (not that this is optional under nonprofit law). So, I didn’t get to pocket the money, but I did get to control it as my new budget. The AG’s office approved the sale, and in June, 2000, we sold the Arkenstone business to Chandler’s newly-created company, Freedom Scientific. Since we had to sell the brand name of Arkenstone as part of the deal, we changed the nonprofit’s name to Benetech and began a new phase in our life. What To Do With $5 Million? We had to consider our strategy with this new sum of money. Did we invest it as an endowment, and run Benetech on the small income stream? I decided that we should be more aggressive and aim higher. We would invest the money over a couple of years in two new projects, and assumed we could start raising philanthropic money for the first time in our history. I had two ideas I wanted to develop with the money we received from the Arkenstone asset sale, one in the human rights field and one in the disability field. We expected that we would do more projects in the future with the additional new money we’d find. Martus In 1993, I’d read a story about the El Mozote massacre, which happened in El Salvador in 1981. I was bothered that more than 700 people could be killed, and it could take a dozen years before the world actually believed the massacre had happened. The tough question was how to protect people from this kind of atrocity. Dave Ross and I hiked in the hills above Stanford and Silicon Valley, brainstorming about this challenge. Being geeks, we tried to come up with fancy technology solutions around defending people, but none of them made sense. We realized that the only tool to fight human rights abuse is the truth. If we could get the right information to the right people, quickly and reliably, we could address impunity. If committing atrocities led to consequences more quickly, it would discourage this kind of abuse. We called this idea Witness and immediately grabbed the domain name. As I went around talking to human rights groups, like Human Rights Watch and Amnesty International, I learned there already was a Witness Project in the human rights field. Dave Ross suggested we rename it Martus, the Greek word for witness, and the name stuck. We handed the Witness.org domain over to the Witness project, which has done great work around video applications in human rights. Our initial idea was spying for human rights, using the same kind of technolinnovations / Davos 2008
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Jim Fruchterman ogy as the government intelligence agencies. We kicked it around throughout the 1990s, but we never had the time or money to do anything real. Until June 2000. Through meetings with actual human rights groups, it was clear that technology hadn’t penetrated far into the human rights community. It was also clear that “Spying for Humanity” wasn’t the first place that technology should be used. There were much more basic needs for information technology (IT) than sophisticated surveillance tools. We needed to build tools that could be used by unsophisticated human rights activists in the field. The breakthrough in the conception of Martus came in a meeting in early 2000 with Dr. Patrick Ball of the American Association for the Advancement of Science. Patrick is one of the world’s leading statisticians of large-scale human rights violations. His work involves gathering a large quantity of data about systematic violations, such as occurred in Guatemala, El Salvador, Ethiopia, Haiti, South Africa and Kosovo. By investing the time to create a sophisticated database for these violations, and applying rigorous statistical techniques and quality control, it is possible to reach important conclusions about what happened in a civil war. For example, Patrick’s work on the UN-sponsored truth commission in Guatemala led to a report that documented the systematic murder and disappearance of at least 200,000 civilians by the Guatemalan military. The analysis was sufficiently detailed and analytically rigorous that the military declined to contest the report in court or in public. We asked Patrick if he thought we should build database tools for the kind of work he did. He demurred, pointing out that it is very expensive to create a major database project. The staff needs to be intensively trained, and extensive quality control mechanisms need to be put in place to ensure that the relational database relationships and classification standards are followed. Instead, he argued that we should focus on a technology tool that would be usable by the majority of human rights groups in their daily work. Doing a major database analysis years later with a truth commission would be much easier if the contemporary records of human rights abuses were preserved and available. He supported this idea with a penetrating analysis of the human rights sector, treating it like it was an industry. His analysis spoke to me as a tech business person who knew relatively little about human rights, but a lot about technology. Patrick’s analysis formed the framework for the design and nonprofit marketing of the Martus Project. Think of the human rights sector as a processing industry with a typical pyramid structure. At the base of the pyramid are the grassroots human rights organizations numbering in the tens of thousands. These groups are on the front lines of human rights violations. The victims of human rights abuses, or their friends and families, are coming through the front doors of the grassroots groups and pouring out their testimonies of the worst that humans can do to other humans. These narratives are the raw material of human rights work; everything else in human rights work is built with these raw materials. Above the grassroots groups in the pyramid are the provincial or national groups. These larger groups are politically better connected, and offer their mem150

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Developing Information Technology to Meet Social Needs bers better access to the press and political connections. They also play a role in quality control: membership in a bona fide network confers more credibility to the reports of a grassroots group. Regional and international groups concentrate the human rights information even more. This information is aggregated and processed into higher value forms. The single incident of human rights abuse is combined with other incidents into a pattern of abuse. These patterns are the basis for international human rights campaigns against torture, slavery or abuse of indigenous people. At the top of the human rights pyramid are the organizations The human rights sector is an with the greatest influence and authority. The information processing industry. United Nations, folBecause of the limited resources lowed by Human Rights Watch, Amnesty available, computers and International and the information technology are not Lawyers Committee for Human Rights, have the used to anywhere near full greatest reputation and credibility with the potential. The paradox of the press, diplomats and human rights community is that it governments. For example, the typical is an information-processing output from Human industry that has limited access to Rights Watch is a carefully researched report information technology. covering a national or regional problem. These reports don’t include all of the individual incidents that have been reported. The Human Rights Watch brand has come to mean high quality, exhaustively researched, authoritative reporting on human rights issues. The common product of the human rights community at all levels in the pyramid is information. The human rights sector is an information processing industry. Because of the limited resources available, computers and information technology are not used to anywhere near full potential. The paradox of the human rights community is that it is an information-processing industry that has limited access to information technology. We identified the field workers as being least served with information technology. The big groups, like the U.N. and Human Rights Watch, had good technology, but their field staffs were struggling. We traveled around the world, talking to human rights groups in Sri Lanka, Cambodia, Guatemala, and Russia. We learned that they needed very simple tools that could help them collect human rights vioinnovations / Davos 2008
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Figure 2. Martus Global Information Infrastructure. lation information. We decided to build the Martus tool that met their needs. The first piece is the Martus client: a piece of software that works on the human rights activist’s personal computer. Although we originally thought we could create do our software project over the web, we quickly learned that Internet connectivity was spotty and expensive for our planned users. So, to collect the data, we built a standalone piece of software that looked like simple email software. The human rights abuse information would be stored in bulletins, and these would be encrypted for security reasons. The encryption scrambles the data so it can’t be read by other people who might steal the PC or intercept the information. Whenever the PC was connected to the Internet, the bulletins would be sent to a secure backup server of their choice, usually located in another country. Then, the bulletins would get copied to more servers around the world, ensuring that the human rights information wouldn’t be lost. This information stays encrypted so that the people operating the servers couldn’t read it: even Benetech staff cannot open the encrypted data. At the request of users, we added the option to make some of the bulletin information public and created a different kind of server, a Martus Search engine, which allows anybody in the world to read the information about human rights abuse that the local group chooses to share. Results: Human rights groups around the world now capture violations data using Martus, which is available in languages such as English, Spanish, French, Russian, Arabic, Thai and Nepali. The Guatemalan police archive project is the largest single user, with more than 50,000 Martus bulletins about human rights violations during the 20th century. Patrick Ball brought his human rights analysis team to Benetech in 2003 with its Analyzer human rights statistics software, and we help many countries answer the question of who did what to whom. Patrick and his team have been involved with the majority of truth commissions over the last decade. An example of Patrick’s influence was his role as the lead-off expert
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Developing Information Technology to Meet Social Needs witness in Slobodan Milosevic’s war crimes trial in The Hague. As the intellectual father of Martus, Patrick is now the Director of our combined Human Rights Program, which is now the leading provider of human rights technology and statistics research. Bookshare.org Our second new Benetech idea came from my teenage son Jimmy. Right before we sold Arkenstone, I found an interesting new icon on my home PC. I asked Jimmy about it and he told me that it was called Napster, and it was for downloading music. Much to my delight, we spent an hour together playing with it and trading off listening to music that Jimmy liked from the 1990s, and that I liked from the 1970s. The technology was impressive. At the end of the hour, I asked Jimmy how much we were paying for this great service. “Paying?” was his answer, and I realized that this was almost certainly illegal. But it was very cool. I quickly recognized how the Napster-style approach could help people with disabilities. Hundreds of Arkenstone users were scanning the exact same book over and over again. What if they could share the books they scanned over the Internet? Then, we’d save many, many hours of effort and greatly increase the availability of books. I checked in with Gerry Davis, my problem-solving attorney, and we quickly figured out that it was actually 100% legal under U.S. copyright law. Right in the basic national copyright law, it said that copyright owners had the right to control copying of their works, subject to roughly twenty exceptions for uses like libraries, educational and fair use. One of these exceptions said that it was not a violation of copyright restrictions for a nonprofit organization to make accessible copies of books available to people with bona fide disabilities that kept them from reading print books. Although no one had thought of a Napster-style solution when the exception was put into the law, it fit our needs perfectly. We briefly called the project Bookster, but within a short time we were convinced to rename it Bookshare to avoid offending publishers. Gerry also came up with a great idea to talk to the publishing industry. Rather than spring Bookshare on them out of the blue, we would talk to them well in advance of the launch. So, a year before Bookshare was ready, Gerry got us a meeting with the Copyright Committee of the Association of American Publishers. This committee is made up of the top lawyers from the major publishers. We explained how we would honor the social bargain in the legal exception: help people with disabilities while not hurting the business interests of publishers and authors. Giving them a year to work with us to keep this social bargain gained us tremendous credibility with the publishers and convinced them to not sue us. Our shorthand description of Bookshare was Amazon.com meets Napster meets Talking Books for the Blind, but legal! At the core of Bookshare is the Bookshare.org website. It was set up to provide a place on the Internet where people with disabilities could share their books legally. Members signed up and paid a nominal fee to be able to access the books ($75 for the first year for all the books

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Jim Fruchterman you could read). Members had to provide proof of a qualifying disability, and agree to use the books only for their own use and not provide them to other people. Rather than us choosing the books in this new library, as had been traditionally done by libraries for the blind, our members choose the books to be added. If one person thinks a book is worth scanning and sharing, it will become available to the entire community. Our users are in charge of collection development for Bookshare.org, choosing over 80% of the titles that get added to the collection. Results: Our volunteers have already provided Bookshare.org with more than 35,000 books, and we now have more than 100 daily newspapers available each morning through a partnership with the National Federation of the Blind Newsline program and the nation’s newspapers. A person with a disability, such as blindness, goes to our website using their talking screen reader or Braille access solution and searches for a book or newspaper. The user logs in and then is allowed to download the materials they want. The book (or newspaper) is copied onto their PC hard drive as text. The text of the book can then be read aloud with a synthetic speech synthesizer, enlarged for the low vision person, or turned into Braille for a Braille reader. Results: We felt that the subscription fees would over the long term provide the funding to keep Bookshare.org going. At the time of this writing, the U.S. Department of Education has just decided to pay for all schools and students with print disabilities in the U.S. to receive Bookshare.org. So, in 2008, Bookshare.org will be self-supporting from revenues. How Benetech Picks Projects We started with the Martus and Bookshare.org projects, but we wanted to do more. We decided to launch roughly one new project per year. We knew that we’d also have to start raising money for these new projects, since the original $5 million wouldn’t last all that long. We needed to come up with a framework for making these decisions. An MBA friend of mine, Paul Losch, adapted a venture capital portfolio model to our needs. The goals of venture capitalists, foundations and Benetech are quite similar: how to achieve maximum results with a limited amount of money. We took each venture capital criterion and either used it as is, or adapted it slightly to our mission. The key considerations for new Benetech projects are: • Return on investment. In our case, the return is to society, not to us. We frequently use benchmarking as a method of assessing returns. • Uniqueness. We want to be dramatically different: no interest in being 10% better than some other solution. If it already exists, we should be doing it for a fraction of the existing cost or bringing it to a completely new community. • A sustainability case. How can we keep this going without draining resources from Benetech forever? • Low technical risk. We assume the technology is out there, but nobody is motivated to bring it to the social application.

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Developing Information Technology to Meet Social Needs

Figure 1. The Benetech Project Pipeline.

• Deal size. Ideally in the $1 to $4 million range to encourage sustainability. The deal should be bigger than one or two people can do themselves. • Fit of the technology with our capabilities. Is it in a field that Benetech knows something about. We can’t take on clean-burning car engines and water purification at this time, because we don’t know anything about the technology. Projects that aim at the same or a closely related community to an existing Benetech project score higher. • Exit options. We try to devise three exit options before we start a project. • Access to resources. Can we access the resources we need to succeed? This could be funding, access to technology or expertise. We are especially interested in getting top domain experts involved to supply the knowledge about the field that Benetech’s technical team typically lacks. • Potential partnerships. What partners can we leverage? How can we encourage community involvement in this project? We also devised a process for developing and managing the projects that we took on. Projects go through a narrowing funnel as they require more funding. We have hundreds of possible concepts (free), dozens of projects that have had some brainstorming (less than $5,000), and ten projects that we might start in the coming year or two (less than $25,000). Because these projects are not highly profitable, if we don’t get to them for two years, they probably will still be sitting there unaddressed. If someone else tackles one of these projects, that’s a victory for society and we have one less need to consider meeting! (See Figure 1.) Our method of management is very similar to that of a startup high tech company. We’re customer focused and keenly aware of the need to create a strong value case for the user. We have engineers and product managers, systems administrators and sales people, tech support people and marketing people. We just have one to ten percent of the number of people on a project compared to the typical staff support of a for-profit company. This increases the need for us to work together efficiently.
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Jim Fruchterman Raising Money For the first five years of Arkenstone, we didn’t raise any money from outside parties, nor did we need to. We made one try in the mid-1990s to raise money for new projects from the major American foundations, and got nowhere. We simply looked too much like a business for the comfort level of foundations back then. What support we did get was mainly in-kind. We found it pretty straightforward to ask our buddies at Hewlett Packard, IBM or at Intel for donations in the form of technology: scanners, voice software or CPU chips for PCs. But money was far tougher to find from corporations. Only IBM gave us any significant amount of cash to help with our product push for people with dyslexia, and to translate our products into Spanish and Portuguese, and this still represented less than 1% of our budget. It took us a while to become able to raise money. Luckily, we had had our $5 million of conversion funding from the sale of Arkenstone to tide us over for a couple of years while we learned how to raise funds. It was easier to raise money from foundations and donors to expand projects than to fund their early stages. For example, the initial funding to create Martus was 75% from Benetech, and 25% from the Open Society Institute, who really saw the value of this kind of tool. Bookshare.org was funded initially only by us. Two major high tech funders then committed to supporting us. The Skoll Foundation, created by the first president of eBay, Jeff Skoll, decided to start investing in Benetech as a venture capitalist would. They provided general support grants to fund our vision. Each year they invested more until we were invited to present a three-year business plan. Skoll then made a three-year commitment to us. At roughly the same time, Pierre Omidyar, the founder of eBay, also made an investment in our three-year plan through the Omidyar Network, his combination for-profit/nonprofit social investing group. Together, these two tech leaders became our biggest funders. And, unlike typical foundation grants, they made investments in our business plan, and accepted our business plan objectives as the tracking metrics for investment results. They were structured as general support grants, but it felt more like a venture investment to me. We also started to make great progress with some of the major foundations in the United States. We and they had both changed since the mid-1990s. We had learned more about how nonprofits and foundations worked. During this time, foundations also became much more tech-savvy and comfortable making technology grants. Our business-like approach was well suited to program officers at foundations, as long as we could link what we did to the foundation’s grant-making objectives. Benetech Today Benetech has five major projects going at the time of this writing. Bookshare.org and the two human rights projects are fully operational and international in scope. We have roughly 30 employees and consultants, and hundreds of volunteers, and

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Developing Information Technology to Meet Social Needs are we are growing rapidly. We have two new projects being tested by prospective users with launches planned in 2008, Miradi and Route 66 Literacy. Miradi is a tool for managing environmental projects. The environmental movement came to Benetech after hearing about our work in human rights and asked if we could also write software for field people who manage biodiversity projects for groups such as The Nature Conservancy and the World Wildlife Fund. Miradi has a step-by-step interview process (the wizard approach used famously by the TurboTax software for preparing tax returns) that guides an environmental conservation team through the steps they need to plan, manage and report on their field project. The Miradi software is now in beta test, the last versions before the officially complete first version. Instead of the 20 beta testers we expected, we now have over 200 beta testers in 40 countries. Route 66 Literacy is a web-based literacy curriculum designed for teenagers and adults with developmental disabilities, such as Down Syndrome or autism. Created by Professor Karen Erickson of the University of North Carolina, Chapel Hill, it provides a literate but untrained person with the information they need to be a good teacher of reading. Benetech is providing the technology development and social enterprise structures to bring Route 66 to a larger population. CONCLUSION Benetech’s main achievement is proving the model of a technology-based social enterprise. By replicating the model successfully with different projects and in different fields, we’ve shown that it is possible to adapt the high-tech business model to primarily social endeavors. We’ve also shown the need to take major risks when creating new technology, and have been able to fail on occasional projects without losing our support. Benetech is not the only technology enterprise in existence. We share the leadership of this new movement with a handful of other innovative organizations, such as Institute for One World Health, Project Impact, Cambia and Compumentor. Together, we have demonstrated the leverage of technology to make an impact. Just as Bill Gates can make many copies of a software package cheaply and distribute it around the world, so can technology social enterprises deliver their innovations globally at low cost. The social sector lags the for-profit sector in the use of technology by two to twenty years. As the world globalizes, so should technology applications for society organizations. Hundreds, if not thousands, of great technology applications are sitting on shelves because they are insufficiently profitable to shareholders. We need to recapture these opportunities and ensure that technology fully serves all of humanity.
1. http://www.r2d2.uwm.edu/atoms/archive/technicalreports/tr-discontinuance.htm

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Richard Jefferson

Science as Social Enterprise
Innovations Case Narrative: The CAMBIA BiOS Initiative

Nearly four billion people live on daily incomes lower than the price of a latté at Starbucks. Most of them make dramatically less than that—and from that income, they must acquire their food, their medicine, their shelter and clothing, their education, and their recreation, and they must build their future and their dreams. Their lives, and the quality of their lives, hinge on biological innovation. Biological innovation is the ability to harness living systems for our social, environmental and economic well-being. It is the oldest and most fundamental form of human innovation, involving as it does the getting of food, the striving for health, the making of homes, and the building of communities. The wealth created over the millennia through the domestication and husbandry of plants and animals has powered human society. Of all areas of biological innovation, agriculture is the most important, affecting our environment, our health, our economies, and the fabric of our societies. The world’s poorest nations depend largely on agriculture for their economic survival as well as their food, fuel and fiber. The challenges of innovation to create and sustain productive and environmentally sound agriculture are even more pronounced in these societies. Any failure to do so has enormous implications for the global community, over and above the social, economic, and environmental impacts. Richard Jefferson is the founder and CEO of CAMBIA-BiOS. He earned his Ph.D. at the University of Colorado, Boulder. In 1989 he joined the Food and Agriculture Organization as their first senior staff Molecular Biologist. He left the UN System in 1991 in order to establish CAMBIA as an autonomous private research and development institute. In December 2003 he was named by Scientific American to the List of World's 50 most influential technologists, and cited as the World Research Leader for 2003 for Economic Development. He was nominated as a finalist for Wired Magazine's Rave Awards for Scientist of the Year for 2005, and received the American Society of Plant Biologists (ASPB) "Leadership in Science Public Service Award" in July 2005. This case narrative originally appeared in volume 1, number 4, of Innovations. The Schwab Foundation for Social Entrepreneurship has recognized Richard Jefferson as an Outstanding Social Entrepreneur. © 2006 Richard Jefferson innovations / Davos 2008
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Richard Jefferson For thousands of years biological innovation has been informed and guided by keen observation and the accumulation and sharing of generations of empirical knowledge. Farmers selected better crop varieties and livestock breeds, and developed management strategies to maximize their performance. Seeds were shared as a practical matter of survival and each improvement formed the basis for further innovation. Because seeds of most crop plants breed true, the ease of sharing, and the barriers to doing so were minimal. As with digital information, it is hard not to share, and hard to Extraordinary efficiencies impose limits on sharing, so norms evolve to maximize value occur when the tools of from this inevitability. innovation are shared, are But the post-Enlightenment explosion of possibility that began dynamically enhanced, have when the unprecedented power of increased levels of confidence science became focused on food, agriculture, health, medicine and (legal and otherwise) environment seemed to dwarf all associated with their use, and previous attainments. And indeed in the past hundred years, with the are low or no-cost. advent of genetics, the pace has been gathering; the last thirty years has seen an unprecedented dynamism in life sciences that is being hailed as a “biotechnology revolution.” But in this revolution, biotechnology is rarely being applied to the critical issues of alleviating poverty, eliminating hunger, stewarding natural resources, and preventing or curing the diseases of the disadvantaged. The margins are small, the markets are modest, and the challenges are great. Are the paradigms and practices that have emerged to harness science for society sufficient to engage, and even solve, these seemingly intractable problems? Today control over agricultural biotechnology is effectively limited to a few multinational corporations who integrate seeds, agrichemicals, and biotechnology. This disturbing consolidation of power is matched with a trend toward “me-too,” big-ticket “innovations” of remarkable dullness. How many herbicide-tolerant big acreage crops are enough? Similar trends are surfacing among the large pharmaceutical companies, collectively known as “big-pharma”: how many blockbuster lifestyle drugs does society need? Within the value system they respect, and according to their own success metrics of profitability, big agriculture and big pharma are not abject failures, but they surely are not enough. To address the myriad challenges of agriculture, environment and health that are local in nature and modest in market or profit margins will require vigorous, competitive, local-scale small to medium enterprises creating a business and innovation ecology. It will also require a biological innovation culture where the costs
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Science as Social Enterprise of innovation are low, and the power and relevance of technology are high. It will require leveraging the contributions of diverse people and institutions to create tools that better engage science into an integrated and economically sustainable social agenda. The mission of CAMBIA, of which I am the founder, is to advance this set of required capabilities so that biological innovation can address the human challenges of the 21st century; the BiOS (Biological Open Source) Initiative is CAMBIA’s mechanism for achieving its mission. The term “open source” describes a paradigm for software development associated with a set of innovation practices. The concept evolved out of the “free software” movement, and is often merged into the expression “free and open source software.” (See text box.) Several features together qualify a project as “open source.”1 These include full disclosure of enabling information including documented source code and the use of legal instruments such as copyright licenses to confer both permissive rights and responsibilities; they bind contributions into a commons that is accessible to all who agree to share alike. Typically, certain practices and cultural norms are associated with distributive innovation, although this is by no means required; some very successful free and open source software projects have only a few serious contributors, while others have thousands. How Do you Make Money in Open Source? Free and open source software has rapidly engendered highly productive and profitable business models that create value from the non-rivalrous2 use of software components. Examples of such software include the famous Linux operating system, the Apache web server, databases such as MySQL, myriad programming languages such as Perl and Python, and the Firefox web browser. These types of open source projects, co-developed by thousands of programmers, and shared through creative licensing which demands covenants of behavior rather than financial consideration from the licit community of users, have transformed the information and communications technology (ICT) sector. Most of the high-profile free and open source software projects that have affected both the sector and the public’s imagination have been “tools” and platforms, rather than end-user applications. These allow users to build fully commercial web applications, with high functionality, on robust, dynamic platforms, with no reach-through financial obligations. The economic success stories of free and open source software thus are not Linux and Apache, but eBay and Google. The business models that are shaking the ICT world are not the modest ones selling support for open source products, such as Red Hat Linux. The signal successes are commercial enterprises that create wealth by providing new social value. Many ask, “How do you make money in open source?” The answer: you make money not by selling open source, but by using open source. innovations / Davos 2008

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Richard Jefferson Extraordinary efficiencies occur when the tools of innovation are shared, are dynamically enhanced, have increased levels of confidence (legal and otherwise) associated with their use, and are low or no-cost. Rent extraction from the process of innovation is reduced, transactions costs are minimized and developers focus their resources on creating revenue by providing products and services and enlarging markets. This concept is fully generalizable—although clearly the specifics are not—and a large part of CAMBIA’s BiOS initiative explores and extends the software metaphor. BiOS strives to create new norms and practices for dynamically designing and creating the tools of biological innovation, with binding covenants to protect and preserve their usefulness, while allowing diverse business models for wealth creation, using these tools. In the first part of this paper I discuss the simultaneous burst of knowledge in molecular biology and the precipitous decline of a commons of tools, using examples from plant biotechnology. I develop a practical model of innovation, highlighting how biological innovation is stymied or deflected to high margin applications if tools are not freely available, continuously improving and embodying the permission to deliver work product into markets. I explore parallels, divergences and resonance with open source paradigms in software engineering. The rest of the paper focuses on CAMBIA BiOS Initiative activities: the BiOS Framework, the PatentLens, and the BioForge, and the creation of a “commons of capability” through which new actors, including farmers and small-to-medium enterprise, can use science to create viable innovations relevant to their needs. POWER, TOOLS, AND THE COMMONS OF CAPABILITY Twenty-eight years ago, I began a project to develop a set of tools—of techniques—in molecular biology that could help researchers in that field visualize how genes and cells functioned. Like virtually all scientific work, and most technology development, it was inspired and informed by what came before. And like all tools and methods, it depends on the use of other tools and methods. Some years earlier, Ethan Signer, Jonathan Beckwith, and others had made a remarkable contribution to our toolkit for understanding how genes worked in bacteria. They conceived of a single tool that would allow scientists to learn how genes turn on and off in a bacterium. The tool “hooked up” the beta-galactosidase gene (called lac) for which they had simple measurement tools and assays, to another gene (called trp) for which measurement was difficult, but whose behavior they were keen to understand. In so doing, they measured the trp gene by actually measuring lac. This tour de force of microbial genetics used publicly available technologies and methods—in fact it was then unthinkable that there would be any other kind. This occurred well before the advent of recombinant DNA, which now allows apparently sophisticated genetic experiments to be done very simply. And it occurred well before anyone had even contemplated patents on life sciences.

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Science as Social Enterprise Years later, I thought, why not use the same concept to understand how cells in animals and plants work? Why not have the organisms talk to us about their environment, through their genes? I set out to develop a parallel system, using a different enzyme and gene that could function in these new organisms. The one I chose was prosaically called GUS. As I worked, I became increasingly aware that the availability of tools, and I became increasingly their capabilities, completely dictated the science that was done, and who was aware that the availability doing it. As an undergraduate at the University of California and the of tools, and their University of Edinburgh, I worked in capabilities, completely some of the key laboratories responsible for inventing recombinant DNA dictated the science that methodology. I watched, time and was done, and who was again, how an entire field of scientific endeavor would almost instantly doing it. change course when a new technique— tool—was provided. When I first developed the GUS technology, the scientific community I was originally working within—which studied animal embryo development—was not very interested; the tool just wasn’t needed much. My first paper on this topic was received with an ill-stifled yawn. But I moved my interests to plants and agriculture, during the heady dawn of plant molecular genetics. Efforts to transfer beneficial genes into key crops such as cotton, soybean, maize, and rice were running into a brick wall. There was no way to visualize success, nor to measure and improve on first steps. The GUS reporter system made visualizing genes and their action in plants very easy and efficient—it was proving to be a very powerful tool at the right time. In 1985 I arrived for my postdoctoral research at the Plant Breeding Institute (PBI) in Cambridge, England, a vigorous international group of colleagues who were at the cutting edge of technology development and exploration in molecular plant sciences. The Plant Breeding Institute was also one of the few sites in the world that combined the patient and disciplined craft of successful agricultural innovation, such as plant breeding and agronomy, with the impatient and fermenting world of molecular biology. As well, the Plant Breeding Institute was still at that time an entity focused on the public good, a non-profit institute that earned substantial income for the U.K. government through royalties on its own crop varieties. At Plant Breeding Institute, my colleagues3 and I designed and conducted the first field test of a transgenic food crop. It was also the first BioSentinel experiment: a gene we wished to study was fused to the GUS gene, to conduct a field trial asking a fundamental question about how genes act under field conditions. We used innovations / Davos 2008
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Richard Jefferson public money, in the public sector, to ask a fundamental question for the public. The field was planted on June 1, 1987—completely by chance one day before Monsanto’s first field trial. The lessons of the field trial were fascinating. We found that gene activity in a field is extraordinarily variable, and our preconceived laboratory-based notions of how genes worked would turn out to be very inadequate when dealing with field populations. Our technology, though cutting-edge, was not up to the questions that real-world agriculture presents. The Plant Breeding Institute was an international institute, with students and scientists from all over the world. The institute had a reputation for brilliant wheat breeding and genetics, so most of the countries whose agriculture depended on cereal production would send their scientists to us for training. Many of the students and postdoctoral fellows in the Molecular Genetics department came from India, Pakistan, Turkey, the Middle East, China, Africa, Latin America, and Eastern Europe. Most of them indicated that this period in Cambridge was their one shot at career establishment. If they published a paper or two in a good journal, they had a reasonable chance of employment back home. And some of them confessed that they likely would not be able to use the new biotechnologies to effect any change in their home agriculture or economy. Not only did they lack the finances and infrastructure to make use of these high-tech tools, but the tools were better for science than for problem solving. These people were exemplary of perhaps the most crucial but neglected resource for social advancement through science: dedicated and capable people. I observed, however, that instead of using their own experience to inform the science that was being done and the technologies being developed, their own worldviews and self-images were rapidly aligning to the incentive and reward system of the prevailing and fashionable science trends. And their energy to change the options in their home countries was dissipating. By early 1987, after intensive experimentation in-house, we had assembled hundreds of copies of a GUS kit of dozens of DNA molecules and a comprehensive “how-to” manual. I rewrote the big “GUS Manual” and sent it to a mass-mailed newsletter called Plant Molecular Biology Reporter, which was distributed free to thousands of scientists rather than initially publishing a peer-reviewed scientific paper, which I eventually did.4 The grapevine is also a powerful communications tool in science; soon many people were hearing about this new technology that would let them see the cells and tissues where their gene was functioning. It would also allow let them optimize gene delivery experiments; this was an urgent priority for both industry and academia. At that time no important commercial crop had been genetically engineered, so requests started flooding in for the GUS system. And I started sending out hundreds, even thousands of samples, and the User’s Manual, all with no licenses, to scientists in dozens of countries, in both the private and public sectors. I only included a letter saying that while I had filed for a patent on the system, I wanted everyone to use it, and royalties—if any resulted —would go back to creating the next generation of technology.

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Science as Social Enterprise I sent the kit to scientists at Agracetus in Wisconsin who were working, with little success, on transferring genes to soybeans. They had no idea if the genes they were introducing with their new process were actually making it into the right cells. One of those scientists, Paul Christou, told me of their thrill when they were able to immediately visualize gene transfer with the blue color of the GUS test, and soon Within a year after we began succeeded at introducing genes into soybeans for the first time. widely distributing the GUS And they could only do it with technology, hundreds of new GUS, which also had no apparent restrictions. They were avenues of plant science were delighted, of course, as was emerging. Within two years, Monsanto, for whom they 5 worked. breakthroughs in maize, That work with GUS soybean, cotton, and many turned out to be the single biggest money maker in plant other crops occurred. biotechnology, possibly ever in agriculture. Monsanto developed its RoundUp ReadyTM soybean line, which it ultimately used to breed most of the transgenic soybean plants now covering the world, using GUS to select plants. Within a year after we began widely distributing the GUS technology, hundreds of new avenues of plant science were emerging. Within two years, breakthroughs in maize, soybean, cotton, and many other crops occurred. New technologies were invented that used the tool in its very creation and optimization, such as particle bombardment (the tool that Agracetus had been exploring) and critical improvements were made to core technologies such as gene transfer by Agrobacterium. GUS demonstrated that one powerful new tool, widely distributed, could rapidly change an entire field. The idea of intentionally changing the directions of inquiry and the demographics and economics of problem-solving by designing and providing new tools would shape the next thirty years of my professional life. With increasing exposure to the realities of practical agriculture, intellectual property, policy and business, my definition of “tool” matured. It came to include not just the technologies needed for scientific investigation, but also the critical normative, economic, policy, legal and business instruments to convert investigation into socially and economically sound innovations. A business model really can be a tool.

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Richard Jefferson Enclosing the Toolkit: The Case of Agrobacterium But while this period hinted at the vast potential for new tools emerging from molecular biology to lead to rapid innovation, it also saw the rush to privatize the kinds of tools that had always been seen as a commons, as exemplified by the adventures of Agrobacterium. When I started to work at Plant Breeding Institute, plant molecular genetics was in its infancy, and only three or four major institutions had serious capability in this nascent field. All of them were using Agrobacterium-mediated transformation as their fundamental tool for transferring genes to plants. Several years earlier, several public research teams had discovered an astonishing biological phenome[T]he contents of many non.6 A soil bacterium long known patents were breathtakingly to be the agent of a familiar plant disease called crown gall was found obvious to all practitioners to cause these tumors on plants by a in the field, but for small- to hitherto unforeseen mechanism. The bacterium—Agrobacterium— medium-sized enterprises actually inserted into the plant, by these patents still served as a “natural” genetic engineering, a of its own genome, and real disincentive to innovate. component reprogrammed the plant in so doing to produce a “gall” and new food for the bacterium. This phenomenon, a sort of biological Trojan horse, was thought to be unique in the biological realm. And everyone in plant biology saw that it was to be a critical tool in the development of new options of biotechnology. The groups that first made the discoveries were all in the public sector, funded largely by public monies; they could all see that Agrobacterium would be a fundamental tool of the field. In spite, or perhaps because of all this, the gold rush for patenting started. And not only did the pioneer groups in the field file patents; over the next twenty years over a thousand patents were filed—and granted in many nations—that covered various aspects of Agrobacterium-mediated gene transfer. Some were so minor and trite as to be laughable were they not presumed valid by law, but they still produced a thicket of rights, nearly impenetrable even to the specialist. And of course the pioneering patents were fought over viciously. To monetize the patents, the rights were sold to the highest bidder. But the rights were not clear; bitter wrangling over primacy with the fundamental patents continued for almost twenty years before any legal clarity emerged. Of course the winning bidders ended up being large multinational companies, notably Monsanto (either directly or by acquisition); and in most cases the payments to universities and institutes were

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Science as Social Enterprise negligible or even negative. But the effect of increasingly consolidating these patents in a few hands was anything but negligible. Soon, public and private sector scientists were patenting their developments as a matter of course. Some of these findings became powerful patent estates that potentially blocked most of the world’s agricultural enterprises from using these tools without permission, often at any price. For example, Japan Tobacco discovered and patented a method to use Agrobacterium to transfer genes into rice and other cereal crops. The case of Agrobacterium was repeated with many subsequent technologies, ranging from genetic selections, to the wholesale patenting of promoters and genes,7 to gene inactivation technologies (such as RNAi and co-supression). Again, the contents of many patents were breathtakingly obvious to all practitioners in the field, but for small- to medium-sized enterprises these patents still served as a real disincentive to innovate. They also extracted huge rents from industry, and raised transaction costs to an unbearable level, mostly because the patent landscapes were so opaque and complex. This trend has accelerated markedly and now applies to medical as well as agricultural technologies. The consequences are clearly that only the biggest-ticket targets are getting attention. But blockbusters alone don’t make for good agriculture, good environmental management or good public health. In 1985 the sector was viewed as exhilarating, entrepreneurial and vibrant, with almost unlimited possibility for doing good in world agriculture; within a decade or so it had all but stalled into a corporate oligopoly, with vertical integration, ossified and oppressive business models, and massive patent portfolios tying up almost every key technology and platform used in the field. And though nearly all the pioneering discoveries were made in the public sector, they were not reserved for public use or for the small-to-medium enterprise sector that the public trusts. It is no surprise then that the public now views the entire agricultural biotechnology sector—as manifest in the outcry against GMOs—as being a tawdry exercise in failed promises, industry consolidation, public sector abandonment and simplistic agendas. Perhaps the greatest crisis that has emerged from this corporate control of problem-solving in agriculture is that the public now seems to have very little confidence in the use of any science in agriculture! This has indeed been a case of throwing the baby out with the bathwater.8 Biotech Bazaar: Tools for Sale At the Plant Breeding Institute, I was working with colleagues from scientific cultures that had historically used the discoveries and technologies that came before to grapple with the next generation of scientific challenges, with the tacit understanding that this process would naturally yield real-world solutions, such as plant varieties and agronomic processes. After all, the Plant Breeding Institute paid its way in the world by doing just this.

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Richard Jefferson But that world was collapsing. The distinction between discovery and invention was being blurred as patents were filed on each component; that process entirely altered the dynamic of translation into true innovation: delivering the products of science and technology to the marketplace. It was now possible to control the tools and platform discoveries themselves, not just the products that they created. Perhaps the greatest crisis In the early 1980s with the passing of the Bayh-Dole Act, universities that has emerged from this in the United States were actively corporate control of encouraged to patent their work products. The Act’s fundamental problem-solving in policy goal was to see publiclyagriculture is that the public funded science and technology now seems to have very little better used by society, by encouraging industry to adopt it. The trend of public agencies using the confidence in the use of any patent system exploded internascience in agriculture. tionally into a filing frenzy. No one foresaw then that the fragmentation of the platforms and tools would make it so complex, so expensive and so intractable to assemble the “freedom to operate and freedom to innovate.” Nor did we see that the resulting innovations themselves would be so few, so stodgy, and so slow to reach the marketplace. At almost the same time, the advent of recombinant DNA and the ability to determine DNA and protein sequences massively increased scientists’ ability to explore, understand, and manipulate living systems, or at least living organisms. So every new life sciences discovery could be, and often was, dressed up as an invention and subject to patent; as the patent claims were granted, they cast a huge net over the possible options. Public sector coalitions would frequently compete with private big-science, and who usually won the plum of patent monopoly? The privatized efforts. Was this right, or necessary? I began my own foray into patents and their importance when I arrived in Cambridge in 1986. I discovered close relationships between some large companies and the public-sector institute where I was based, shaped by personal histories and friendships. I didn’t view this as a bad thing. I shared all my ideas and technologies with them from the outset. In fact, I shared with pretty much anyone who was interested, thinking that—in economic terms—my ideas were non-rival; sharing didn’t cost me the ability to use them myself. How wrong I would later prove to be.9 And how times were changing. One company, ICI,10 was keen to use GUS in its commercial development programs; like many companies it was mostly interested in having clear rights to do so. ICI suggested that I patent my technology so it could be sure it would have
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Science as Social Enterprise access to GUS in the future. I didn’t understand the logic at the time, but I took the first steps and filed a patent in the United Kingdom and the United States, with a filing date in 1986. The University of Colorado, where the first stages of the work had been done, had waived its interest in patenting it. Thus began a long and painful learning process of partnerships with powerful attorneys in which I watched patent-craft by The Masters. It took almost seven years for my first patent to issue in the USA, and nine years for the one with most of the valuable claims. Even when it was issued, complex agendas and issues11 kept me from licensing the patents or even having a clear title for quite some time. This delay wrought havoc with my ambitions to use patents to create and fund CAMBIA, and when revenue did come in, it was in sporadic bursts, and barely in time to make payroll. As a technology, GUS has had a surprisingly long shelf-life, and is unusual in being a largely stand-alone technology. If one has the “right” to put a gene into a plant, GUS remained a useful and legally usable tool to monitor that gene and its activity. But it turned out that even that right, the legal permission to transfer a gene to a plant, proved to be a critical and contentious issue because patents are opaque and licensing rights even more so, and because advances in the life sciences are so interdependent. Wheels and Spokes: The Interdependency of Technologies The patent system is so complex it is almost awe-inspiring. Single patent documents can run to hundreds of pages, with arcane language that few understand, and rights that courts interpret and re-interpret on the fly. Thousands of these can exist in a single field of innovation, with many thousands more latent in the system. One or two—or none—may be, or may unexpectedly become, dominant. Fundamental biological processes, such as the ubiquitous gene-regulation mechanism, RNAi, have been patented. Most of the important genes of many important organisms—humans, rice, maize, mice- have been subject to patent applications and sometimes grants, many of them contestable by many separate claimants. The platforms on which we must build are privatized and enclosed, but the owners and their ambitions are completely unclear; the platform for future innovation is built on shifting sand. But worse, while the ownership of the “patent” itself is usually a matter of public record, the ownership of the rights—the most important feature of a patent — is completely obscured. Nowhere, in most jurisdictions, is there recorded or available the patterns of power: who owns what rights. A university may own hundreds of patents, and may have sold off the rights to any of the useful ones, but who bought them? The answer is rarely clear. When a small company licenses a patent, or develops its own patent portfolio, to whom has it licensed and on what terms? The patterns of power and ownership are as important—and in the aggregate perhaps more important—than any other feature of a patent grant. And yet we have no public information whatsoever,

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Richard Jefferson except in piecemeal and scattered disclosures. Some jurisdictions, including Brazil and France, do impose a responsibility on licensees to disclose—at least to the patent office. But most do not. And none make it easy to find this information. This makes it difficult, if not impossible, for a researcher in a small- or mediumscale enterprise to assemble all the licenses or capabilities needed to refine and adapt a tool and ultimately to create an innovation that will help meet basic needs. Virtually all the practices And researchers need this information because few discoveries stand on of academic scientists their own, and even fewer inventions. promote the belief that Not only do they each depend on the “good science” can, almost pre-existing knowledge base; they almost always incorporate components by magic, transform itself of many other technologies in their execution. This is particularly true of into public or private “meta-technologies,” tools and techgoods. It can’t. nologies with broad effects used by communities of innovators quite distant from the tool’s original inventor. Consider the wheel, perhaps a sixspoked wheel. In some ways, it is the most fundamental and important tool in society. It has countless uses unanticipated by its inventors; most were made by people who are not wheel-builders. The wheel is only useful when it is used for something, such as moving a cart; its economic value to society lies not in the price of the wheel, but in the wealth created through the use of the wheel. If it takes all six spokes for this wheel to turn, and each of these spokes is potentially different in some way, we have a good metaphor for a modern biological technology. Increasingly, biological technologies are not self-contained; rather they are rather interdependent technologies that require multiple key methods and components to function. If one spoke is withheld, no wheel is built. If one spoke is broken the wheel will jam. And then the cart cannot move forward. By analogy, the most powerful technologies can be considered as “wheels,” requiring a number of “spokes” to function. For instance, the ability to transfer a gene to a crop plant may require dozens of individually protected, discrete technologies. Denial of access to any one of these “spokes” obstructs not only the use of the technology, but its improvement. Only when the core technology is in place, with full functionality, can it be subject to iterative and cooperative shaping to meet diverse users’ needs. Unfortunately, even placing one or more key methods or components into the public domain allows no leverage to bring other components into a collective whole with broad access. Virtually all the practices of academic scientists promote the belief that “good science” can, almost by magic, transform itself into public or private goods. It can’t. In fact, by failing to deliver such goods with broad and preserved access, the public sector science community is complicit by neglect, because
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Science as Social Enterprise the true stranglehold rests where much less public sector effort is expended: in the process of converting invention and discovery into innovation, by building and using wheels. But we can change this landscape, if we provide one or more of the spokes to all the wheel-builders and users with covenants of behavior, rather than financial consideration (outlined later as BiOS licenses). If a user can access a spoke only by promising to share spokes, or improvements, then the whole logic can change. This is where we find the leverage: change the logic of copyright licenses in software to allow free and open source software to exist, and do the same for patent licenses or Materials Transfer Agreements (MTAs) in BiOS. Then we can regain a full complement of spokes, and see the “wheels” of real innovation turn rapidly and deploy on many roads, creating wealth through their use. How Fear, Uncertainty, and Doubt Can Deter Innovation Uncertainties over intellectual property rights undermine the long-term and sustainable pursuit of innovation by making projects look more risky to potential partners and investors. This risk combines with others characteristic of early stage technology development: lack of a fully-specified business model, concerns over potential technology effectiveness, and the absence of a well-established delivery channel. Together they generate the fear, uncertainty and doubt (FUD, in the awkward but widely used acronym) that is the core impediment to technology development. Currently, every worldwide industry that depends intensively on science and technology experiences FUD. Sometimes a competitor is the focus; sometimes the bleak patent situation alone can lead an investor, client, customer and/or the public to lose confidence in the prospects of creating a viable technology-driven enterprise. In the face of the uncertainties associated with the complex and opaque patent situation, multinational private-sector firms have responded by acquiring large IP portfolios and negotiating cross-licensing arrangements to obtain platforms of enabling technologies. Even so, these companies still often find themselves with constrained freedom to operate. Faced with the uncertainty of patent rights, they seem to be involved in a sort of mutually assured destruction. In contrast, the public-good sector, and small-to-medium enterprises have only fragmentary portfolios, often made up of publicly-developed technology and modest non-fixed capital pools that they believe can be expanded by their eagerness to license them out, but they are at a grave disadvantage; they face a monopsony. Unfortunately, this approach not only destroys public value and confidence; it is also ineffective in ensuring a sustainable private competitive advantage. As the expense of sequestering intellectual property outside the public domain in iterative patents has increased, some leading technology firms have decided that an open source model may yield higher private, as well as public, returns. A notable example is IBM Corporation; in a bold recent move it is stimulating a universally

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Richard Jefferson accessible “protected commons” of patents in a pool available for any open source development. As the world’s largest patent holder, IBM could be viewed as a “rights maximalist;” over 500 of its key software patents have been made available to all— including competitors—who choose to use them under open source rules. Within days, Sun Microsystems followed suit with another 1600 patents, and a myriad of other companies are doing the same. The snowball effect continues, as companies realize that their sector makes progress when the standards and the toolkits are clear, open, of high quality and consistently available. Clearly, true wealth creation will come not through extracting rent from a tool, but through using a continuously improving toolkit, with continuously decreasing costs of innovation and a continuously expanding group of tool users. Diverse and prosperous agriculture, robust public health and sustainable natural resource management are the publicly valuable goals we must keep in clear sight. The tools associated with their improvements must be plentiful, powerful and affordable. As the ICT sector realized, we also need an open source movement in biological innovation that can empower public and private sector innovators with the tools, platforms and paradigms to allow rapid and efficient life-sciences innovations for neglected priorities and new opportunities. CREATING CAMBIA, MAKING CHANGE In the mid-1980s, when I first formulated the ideas that became CAMBIA, I did not intend to build an institution; I spent much time between 1987 and 1990 trying unsuccessfully to convince universities or later the United Nations or the CGIAR12 system to take on and host CAMBIA’s mission. But the complexity and edgy nature of the mission, the need to integrate diverse skills and strategies, and the entrepreneurial spirit, ultimately required an independent base. In early 1992 I moved to Canberra, Australia, to begin a project on behalf of the Rockefeller Foundation, troubleshooting its rice biotechnology network in Asia. At this point CAMBIA was not a legally incorporated body, but had reams of letterhead and surprising credibility. Our job was to travel to virtually every laboratory in the developing world that had Rockefeller Foundation support—and over the next eight years this must have been hundreds—to help develop, improve, and apply their biotechnology capabilities, especially as they pertained to rice molecular biology. We developed and provided to many hundreds of labs—perhaps over a thousand—the most effective and widely used “vectors” in plant molecular biology, the pCAMBIA series, and provided courses and workshops in the science and increasingly over time, in intellectual property management. In hundreds of working visits to China, Indonesia, India, the Philippines, Thailand, Vietnam and many other countries of Asia, Africa and Latin America, we forged a sense of the possibilities if we had new types of technologies, and new communities to improve and share them. During these years, as we became more sophisticated about licensing and understanding the patent systems, we also became more aware of the yawning gulf

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Science as Social Enterprise between biotechnology rhetoric and innovation realities in most of the world. On the one hand we saw a large, untapped population of dedicated and knowledgeable problem solvers, committed to solve problems of real substance to their countries and peers—but they lacked the usable technologies that would improve their situation. We also saw that the science itself was not up to the job: the research being conducted in the early days of plant molecular biology (and sadly still now) is intensely reductionist, whereas the problems of agriculture and society are integrated into complex systems. On the other hand, if we could design and provide tools that fit the problem and the hand of the tool-user, we could rapidly and effectively change the entire platform of problem solving, as long as the tools were dynamic and could embody the permissions to integrate into real-world innovation. CAMBIA was conceived to integrate and to address these issues. Outlined in the earliest CAMBIA prospectus was the premise of using patent revenues to create a sustainable funding base. We surmised that we would ask a fair, tiered licensing fee of each company that was using the technology, proportionate to their ability to pay. A big company pays a lot, mom-and-pop companies pay peanuts, developing countries pay nothing. Then we would use the resulting revenue stream to invent and distribute the next generation of technology. At the time it looked like a logical and efficient way to move the sector forward with fair and open competition, not for the capability to innovate, but for the innovations themselves. This worked to some extent, in that CAMBIA exists and might not have done so without patent revenues. Companies that licensed the technology range from giants like Monsanto, Dupont, Pioneer, Bayer, BASF, and Syngenta down to entities as small as the Hawaiian Papaya Growers Cooperative. But we also realized we could not generalize or scale it as a business model in the current climate of fragmented rights and capabilities. The transaction costs of negotiating licenses, as more and more “spokes” were required to move forward, would simply be impossible to bear for any but the highest-margin applications. CAMBIA addresses these challenges through three interdependent activities: 1. The BiOS Framework creates, validates and promulgates licensing tools, along with the norms and new business models to make use of strategies for “open source” creation, improvement, and sharing of enabling technology. 2. The Patent Lens is a platform to focus, understand, and investigate the patent rights and to inform practitioners and policy-makers. 3. CAMBIA’s own research into creating and distributing key “pump-priming” enabling technologies is made available through our online interface, the BioForge. The BiOS Framework Biological Open Source is a nascent movement, evocative of the transformative changes in information and communications technologies (ICTs) wrought by free and open source software (FOSS). The two movements share some goals: seeing transformational effects on a sector, and increasing the democratic involvement in

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Richard Jefferson Patent Lens: A Platform for Understanding IP Landscapes CAMBIA’s Patent Lens includes one of the world’s most comprehensive fulltext searchable databases of patents; cost-free and available to anyone, it has a seven-year history of continued growth in features and power. It incorporates the full text of applications and granted patents from the U.S. Patent and Trademark Office, Patent Cooperation Treaty (PCV) database, European and Australian jurisdictions, and their status and family relationships in many dozens of countries. Its fast and user-friendly search engine has a nuanced interface and presents common and harmonized data structures so that these jurisdictions can be searched simultaneously. The Patent Lens is becoming an increasingly important resource as the feerequiring “value-added” patent data providers continue to consolidate. Because no national patent office has taken on the task of harmonizing collections over many jurisdictions, the role of the “patent clergy’ remains central, and the gatekeeper functions of the information providers remain onerous. National and regional patent offices provide quite variable free patent searching; some are appallingly primitive while others, like the European Patent Office, are quite sophisticated. Patent offices, however, have complex relationships with commercial providers such as Thomson, which actually provide the patent offices with integrated searching functions for their own in-house use. To further complicate the situation, commercial providers have been calling for a reduction in the role of national patent offices as “value added” providers. The need for a public good provider has never been greater. Patent Lens focuses on user-adaptability, integration, annotation capability and availability to the world community for free; these key features render it particularly helpful in efforts to restore public good and transparency as the raison d’etre of intellectual property systems. Technology Intellectual Property (IP) Landscapes IP Landscapes are analyses of key platform technologies, and the IP positions associated with their development and use. They build on and use the patent database, but include much more than a collection of relevant patents. Each landscape is a searching and analysis effort involving many person-months, by CAMBIA staff and soon others, who have particular knowledge of the science and technology and of patent claims. Typically, patent “professionals” within law firms accumulate billable hours by providing the same information over problem solving; we are learning many lessons from the software world, and will continue to. But it would be a mistake to push the comparison too far. BiOS concepts have emerged from twenty years within the life sciences and human development culture, to address the needs and challenges of biological innovation.

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Science as Social Enterprise and over for different customers, and charging full fees again to update them periodically. Increasingly we wish to do something no fee-requiring patent data provider will ever do: turn the landscapes into living repositories of constantly updated information, so no more updates will ever be required. The goal is to use the harmonized datasets to create a facility where distributed and diverse users can generate, link, and dynamically annotate patent landscape analyses through web interfaces. The landscapes will ultimately become maps and decision support tools so users can distinguish greenfields from minefields in the long path from discovery to practical delivery of an innovation. We have created a substantial number of such landscapes, in an early, hypertext-linked but basically flat structure. But we aim to enable the preparation of many more, by many people, by leveraging informatics to create ready frameworks and linkages between world patent literature and such resources as PubMed Central, and Google Scholar whose relevance engines can enrich the process. Ultimately we see the navigation of technology landscapes as being a critical feature in research and development decision making, but people will only use them when their costs, in both time and money, are negligible and the relevance and utility of the guided decisions are clear. Patents, Policies & Practices This component includes tutorials that guide users in reading and interpreting patents; the aim is to make novices more sophisticated about the nuanced realities of intellectual property, particularly patents. It also includes Policy & Practices papers that describe and advocate for informed and productive changes in international, regional and national forums and laws. The goal is to forge a learning resource that participants in innovation systems at all levels—scientists and engineers, business and legal professionals, citizens and policy-makers—can use to learn of critical and timely issues relevant to improving the public good and social and economic value by engaging with the patent system. The standards of modern patents are widely viewed as execrable; though many patents are presumed valid by law, they are at best frivolous and often egregious. We aspire to provide the public with tools to recognize and overturn such patents where they undermine progress or are being used without a longterm and well-articulated stake in industry or society.

The idea of using patent licenses not to extract a financial return from a user of a technology, but rather to impose a covenant of behavior, is the single feature of BiOS that is most resonant with Free and Open Source Software. We13 worked with small companies, university offices of technology transfer, attorneys and large

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Richard Jefferson multinational corporations to understand their concerns and experiences, and then create a platform to share productive and sustainable technology. The basic premise underlying that license is that we would not charge any fee for use of the “basket” of technologies with the patent estate being offered. By making the license cost-free, we hoped to induce the most valuable contribution to the license community: “freedom to innovate.” In exchange for full, unfettered commercial rights to our technologies, licensees are required to comply with three conditions: They will share with all BiOS licensees any improvements to the core technologies as defined, for which they seek any IP protection. They agree not to assert over other BiOS licensees their own or third-party rights that might dominate the defined technologies. They agree to share with the public any and all information about the biosafety of the defined technologies. Several further features of BiOS Certified licenses are very important: The definitions are critical. The core capabilities (enabling technologies, platforms) and their scope must be carefully defined to allow confidence in the development of viable business models that use these BiOS licensed technologies. The BiOS License structure must be scalable, and it should be generalizable, capable of development within these guidelines, and overseen by diverse institutions. We recognized that different technology sets have very different implications in the innovation chain, and that the agreement must accommodate different sectors (e.g., agricultural and medical) and different economic circumstances (industrialized and less-developed countries). Therefore we developed a suite of licenses around several different enabling technologies CAMBIA developed. We created them around our own technologies to have first-hand learning platforms from which we could generalize and help others create their own BiOS-Certified programs. As we have gained experience with our first-generation licenses through the concerns and suggestions of many licensees and potential licensees, we have aimed to create a “brand” of Biological Open Source (BiOS) that is independent of institution. The BiOS certification program will help ensure that core BiOS characteristics are sculpted into forms that allow institutions to preserve their own cultures and priorities. They may do this through the medium of patent licensing or through materials transfer agreements (MTAs), a common form of bailment used to provide materials for life sciences research, such as bacterial strains, plant lines, cell cultures or DNA. The certification approach has been particularly valuable in software development, through the activities of the Open Source Initiative (opensource.org) which overseas the branding of such licenses associated with copyright of free and open source software. However, life sciences are extremely sector-specific and technology-specific, and it is impossible to forecast or fully anticipate the emerging patent rights; these facts complicate BiOS certification and licensing. Of course these
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Science as Social Enterprise same challenges also render patent-based BiOS licensing and MTAs even more necessary. Patent Lens: A Platform for Understanding IP Landscapes With funding from the Rockefeller Foundation, in 1999 CAMBIA began to develop an integrated, full-text database of patents in the agricultural sciences. Under the initial guidance of Dr. Carol Nottenburg, then CAMBIA’s Director of Intellectual Property, the CAMBIA IP Resource became a prominent web-based data tool to investigate patents in this field. Over the years, both the ambitions and the capabilities of the CAMBIA Patent Lens team grew,14 and PatentLens has now become one of the world’s foremost cost-free resources for full-text searching and understanding patents in many jurisdictions and in all classifications. Patent Lens (www.patentlens.net) harmonizes, parses and presents worldwide patent and technology data in a full-text searchable and highly integrated manner. However, it is much more than a patent database. PatentLens is an integrated response to the massive complexity and opacity of the world of patents. It is intended as a public platform to enable many actors to investigate and share analysis of relevant IP issues, and to foster community involvement in overseeing and guiding the patent system. The patent system has grown so rapidly and become so complex and opaque that even the most privileged and skilled clergy of patent law can only parse a tiny area of specialized knowledge, and that tiny area changes daily. This fragmentation has made it almost impossible to thoughtfully and factually assess the consequences of action and inaction: How can the consequences of policy be modeled or validated when patents are treated as fungibles? How can efficient progress in sectors critical to social progress, such as health, environment, and agriculture, be secured when the rights are tangled in a skein of patents? The goal of the Patent Lens is to use the power of informatics and community to harmonize and make transparent the world of patents, so that thoughtful individuals, institutions and agencies can guide thoughtful and humane reform of the innovation system and to spur efficient and socially relevant innovation. This is an essential platform if we are to make use of the patent system itself to expand and protect a technology commons, and to collectively target breakthrough inventions, work-arounds and “work-beyonds”15 and to make thoughtful and informed partnerships. BioForge: Field of Dreams? BioForge was initially launched as a web-based collaboration platform to take CAMBIA’s pump-priming technologies—including Transbacter (described later), a new generation GUS called GUSPlus, and a novel genetic fingerprint technology called DArT—and throw open the gates to enlightened self-interest. We wanted scientists to try Transbacter in diverse bacteria and crops to create an open source and effective toolkit. The first version of the web facility was based on a very cred-

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Richard Jefferson BioForge: The Challenge of Aligning Incentives and Rewards In initially designing BioForge, we had hoped that scientists in public sector institutions would come to see the value of working together to build powerful common toolkits to solve problems. Clearly most public entities endorse and even encourage the notion of pulling together to solve intractable social and economic problems: market failures. Indeed, this is the best justification for the very existence of a public sector. But if the toolkit does not encourage scientists to solve problems for their self interest, it will be irrelevant. And if such participation carries a cost—in real time and resources—that is yet another disincentive. Furthermore, while discovery and occasionally invention are activities within the public purview in universities and government agencies, innovation—the delivery of new and tangible improvements to society—is not. Hence it is not part of academic science culture to be aware of the challenges to innovation. Nor does academia do much to reward sharing. The metrics for success are almost always being “first” in a field of endeavor that is widely hailed as being important and timely. The grind of innovation, with its need for long timelines and the building of confidence at many stages of product or process delivery, has little appeal and less relevance to academic advancement. In fact, the market increasingly rewards those who monetize or sequester the necessary components of innovation—a perverse set of incentives if there ever was one.

ible collaborative software development platform created by Brian Behlendorf16 and his colleagues at Collabnet. We had hoped—in retrospect, perhaps naively— to see a surge of interest: scientists from around the world, initially from the public sector, would register, log on, and offer to collaborate to improve these tools, and to share their thoughts and actions. The initial response was mildly enthusiastic, but within a few months we realized that the actual engagement and contribution of scientific or personal resources was miniscule. While the BioForge has almost a thousand registered users, very few of them have substantially assisted the listed projects, technically or scientifically. However, many of the registered users are from India, China, and other countries widely viewed as out of the mainstream of cutting-edge biological research. This may reveal a latent need or desire for a better-crafted collaboration culture. We also believe it reflects CAMBIA’s reputation as a provider of enabling technology. Thousands of our pCAMBIA DNA vectors toolkits are in use in almost every country, so this “market” knowledge and confidence could also be skewing the numbers. Still, at this stage BioForge has yet to create a vibrant web-connected community that actually does anything. We use it constantly, as a transparent and inclusive “lab notebook” for our own work at CAMBIA.

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Science as Social Enterprise Discoveries are routinely patented; while they are only part of the complex web of capabilities that must be aggregated to create wealth, owners can game them for short-term financial gain at the expense of sectoral progress. Success with a BioForge project—or any cooperative project with long timelines and complex feedback loops—requires aligning incentives and rewards. The most prominent metric for academic advance is reputation, but the tools for recognizing and enhancing reputation are still very primitive, including publication in high-impact peer-reviewed journals and serving on committees and review panels to cement relationships. BioForge lacks any mechanism to demonstrate its contributors’ influence and success to the community at large, or to those entities and individuals that have power over professional advancement. It takes an exceptional scientist to work toward improving a technology if she or he has no personal stake in its success. The long timelines of agricultural and medical research and product development all but forbid direct feedback when an innovation enters the marketplace. This is a key justification for vertically integrated companies: to ensure that managerial oversight creates these links. If we wish to see alternative, distributive innovation in sectors with such challenges, we must create intermediate, interconnected and valuable feedback that enhances contributors’ reputations, as well as new incentive pulls to participate.

To address the issue of enhancing contributors’ reputations (see BioForge text box), CAMBIA has started a software development project called Karmeleon to create open source, modular, software-mediated reputation metric tools. We hope that people in many collaborative and distributive projects can use these tools, and tune them to their diverse needs, ranging from online review of scientific publications through to research collaboration and product development. Our premise is that individuals should be rated on their contributions by accredited (rated) peers in a transparent manner, but using sophisticated, multivariate metrics to reflect the complex and diverse nature of the value of their contributions. Beyond their professional value, these contributions can and often do have important community and utility implications. If we make valid, less “game-able” metrics available, users can develop confidence in the value of one another’s contributions, and provide rewards as their community norms dictate: career advancement, peer reputation, funding and so on. But the reputation metrics must be adaptable to the culture where the contributor is working and being evaluated. Our initial drafts of Karmeleon use three metrics: Community value, Utility value, and Professional value. Scores in each category in turn impact the “gravitas” of a user; we hope this will encourage more sensible ratings to emerge.

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Richard Jefferson An “Apollo Project” for Biological Innovation? Several months after we published our TransBacter paper in Nature, Nature Biotechnology—the most prominent scientific journal in the commercial biotechnology sector—published an editorial expressing skepticism that a true open source movement could happen in biotechnology, given the extent of entrenched norms and interests.19 The title of the editorial, “Open Sesame,” implied that a vision as clearly utopian and impractical as that of open source for biotechnology would need a magic incantation in order to become reality.20 The article did conclude, however, that an open source movement in biotechnology might just take root if, in an “Apollo Project” of some type could be used to forge a common ground to develop new collaboration norms, tools, business models and science around some mutually agreeable and highly desirable goal.21 While we at CAMBIA do not agree with the editors of Nature Biotechnology that the only way forward for open source in biotechnology is a grand-scale “Apollo project” of the type they suggested, we do agree that it may be an attractive option What would a 21st century Apollo project to spur biological innovation look like? If the BiOS Initiative and the movement need such a platform from which to explore, create and coordinate new modes of problem solving using life sciences, what will that platform be? First, the project would require a socially and economically highly desired goal for which a technological intervention of great promise can be articulated. The project would need to focus on catalyzing new opportunities for problem solving, not just on creating an

The first generation of BioForge taught us something fairly obvious: that the cultures of software engineering and the life sciences overlap very little. Software developers live online. Their tool—the computer - is their window to the Internet. Their product, software code, can be tested almost instantly and can be evaluated, rejected or accepted almost as quickly. The engineer can build on tested code, and be fairly confident of a secure base. In the life sciences, experiments can take months or years; validation, scaling and quality assurance take even longer. And the process can be so expensive or so specific to circumstances that it may never be replicated by another entity. We are cautiously optimistic that as we introduce new, recognized and respected “reputational” tools, if we nurture high profile and energetic champions for particular projects, and if we create new incentive and reward systems, we will be able to move the BioForge from a field of dreams into a productive and focused mechanism for distributive innovation.

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Science as Social Enterprise imposed “solution.” It would not have a linear impact, nor would it merely improve the cost effectiveness of conventional paradigms. To engage both the scientific and the business community, such a coordinated effort would offer an intellectually exciting proving ground for new collaborative approaches and new science and must require interdisciplinary skills. The imagination and creative energy of science would be harnessed, but much of science is intensely self-absorbed. An interesting problem will attract much more attention than a mundane one. The platform activities would afford opportunities for “spin off ” value for other initiatives and activities, and would have impacts beyond its target goals. A broad constituency must see some merit in various components of the project—so that diverse, even divergent interests would build coalitions. The project would also have a credible promise, or proof of principle.22 It would not be too risky—or too safe. While it may be somewhat encumbered by intellectual property, it would not yet be completely constrained. If the target has a suite of challenging IP thickets, that would be a platform for new strategies—of decision support, collaboration and invention—to emerge, allowing us to hone these capabilities. It would be in a field with few entrenched interests, or those interests must be diffuse or distracted. If major economic interests push back too early, they could slow or stall the effort. Finally—and critically—it would also be in an arena where civil society, industry and academia can engage constructively towards a détente, and where they can explore and validate new models of social enterprise and business, as well as new economic and innovation strategies.

Beyond the Thicket: Transbacter By about 2000, my colleagues at CAMBIA and I had seen so much “me-too” science going on around the world and the vast increases in patenting and vertical industry integration. We also saw public support eroding for genetic modification and then for all scientific interventions in agriculture. So we decided it was time to act more aggressively. We decided to attack the first and most prominent thicket of patent rights— that around Agrobacterium— which represented the beginning of the patent rush in agricultural biotechnology. We chose this technology not because we believe that it presents a unique or critical bottleneck to many new entrants into the sector, or because anyone has called for these patents to be revoked or broadly licensed. In fact, these tools have little market pull now. The “scorched earth” policy in the agricultural biotechnology sector has left virtually no inventive entities queuing up to develop products, and no public desire for such products. Rather, we wanted to show the potential for a new combination: what if we combined patent informatics and transparency with creative, targeted scientific innovations / Davos 2008
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Richard Jefferson research, and new normative and licensing tools? What if we used it to build a true public commons of technology—or rather “rebuild” a public commons of capability. We sought not a silver bullet, but rather a platform to test and explore our hypothesis that in alternate universes of innovation, tools and foundational discoveries could be constantly improving common goods, and that prosperous industries and business could be built on them. Assessing the Patent Landscape In about 2000, we began a comprehensive analysis of the patent situation surrounding Agrobacterium-mediated gene-transfer (AMGT), the process I discussed earlier. We intended to publish a simple white paper describing this key thicket of rights. But the task proved much more complex. Ultimately we published the first analysis online; almost 400 pages, and covering the top few hundred patents,17 it has since seen two major updates. Over 1000 users downloaded it. But as we began to realize the extent of the problem, we also realized that it could not be attacked piece by piece. As we analyzed the “patent landscape,” we noted that all of the patents used a common language and set of definitions that dated to the original filings: that the inter-kingdom gene transfer was achieved as a unique event mediated by a particular bacterial species, Agrobacterium tumefaciens. Definitions are the key to a patent; they are critical in a patent prosecution to establish the metes and bounds of the claimed invention, and to guide courts in the event of a dispute. And the pioneering inventions typically establish precedent that persists. In the case of Agrobacterium-mediated gene transfer, it was widely believed and promoted that Agrobacterium was a one-off; a unique situation in biology. To this day most scientific papers baldly state that it is the only such situation. The Strategy My logic, and that of most biologists trained in evolution, is that if something happens once in life, it probably happens many times—maybe ubiquitously. We think of a “one-off ” because we can rarely see other instances. So I began looking for hints in the literature that other bacterial species could transfer genes to plants, either natively or with a bit of convincing. And I found hints aplenty. So we set out—again with support from the Rockefeller Foundation—to find or generate the capacity for benign plant-associated bacteria to conduct gene transfer, and thus to develop a system that would be competent to transfer genes to plants, which was not infringing any Agrobacterium patents. If we could do this, the toolkit would clearly fall outside all the patents over AMGT, rendering hundreds, even thousands of patents irrelevant as blocking tools, but useful as “background science and technology.” We further speculated that we would be able to develop a system that was not only free and clear of the onerous Agrobacterium thicket, but would ultimately be superior to Agrobacterium as a technology. Agrobacterium is a plant pathogen,

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Science as Social Enterprise which normally causes disease in susceptible plants. Plants—even non-susceptible ones—seem to know this, and become stressed. We reasoned that by using totally benign symbionts, we’d eliminate the stress on the plant, and open new opportunities for genetic enhancement. If we could make the technology more efficient and wide-acting than Agrobacterium, a wholesale migration to the use would occur, even by academics. This would infiltrate the new open source norms into that most conservative of communities. The R&D The process turned out to be more straightforward than most anyone expected, and we published our results, which described a new system called “Transbacter,” in Nature18 on February 10, 2005. After nearly two years of hard work by a skilled laboratory staff, we described in that paper how we had induced three different genera of benign plant bacteria to transfer genes to three different genera of plants. These plants included the world’s most important crop, rice, over which Japan Tobacco held dominant rights, and broadleaf plants, over which Monsanto held dominant rights. The capability of Agrobacterium to transfer genes to plants is virtually identical at a molecular level to the ubiquitous system by which virtually all bacteria exchange genetic material, and even by which proteins and other molecules are secreted. This similarity allowed us to excise and move this capability on a fairly well-defined DNA construct into the benign symbionts. We were able to test the system with the most sensitive tools in the sector: the open-sourced GUSPlus reporter system. The paper received exceptional coverage in the press, ranging from the New York Times and Science to Nature Biotechnology and the Economist, but not just for its scientific contributions. The BiOS Licensing Framework To share this technology, perhaps counter-intuitively, we filed patents on it. At first glance, this is anathema to open sharing. But we were learning the lessons of positive selection and the ugliness of patent gaming and trolling (for an example, see appendix). As we developed the new technology we also developed, in parallel, draft licensing templates for a prototype “BiOS” license, as I described earlier. Two years later, we have over fifty licensees, including large multinational corporations, small companies, and diverse public sector institutions. We have recently streamlined this technology to be more universal and easily disseminated, and have distributed over 300 kits of the new materials. Traction is building as the technology is improving. But this is not really transformative, merely illustrative and instructive. Real transformation occurs when completely new actors are brought into innovation systems, and when radically new options for problem solving emerge. This is our next ambition. innovations / Davos 2008

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Richard Jefferson The Role of Measurement in the Next Green Revolution It is often said—and it is true—that the Green Revolution, which so transformed the agricultural and economic fabric of Asia and much of the rest of the world, passed Africa by. The Green Revolution is not largely about plant breeding, although the short-stature varieties garner great attention. Rather the great advances were in the availability and management of inputs in agriculture. Water, nitrogen, phosphorus, potassium, acidity and countless micro-nutrient and abiotic stresses can each separately and together constitute major production constraints, as well as input costs, to an agricultural system. Combine this complexity with the countless impacts of biotic challenges such as pests and diseases, especially cryptic or latent soil-borne diseases, and creating any kind of profitable and ecologically sustainable farming becomes horrifically complex in the best of circumstances. Little wonder that industrial agriculture’s greatest successes—with their concomitant problems—come from homogenizing these environments with massive inputs and then breeding and managing these artificial and unstable conditions to get maximum yields. These options are not available for transforming low-input, low-output agriculture into a prosperous enterprise. When capital, infrastructure and communications are precarious, it becomes even more crucial to accurately and judiciously source and apply suitable nutrition, and to guide management decisions well. The management of natural resources, whether endogenous or enhanced by inputs, is the most critical and challenging bottleneck in agriculture. It will be the lynchpin of the next Green Revolution. It is also the component most amenable to measurement. But here is the conundrum: to have a sustainable and scalable impact, such management decisions must be made by local problem solvers, and many such people are extraordinarily poor. They cannot afford to measure, and they cannot afford not to.

BIOSENTINELS: A 3D VISION FOR EQUITABLE INNOVATION The most powerful impact of the scientific method has been to help us understand what had been incomprehensible; it has also helped us visualize and measure the parameters of the natural world. The importance of measurement cannot be overstated. Without the ability to measure—to see the consequences of an experiment or intervention—we cannot understand it, or improve or build upon it. The future of biological innovation will similarly hinge on turning the unseen into the seen, and to sensibly report on the world around us so we can better respond. Most critically, we must democratize these abilities, both to measure and to respond, in order to diversify agro-ecosystems and environments and decentralize the problem-solving capability. We will achieve this by fostering scientific method and harnessing local knowledge and commitment in communities that have pre-

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Science as Social Enterprise viously been ignored or treated as passive recipients of help. This is our 3D vision, and the BioSentinel project will be the platform for exploring and realizing this vision. In many vineyards around the world, rosebushes are attractively located at the end of each row. This curious planting regime does not reflect some shared aesthetic among winemakers or grape-growers. Rosebushes are sensitive to certain fungal diseases that affect grapevines more than the grapes themselves. If they plant and observe roses, growers can easily see the early stages of fungal infection [W]e are beginning to on the roses, and can take measures to create an open source prevent disease in the grapes. The rose is a natural BioSentinel. platform to use plants as For the last 15 years CAMBIA has versatile living been working on the components neces23 sary to generalize this phenomenon. BioSentinels to measure Now, with the advent of new scientific understanding, new proofs of principle, and report on the status and the BiOS Framework, this work can of their environment. now be brought to scale. With initial support from the Lemelson Foundation, we are beginning to create an open source platform to use plants as versatile living BioSentinels to measure and report on the status of their environment. Imagine a plant—not necessarily a food plant—that has been engineered as an instrument to produce a colour, a smell, or a shape that indicates the level of nitrogen or another essential nutrient in the soil. This plant will be developed in a collaborative, open sourced environment with components that are BiOS licensed and held in public trust. It will be a cost-free instrument that allows any farmer to better judge the condition of her cropping system, and to create wealth by making careful decisions, informed by measurements of the unseen parameters that influence her crop and its environment. But the BioSentinel project involves much more than engineering one plant to make one color in a glasshouse. It is no mere academic curiosity. We intend to develop the platform to create a modular toolkit for the public and private sectors alike. We envision mixing and matching components to sense virtually any parameter (nutrient, water, pathogen), transmission of this signal via open standards, and reporting on this parameter with any of several different detection systems (color, fluorescence, smell, form). We also intend to consider all the quality assurance, regulatory and other parameters necessary for diverse collaborators to create practical and deliverable innovations. The BioSentinels will cost nothing to manufacture, once developed. They will cost nothing to use. But they will add value through the information they make available.

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Richard Jefferson This platform will be built using technologies developed under BiOS license, guided by sophisticated patent informatics to ensure permissive use, and will pioneer new collaborative research methods that enshrine and perpetuate permissive use by all parties. The platform need not create GMO foods, but will create new communities of informed decision makers who are empowered to evaluate and improve their own ecologies and economies. CONCLUSION At the start of the twenty-first century, science is at a critical juncture. Four centuries of inquiry, discovery, and invention have created a base of knowledge that has the potential to provide people everywhere, in all circumstances, with nourishment, improved health, and longer life. But the institutional mechanisms that ostensibly exist to encourage the application of science to practical problems are today hindering that very process. The norms that have evolved around gate-keeping have created new clergy, new impediments and new inefficiencies. Without a systemic change, science’s promise will not be available for those who most need it, and the promise of a truly diverse, robust and fair innovation culture may elude us. Patents are at the heart of the system of institutions that convert basic scientific knowledge into practical applications. The modern patent system was intended to advance the public good by balancing the disclosure of ideas and the transparent definition of limited property rights. Today, it has degenerated into an instrument that is often misused to obstruct the public good through enclosure of ideas and obscure assertion of property rights that have no concomitant social benefit. To the shared dismay of both scientists and thoughtful citizens, patent systems and the myriad gaming practices they have spawned today are impeding innovation as a social enterprise, and continuing to deprive most of the world’s population of such fundamentals as adequate nutrition, access to health care services, and clean water. This does not have to be. It is up to us to reclaim the beauty of science as a democratized tool for social advancement and wealth creation. It is up to us to write the terms of the compact. It is up to us to move beyond rhetoric and into constructive engagement in reforming our innovation systems for economic robustness and social justice. APPENDIX. CO-OPTING THE COMMONS: A NEGATIVE EXPERIENCE OF POSITIVE SELECTION For nearly seven years, with expenditures of over $100,000, CAMBIA has battled Syngenta, the large Swiss agribusiness, in European Patent Office opposition proceedings and appeals over the validity and scope of Syngenta’s patents on “Positive Selection.” These broad patents (e.g. EP 601092, but with counterparts in the USA) were granted with sweeping claims that conferred on Syngenta an absolute monopoly on “positive selection” in plants.

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Science as Social Enterprise Positive selection is the provision of a benign compound—such as a sugar— that an organism cannot use without the action of a new gene; thus it “selects” for those organisms that have acquired that gene. Positive Selection is one of the most basic tools in genetics, used since the beginning of microbial genetics; all the bacterial genetics in the 1950’s and 60’s was based on one bacterial strain gaining the ability to grow on new sources of carbon and energy. When I started working with plants, it was thus immediately obvious to me (and presumably to anyone not employed at the patent office) that we could easily adapt this concept to plant genetics, to determine when a new gene had been added to a crop plant, and that a good first use would be my GUS gene. So I began adapting GUS for this purpose, around the time I started sending out GUS kits and information, and giving hundreds of lectures on its use. While this mode of distribution was to dramatically change the field, it also allowed some aspects of the system to be co-opted. Our ideas and hard work were basically turned from “non-rival” goods that were available for all as we intended, into a private monopoly that could, and did, suppress innovation by competitors. Scientists at a Danish sugar company, DANISCO, filed a patent well after I had given them the GUS gene, and after I had given public lectures on the use of GUS for such purposes. In this patent, they were granted broad claims to all uses of positive selection, with any compound and any gene in any plant. This breathtaking scope of claims was based solely on experiments described in the applications that used the GUS gene to activate a biological compound that would allow plant cultures that had GUS to stay green and be “selected.” This was fundamentally what I had already reported at international meetings, with data showing that it worked. Like many scientists, when I reported it at international congresses, I intended to see it shared with everyone. DANISCO’s intention clearly was not. The potential value of this patent estate caught the eye of Heinz Imhof, then chairman of Novartis, who intervened personally to buy the patent applications from DANISCO outright. These patents then served as powerful ammunition in the patent war chest of Novartis, which went on to merge with other companies in the vertical integration frenzy of agricultural biotech, to become Syngenta. The evolving strategy of Mutually Assured Destruction by Patent Estate between the large multinationals required just such weapons. The breadth of the claims as granted in Europe—together with their counterparts in the USA—ensures that any entity using the approach of conferring a growth advantage on a cell or plant to obtain transgenic plants would be infringing. This left only the use of antibiotic resistance and herbicide resistance as the means of selecting transformed plants. The adverse public response to such antibiotic gene use is well documented. Thus the environmentally attractive and benign technology of cleaving a sugar and growing preferentially, with no antibiotics, was denied to the world’s agriculture community by one group of patents, whose entire rationale was derived from work that I had intended to make public. But with the patent, it was “enclosed.”

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Richard Jefferson I had several meetings with Imhof and others at Syngenta; I attempted to make the case that using GUS to garner such a powerful and oppressive patent position was unjust and inappropriate and would ultimately be a pyrrhic victory for the sector. The discussions went nowhere. So we made use of one of the few remedies afforded in the patent system to small players: the opposition process. Once patents are granted in Europe, they can immediately be challenged if one submits to the European Patent Office (EPO) prior art that had not been considered. Our contention in the EPO was that much public work, as well as my own work, including my public disclosure of the basic idea, pre-dated the filings and would thus invalidate the novelty requirement for the patent. We also argued that the patent was obvious in light of the pervasive use of positive selection in every other biological system for many years. We also asserted that the patent did not sufficiently enable one to practice the invention, and in particular, did not merit the breadth of claims granted. The opposition process is widely touted as much more affordable than litigation. No doubt this is true. Instead of paying several million dollars to lawyers so we could be screwed by a multinational corporation in front of a judge, we only had to pay a hundred thousand or so for the same privilege, but in front of a panel of patent professionals. Of course reconsiderations of patent validity are conducted by the very same entity—the administrative machine of the patent office - that made the initial patent grant. So even in the face of what we felt to be compelling prior art, and convincing case law, the deck was stacked in favor of the status quo. Watching the process, and the craft and gaming skills involved, was an eyeopener for me. Until one has actually endured the multi-year posturing, arguing, heartache and expense, there can be no clear way to convey the dysfunction of the system, or its debilitating effect on inventors. We achieved only modest inroads in restricting the breadth of their claims. But we did consume years of time and huge amounts of money, in a failed bid to restore for public use a key application of a technology that I had developed and had inadvertently let a multinational pull into its private fiefdom. The opposition process is not available in the United States, so the opportunity to lose extravagant sums of money there was denied to us. What did Syngenta do with this technology? With the example they claimed using GUS, nothing. They never made a single product using that tool, nor did they develop it further. But they used the broad claims, granted by both the European and U.S. patent offices, to ensure that no other player—large or small— attempted positive selection without becoming beholden to them. Later, from DANISCO, they acquired other examples of positive selection protocols which worked pretty well and were protected under the umbrella of the broad claims, they made them “available” under a research license to unsuspecting scientists in the public sector. This “research license” strategy is one of the most pernicious coopting approaches used by large private-sector companies. Once a tool is used under such a license, the only way to then release a product is through after-thefact negotiations for a “commercial license.” Several friends have gone through this

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Science as Social Enterprise process and reported a bare-knuckled strategy that gives the licensee almost no share in the benefit of the product they developed. Few takers, of course. What are the lessons. Don’t share? This is not a lesson I cleave to, nor a recipe for social progress. Could it have happened otherwise? Absolutely. This example was a case study of how “open source” licenses could be crafted and protect the public commons, yet allow the private sector to build prosperous businesses using that commons of technology. Perhaps I should have only sent the GUS gene and disclosed the information to those who agreed to terms by which they would share improvements that specifically used GUS; then the entire broad positive selection concept would likely have stayed available to all entities—public and private, large and small—that wished to explore its use. As would the many modifications on which others had filed patents. Just imagine: what would happen if the public sector technology transfer professionals had access to such a leverage tool to further the power of the commons toolkit and advance their mission?
1. For example <www.opensource.org>. 2. In economics, a good is considered either rivalrous (rival) or nonrival. Rival goods are goods whose consumption by one consumer prevents simultaneous consumption by other consumers. In contrast, nonrival goods may be consumed by one consumer without preventing simultaneous consumption by others. Most examples of nonrival goods are intangible goods. (from Wikipedia, 2007). 3. Mike Bevan, my principal collaborator, went on to play a key role in coordinating the public sector sequencing of the Arabidopsis genome . Arabidopsis is the workhorse model plant of biotechnology, and was the first plant to have its entire DNA sequence described in the literature. The public efforts to create a public good, like some of mine, were likely co-opted by the secretive wholesale filing of patents on the Arabidopsis genome by Mendel Biotechnology, an affiliate of Monsanto. These patents have only recently surfaced (<www.patentlens.net>) but pre-dated the public effort by as much as two years, thus potentially capturing or hijacking much publicly-funded work, through a legal, though unpalatable practice called 'after-claiming'. 4. R.A. Jefferson, T. A. Kavanagh, and M. W. Bevan (1987), “GUS fusions: beta-glucuronidase as a sensitive and versatile gene fusion marker in higher plants.” European Molecular Biology Organization Journal, December 20; 6(13): 3901–3907. Apparently it has been read often, as it has been cited in the scientific literature thousands of times. To our delight, however, the user's manual in Plant Molecular Biology Reporter has been similarly cited, and likely more influential, in the precursor to the Open Access publishing movement. 5. Monsanto later engaged Agracetus in a heated patent battle for the right to do genetic manipulations in soybeans, and ultimately purchased Agracetus and its patents. At this point the patents owned by Agracetus ceased being seen as reprehensible and unfair, and were defended as pillars of rectitude. 6. These scientists included groups led by Mary Dell Chilton, Marc van Montagu, Eugene Nester, Jeff Schell, Pat Zambryski and others, at the University of Washington, the University of Ghent, the Max Planck Institute, and elsewhere. 7 See forthcoming “Patent Landscape on Plant Genomes.” 8. Jefferson, R.A. (2001). “Transcending Transgenics: Is there a baby in that bathwater, or is it a dorsal fin?,” in The Future of Food,” edited by Phil Pardey (International Food Policy Research Institute with Johns Hopkins Press), pp75-91. 9. See Appendix on positive selection. 10. Imperial Chemical Industries; its plant work was later absorbed into Zeneca and then into Syngenta.

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Richard Jefferson
11. More details on the complexities of this period can be found in Richard Poynder's online interview of me: The Basement Interview: Biological Open Source, <http://poynder.blogspot.com/2006/09/interview-with-richard-jefferson.html> 12. The Consultative Group on International Agricultural Research, <www.cigar.org>, a consortium of 15 agricultural research institutes and many governments, is the principal non-profit entity engaged in agricultural development through science for poverty reduction. 13. Dr Marie Connett, CAMBIA's Deputy CEO, a scientist, patent agent, and IP Manager, jumped into the deep end when she joined in 2005, and found herself working round the clock on creating the license, consulting with dozens of technology transfer professionals, lawyers, industry colleagues and scientists. 14. The Patent Lens was featured in an editorial in Nature Biotechnology (2006, 24:474), called “Patently Transparent” which was disarmingly positive about our PatentLens activity providing a critical breath of transparent fresh air to the patent frenzy that is creating a crisis in biotechnology. The PatentLens team, led for the last two years by Dr. Marie Connett, still has its original three software informatics specialists, Greg Quinn, Doug Ashton and Nick Dos Remedios, and has been strengthened by additional talent, including Paul Freeland, Neil Bacon and Josh Cole. 15. A work-beyond refers to a created technology which both bypasses and transcends the proprietary technology it seeks to replace. Transbacter, described later, is an example of a 'work around', which will become a work-beyond when its efficacy and uptake increases. 16. Brian Behlendorf is the Chairman of the Apache Software Foundation, and a driving force in the creation of the Apache Web server, one of the most widely used open source software tools in the world, with nearly 70% of the world wide web making use of it. 17. See <www.patentlens.net>. The first version was mostly a tour de force by Carolina Roa Rodiguez with guidance from Carol Nottenburg. 18. Nature, 2005, 433:629-633. “Gene Transfer to Plants by Diverse Species of Bacteria.” 19 An outstanding article by Kenneth Cukier appeared about a year later: “Navigating the Future(s) of Biotech Intellectual Property,” Nature Biotechnology (2006) 24:249-251. It articulately described the increasing impasse in biotechnology caused by misuse of the IP system, and featured CAMBIA's BiOS Initiative very prominently and favorably. The metaphor Kenn used in this paper-that of maritime navigation and commerce - is extremely apt and informative. His paper is strongly recommended. 20. “Open Sesame,” Nature Biotechnology (2005), 23:633. Clearly the authors did not have a young child to remind them that “Open Sesame” was the incantation that would open the cave in which thieves had already sequestered stolen riches, a suitable parable for the misuse of the patent system. 21. The Apollo project was the concerted effort by the United States government to reach the moon before the Soviet Union did. The long-term focus may have been to reach the moon, but the project's real purpose was to coordinate massive scientific, engineering and technological progress with industrial development, while building and preserving a societal and political confidence associated with success. It wasn't really about reaching the moon, it was about being able to reach the moon. 22 In the absence of jet aircraft, rocket propulsion and supersonic flight, the idea of space flight would have seemed ludicrous to many. 23. This work has benefited particularly from early contributions of Kate Wilson and Steve Hughes, both Members of CAMBIA, now with CSIRO and Exeter University, respectively. Summarized in, e.g. R. A. Jefferson (1993), “Beyond Model Systems: New Strategies, Methods, and Mechanisms for Agricultural Research,” Biotechnology R & D Trends, Volume 700 of the Annals of the New York Academy of Sciences, December 21, 1993. pp 53-73; Wilson, K. J, A. Sessitsch, J. C. Corbo, K. E. Giller, A. D. L. Akkermans, and R. A. Jefferson (1995), “¼-Glucuronidase (GUS) transposons for ecological and genetic studies of rhizobia and other Gram-negative bacteria.” Microbiology 141: 1691-1705.

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Sara Boettiger and Brian D. Wright

Open Source in Biotechnology: Open Questions
Innovations Case Discussion: CAMBIA-BiOS

The case narrative by Richard Jefferson in this issue of Innovations shows how the rate and direction of progress in biology is constrained by available tools; a novel tool can set the field on a new and more productive course, but only if creative scientists are free to use it. The history of ¼-glucuronidase (GUS) reporter genes illustrates the great impact a technology can have when it is novel, useful, and globally available on reasonable terms. Now Jefferson’s energy is directed at restoring biotechnologists’ global freedom to innovate, by “inventing around” essential, but proprietarily owned, research tools, and trying to ensure that the new alternatives remain freely available for use and improvement. A key part of his program is the development of BiOS, an institutional innovation that applies aspects of the open source software model to biotechnology. Although the jury is still out on the effectiveness and sustainability of BiOS, Jefferson’s detailed account provides a good foundation for initial analysis. Perhaps more important than his discussion of the BiOS model itself, however, is Jefferson’s articulation of the intellectual property problems faced by innovators in biotechnology who want to see their efforts make a difference to end-users globally. What he has to say demands the attention of the many lawyers and economists who see no problems with intellectual property protection in biotechnology. Open source is currently one among several approaches designed to encourage broad based participation in research in biotechnology in the face of the restrictions imposed by intellectual property rights on key enabling technologies.1 Open source in biology is a work in progress, highly experimental and controversial. This essay seeks to reach beyond the rhetoric of openness and transparency, to considSara Boettiger is Director of Strategic Planning and Development at PIPRA (The Public Intellectual Property Resource for Agriculture, <www.pipra.org>). Brian Wright is professor of Agricultural and Resource Economics, University of California, Berkeley, and member, Giannini Foundation. This case discussion originallly appeared in volume 1, number 4, of Innovations. © 2007 Sara Boettiger and Brian Wright innovations / Davos 2008
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Sara Boettiger and Brian D. Wright er some of the challenges that confront the BiOS project, and some of the opportunities that might be created in biotechnology in general, and agricultural biotechnology in particular, by open source innovation. A DIFFERENT PATH The GUS reporter gene and subsequent innovations, (and especially Jefferson’s publication with almost 4,000 citations) are achievements for which many a professor would contemplate homicide. This narrative has a familiar ring to those who like to read the lives of the academic super-heroes. Outstanding student meets creative mentors on the While most lawyers and cutting edge, encounters the right economists were still research problem in the wrong field, and ports the solution to the right debating whether access to application just when it is needed. The accomplishment is widely celetechnology and freedom-tobrated and the just patent reward is operate problems even claimed. But at this point Jefferson existed, Jefferson designed begins to steer his career away from CAMBIA and, in turn, BiOS the conventional, exhibiting reckless disregard of academic disciplinary to tackle those problems. boundaries and fiscal prudence. Many of those GUS citations, some might have noticed, were generated by his own efforts to disseminate the reporter gene technology far and wide in useful kits which enabled disenfranchised scientists in obscure corners of the world to do more effective plant breeding. Eschewing the single-minded pursuit of further publications and attainment of tenure, Jefferson turned to champion an international community of scientists, entrepreneurs, and farmers and their capacity to embrace the emerging scientific opportunities offered by biotechnology. Against the backdrop of such auspicious scientific potential, the constraints imposed by lack of resources and encroaching patent claims caught his attention. Had he followed Adam Smith’s recognition of the key role of specialization in innovation and the social merits of selfish pursuing profit maximization, Richard Jefferson’s career would have taken a very different, and less interesting, path. Because he has played on both sides of the patent game in a rapidly evolving commercial field, he has had the opportunity to observe how patents can restrict, or even kill, promising technologies, and stifle the formation of startup firms that generate the flow of innovations to the end users. While most lawyers and economists were still debating whether access to technology and freedom-to-operate problems even existed, Jefferson designed CAMBIA and, in turn, BiOS to tackle those problems. His experience has earned him notable credibility in this debate.
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Open Source in Biotechnology: Open Questions OPEN SOURCE: FROM SOFTWARE TO BIOLOGY The merits of open source (OS) in software, though still debated, are widely acknowledged. Some advocates of OS software, from its beginnings, have promoted its development with mystical zeal. But, over time, its success as a production model has garnered the respect of hard-headed lawyers and businessmen. OS has proved to be an efficient, thus far sustainable, and competitive system for development of some software applications, delivering high quality products, with faster development time, at a fraction of the cost of firm-based production models. In OS, self-selected volunteers develop ideas that might make their own lives a little easier. For example, they remove bugs encountered in their idiosyncratic work environments (Bessen 2005), some of which could only be detected by a centralized research authority with great difficulty and expense. This activity is known as user innovation Von Hippel (2005). Often, they share their results with others, and enjoy the resulting peer acknowledgement of their contributions. But none of this started with software. Not by a long shot. The first modern economist, Adam Smith, described the phenomenon in 1776. A great part of the machines … in those manufactures in which labor is most subdivided, were originally the inventions of common workmen, who, … employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufactures must frequently have been shown very pretty machines, which were the inventions of such workmen in order to facilitate and quicken their particular part of the work. Note the lack of any hint of monetary awards for the inventions, and the assumed willingness of the employers to share them with all comers. Long before Smith, farmers were solving biological problems without thought of monetary award, and sharing their inventions with their peers. Open source agriculture is more a restoration than a revolution. To agricultural scientists, OS offers a promise of a return to the scientific environment of decades past, where materials and ideas were exchanged with greater fluidity, and today’s preoccupation with intellectual property rights that was absent. But BiOS’ wet lab plant biotechnology constitutes a young field very different from that of software production, or traditional plant breeding before the twin revolutions in biotechnology and intellectual property rights. Jefferson’s initiative accordingly provides an interesting lens through which to examine the prospects for the open source model in novel terrain.2 The shift from copyright to patent law, and the complex and expensive regulatory regime, profoundly affect the prospects for open, distributed innovation and the creation of protected commons of easily accessible technology in plant biotechnology. The appropriate architecture for an OS model in biotechnology, like the appropriate design of any innovation, is hard to predict ex ante. The fate of BiOS, as a practical implementation of the model, will be highly instructive. innovations / Davos 2008
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Sara Boettiger and Brian D. Wright Patent vs. Copyright Law Free access to technologies in the OS model fundamentally depends on the protection of those technologies from encroaching IP claims. This is accomplished through an open source license in which the right to use the technology is exchanged for the promise not to privately appropriate it. In software, the strategy designed to create a protected commons of accessible technologies involves the dominant IP form, copyright, as the key legal instrument in the open source. In biology, the dominant form of intellectual property protection is not copyright but patents. Several charThe shift from copyright to acteristics of patent law pose serious patent law, and the complex challenges to the translation of the OS software model to biotechnoloand expensive regulatory gy.3 Whereas copyright attaches regime, profoundly affect instantaneously and with zero cost to the prospects for open new software code, obtaining patent protection (“patent prosecution”) [source]...in plant for an innovation in biotechnology biotechnology. costs tens of thousands of dollars, and entails months if not years of back and forth between the applicant and the patent office. The traditional OS model depends on the collaborative contributions of programmers who engage in the project for any number of well-researched motives (reputation, fun, improved skills, connection to community, etc.), but if their innovations were to be protected by patents, and the cost of patenting were shared by all research collaborators, the community of contributors would likely collapse. Given that the cost of the patent system discourages the patenting of every iterative improvement to open sourced biotechnologies, it would be necessary to make informed bets as to what ought to be patented in order to achieve a cost-effective degree of protection for the growing commons of the project. Remaining technologies might be defensively published. The Single Nucleotide Polymorphism (SNP) consortium4 provides an example of effectively combining defensive publishing and defensive patenting to reach a similar goal of sustained open access, but without the complication of maintaining access to “improvements” of key enabling technologies. A priori decisions must also be made regarding where to patent. One strength of the OS model in software is its ability to cross national boundaries, gaining from the talents of a truly international set of developers.5 While copyright lends itself to virtually costless international coverage,6 patents are national in scope. Applying for patent protection worldwide can be prohibitively expensive; even filing in a handful of wealthy countries can cost hundreds of thousands of dollars in fees and

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Open Source in Biotechnology: Open Questions associated expenses. In patents, as in copyright, the utility of the protection gained from intellectual property rights depends on the ability to enforce. All the expenditures and effort involved in patent prosecution are in vain unless the OS commons has the credible financial capacity to sue infringers and finance the necessary litigation through to a decision, if necessary. In patents this capacity does not come cheap; each lawsuit in the United States costs millions of dollars. It is not clear whether the issue of enforcement is less serious in OS software, which is itself a pioneering commons institution, and, as such, still a work in progress. One practical distinction between software and plant biotechnology in this regard is that infringers may have less incentive to fight to the end if they can, at low cost to themselves, cease infringing by substituting lines of new code in a relatively short time period. In plant biotechnology, however, an accused infringer is likely to have less attractive alternatives to legal warfare; switching to a noninfringing technology may forfeit an investment of years of development, backcrossing and regulatory testing because patented technology is often locked into the genome of a novel plant variety. In light of these constraints, BiOS, for effective management to achieve unfettered access to crucial technologies, needs to be able to make centralized decisions about patenting and publishing, and to have the financial capacity to enforce its rights. Centralized decisions are not foreign to the traditional open source model; despite claims of democratic innovation by OS protagonists, the system most often depends on a hierarchy of reviewers ensuring quality control and assigning credit.7 But even with this hierarchy, the OS quality control process lends itself to, and indeed finds strength in, its openness and immediacy. To our knowledge, BiOS and other OS biology initiatives have not addressed the issues of confidentiality, delays and capital requirements associated with extension of the OS model to patentable biotechnologies. Open Access to End-Products Beyond the challenges posed by the shift from copyright to patent law, further constraints to the translation of the open source model into applied biotechnology arise from fundamental differences in the characteristics of product commercialization paths. In the life sciences a significant amount of capital is often necessary to move inventions through development, field testing, manufacturing, and distribution. OS software, on the other hand, has no expensive regulatory hurdles to traverse and can be replicated and distributed at zero marginal cost. If the goal is open access to an end-product, not to a research tool (as in BiOS), then widespread delivery of the product may depend on engaging capital to get it from the lab out into the hands of consumers. The ability to leverage patent rights can, in some cases, play a critical role. If the product has both commercial and humanitarian markets (consider, for example, an AIDS vaccine), the patent owner may license the patent rights to a company for use in the lucrative developed coun-

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Sara Boettiger and Brian D. Wright try market in exchange for the company’s promise to manufacture and deliver the product into developing country markets at a reasonable price. This logic is not new, of course. Product development public private partnerships (PDP’s), among others, have demonstrated how to leverage intellectual property rights, segmenting the market in their licensing agreements in order to achieve the ultimate goals of delivering biomedical innovations to poor and underserved populations where there are very limited commercial markets. It is in cases like these that open source licenses may hinder the product’s commercialization by precluding the engagement of private capital. An understanding of this dynamic is in part what drove the BiOS model to focus on enabling technologies, preserving the potential for patent rights on application-level technologies. The polio vaccine provides a historical example that seems to contradict the cautions above. It is often cited as a case where the choice not to patent resulted in a major public health success. Jonas Salk famously stated: “Who owns my polio vaccine? The people! Could you patent the sun?” It’s true that Salk did not patent his work and open access was achieved, by almost anyone’s standard, as the polio vaccine represents one of history’s great public health success stories. The polio vaccine was delivered through an extraordinary collaboration between individual volunteers and a public charity, the National Foundation for Infantile Paralysis (now known as the March of Dimes), founded by Franklin Delano Roosevelt. Salk’s work was funded by the National Foundation. The field trials were the biggest peace-time mobilization of volunteers in U.S. history. Nearly two million school children, called the “Polio Pioneers,” and thousands of healthcare workers and lay people volunteered to take part in or assist with the vaccine field trials. The results of the trials were analyzed at the University of Michigan. Millions of Americans participated by raising funds in their communities. The National Foundation for Infantile Paralysis even funded the manufacture of the vaccines by subsidizing the production of nine million dollars worth of vaccines. The story of the polio vaccine is, indeed, an inspirational illustration of a nation mobilizing its resources to address a public health crisis. But it was developed with ample funding and without a thicket of potentially blocking patents. Remember, too, that vaccines are currently under-supplied globally. The Salk model has not been sustained. A major source of vaccines for tropical diseases is the U.S. government, which funds the necessary research to protect soldiers who might one day fight in tropical lands; any gains that accrue to locals in such countries are more or less incidental. Where there is still some doubt as to whether private sector resources may need to be engaged, the option to use IP rights as a tool to achieve the goals of open access may be valuable. The larger point is that different IP management tools fit different circumstances. There are many instances where publishing and not patenting is the path to ensuring open access. Yet another important strategy, widely praised as judicious, is exemplified by the broad and non-exclusive licensing strategy implemented for the key Cohen-Boyer patents. Effective IP management plans require flexibility and knowledgeable professionals. They should be designed to support par196

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Open Source in Biotechnology: Open Questions ticular goals, and depend on the characteristics of a technology and surrounding circumstances as they unfold. Open source mechanisms, though, are not flexible; in terms of IP, the fate of a new invention is mandated ahead of time. This can mean missed opportunities. Inter-operability and Parallels to Linux The burgeoning of the OS model in software and its ability to generate serious rivals to commercial products in some market segments was dependent, in part, on two critical elements. First, the contribution of a kernel by Linus Torvalds in 1991 enabled Linux to become a complete, functional alternative to proprietary operating systems, and subsequently the flagship for OS success. Second, the creation of a set of OS licenses with different degrees of virality, allowed OS code to be used in combination with proprietary software, thereby broadening the range of business applications that could integrate OS code. The original OS license, the GNU General Public License (GPL), has a viral quality which mandates that products incorporating the original code also become additions to the commons and must be licensed under the same GPL terms. In response to needs for an OS license where interoperability brought fewer restrictions, other licenses were developed8 which allowed OS code to be incorporated into proprietary commercial products. The range of degrees of virality among licenses reflects a trade-off. More viral licenses promote greater growth in the protected commons of code, but at a cost of reducing the range of applications for the code. Less viral licenses still can work to preserve the commons of code, but lean more toward the direction of a static commons which does not grow as quickly. It is natural to look to OS in software to find a model for the protected commons of technology that BiOS seeks to create. Jefferson rightly identifies the need for a complete platform of enabling technologies, tools for plant genetic transformation, as an important element of OS application for agricultural biotechnology. Along with Jefferson, the press has highlighted parallels between his Transbacter™ technology, designed to work around existing, proprietarily-owned, plant transformation methods that form a crucial bottleneck in agricultural biotechnology, and the kernel of what we now know as Linux. The analogy, though, is premature, for two reasons. First, Torvald’s kernel was the lynchpin to the system—with it a truly self-sufficient operating system was born. Transbacter™, though, removes only one of two current bottlenecks. There is yet another technology that remains a critical impediment to operability.9 Second, Transbacter™ is a young technology. Its utility for plant breeders is not yet established.10 In any case, because of the territorial nature of patents, these bottlenecks of proprietarily owned enabling technologies exist for the most part in only a few countries (including the United States). The key patents creating the bottlenecks in the U.S. were either never issued, or have expired in many other countries. While it is true that products exported back into territories where these patent bottlenecks exist will have problems, there are many countries without these patents

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Sara Boettiger and Brian D. Wright in which researchers can use a full set of technologies in the public domain with impunity, and with no need to consider BiOS license terms. There are other, nonIP, reasons why this is not done; access to materials, biosafety issues, liability and stewardship issues, and a weakness in scientific capacity can be more serious impediments than foreign patents in hindering progress in plant biotechnology in developing countries. However, the path pioneered by BiOS could become a route to freedom to operate for poor countries in the future. The full effects of the global spread of patenting fostered by the TRIPS Agreement of the World Trade Organization, and even more onerous bilateral agreements, are now coming to bear on agricultural researchers in developing countries. As their scientific capacities develop, the full force of patent claims might well become a serious obstacle. Because BiOS does not currently provide a complete and viable alternative platform, interoperability concerns are not just important, but essential. Researchers have no alternative to using technologies licensed under the BiOS terms in conjunction with patented technologies owned by others. Unfortunately the BiOS license mandates encumbrances that “infect” key complementary enabling technologies. Owners of patents on such technologies might well find these encumbrances unacceptable. Suppose, for instance, a scientist creates a plant transformation vector (the research tool that enables a researcher to insert a gene into a plant’s DNA), with a BiOS enabling technology as one of its many component technologies. Under the terms of the license, the entire vector system must be granted back to BiOS. The BiOS license, in its reservation of rights for the licensee to own application technologies (i.e. not enabling technologies), falls short of what is known in open source software licensing as “viral.”11 However, the BiOS license does have a viral quality to it that affects enabling technologies. The terms of the BiOS license could mean that researchers become limited in the set of tools from which they choose. In a sense, the BiOS license could, counter-intuitively discourage, rather than encourage collaboration. To see this effect, imagine again the vector system referred to above where one component is a BiOS technology. The researcher would like to use another component that happens to be patented by a commercial firm. The commercial firm will not agree to the use of their technology knowing that the vector system, incorporating their technology will be available for free under the BiOS license. Therefore the researcher’s choice of tools is effectively diminished by having chosen to use the BiOS technology; he has relinquished the ability to use certain tools because he has brought a technology into his lab under the terms of the BiOS license. It is true that the BiOS license allows the licensee to refrain from granting back improvements if they are kept as trade secrets. (Not only can the licensees benefit from access to enabling technologies, and the improvements of others, but they can use trade secrecy, where feasible, to avoid making their own improvements available to other licensees.) The trade secrecy option is, however, unlikely to be a useful concession for universities, where disclosure is an important part of the cul198

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Open Source in Biotechnology: Open Questions ture and materials are regularly shared among researchers in a lab (or among labs) informally.12 In sum, creation of a transformation platform as a flagship application with freedom to operate has been the subject of much effort and creativity, but it is still a work in progress. Is the BiOS Model Sustainable? In order for BiOS to be a viable and replicable model, sustainability is essential. Richard Jefferson has generously seeded the model by placing his own patents under the BiOS license; the Rockefeller Foundation and IBM, among others, have provided financial or material support. The initiative aims to increase the commons with improvements to the existing technologies. But what about new technologies? The incentives for participating by signing the BiOS license are separate from the incentives needed to get people to donate new technology. Will the latter be forthcoming to BiOS as contributions from the private sector or public sector? Jefferson’s own experience with BiOS is not encouraging on this point. Perhaps the BiOS approach will be sustained by replication, with each new collaboration initiated by a creative leader who sets the broad agenda. The key enabling technology for widespread adoption of the BiOS model might be a perfected BiOS license. The culture of hackers that continues to fuel the advances of OS in software may not be replicable in the field of biology. But to the extent that it is, researchers in the public sector are likely to be crucial participants, especially in less developed economies where almost all agriculture-related research is public. In its present form, the BiOS license remains a poor contractual fit for universities (particularly those in the U.S.13). Some would argue that the goal of the BiOS model to provide for dissemination and access is already part of the university process. Universities publish, they collaborate, they share and exchange. Having learned from painful experiences akin to Jefferson’s loss of access to a positive selection strategy, when universities license their technology they typically retain the right to publish, conduct research, and allow other universities/non-profits to do the same for research and educational purposes. The reach of the BiOS grantback14 goes beyond what is often found in licenses from the nonprofit sector, and could impose obligations that public sector scientists are not free to satisfy, since the rights to their inventions are often mediated by their employer institutions. This is a problem that arises when the OS approach is ported from the world of copyright to the world of patents. Universities have not wrested control of copyright on texts from the grasp of their academic authors, even if the work is produced on campus. By contrast, patents on inventions originating in U.S. university labs are assigned to the institution. It may be that a sustainable OS model in patentable biotechnologies will need to utilize a legal mechanism that is better-suited to the peculiarities of academic institutions.

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Sara Boettiger and Brian D. Wright Some Perspective At this point, it is appropriate to put some perspective on the relevance of open source initiatives for global agriculture. To date, it is unlikely that massive numbers have died of hunger due to the current state of agricultural intellectual property rights. Subsidized by rich countries’ agricultural policies, the world markets have offered basic foods at prices lower than ever recorded. Furthermore, almost all currently useful agricultural biotechnology has been available, without patent protection, to most developing countries, for all purposes except incorporation in exports to countries with relevant patents in force. It has not been widely adopted for basic food production, for two reasons. First, widespread opposition to genetic modification, for reasons of biosafety and pubAt present, open source is a lic acceptance, has discouraged this type on innovation. (For example, as promising, but problematic, of 2006, South Africa was the only country in Africa where genetically way to preserve some engineered crops are grown commerfreedom to innovate in a cially).15 Second, the less developed counworld of patent thickets. tries, with a handful of notable exceptions including China, India, Brazil and Argentina, lack any real capacity to exploit the new technologies, because the substantial, sustained investments in education, research and facilities necessary to get the process under way have not been made. Nevertheless this is the right time to be addressing patent problems in developing countries. The long downtrend in food prices has been interrupted, a reminder that the food yield increases behind recent declining price trends did not come automatically, but reflect sustained, large, largely public, investments in research. In the past year, the world has awakened from complacency about atmospheric carbon, on the one hand, and reliance on imported fuels, on the other, to support massive increases in ethanol production from crops. If these increases continue, large yield improvements in the productivity of crops will be needed to ensure that competition from gasoline consumers does not cause an increase in the numbers of the world's poor and hungry. Considerable investments have already been made into researching the genetic modification of developing-country crops (for instance, biofortification, disease and pest resistance, and drought tolerance). These projects must consider constraints and opportunities associated with intellectual property rights in order to ensure the intended delivery of the products of their research into the hands of farmers. In its short history, there is already an accumulation of anecdotal evidence of agricultural biotechnology research projects being delayed, re-directed, or halted all together because of intellectual property rights problems (Wright and

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Open Source in Biotechnology: Open Questions Pardey 2006a, 2006b). A recent survey of agricultural biologists at U.S. Land Grant Universities reveals that they, as a group unusually familiar with patenting and the exchange of tools, believe that intellectual property rights, through their effects on transactions with their peers, are on balance hindering progress in their research areas (Lei et al., 2007). There is, therefore, a sound argument that we cannot wait to find out how the global implementation of the TRIPS agreement, and subsequent bilateral negotiations on intellectual property rights, affect global innovation over the next quarter century. IPRs, among the many challenges in life sciences, require forethought. Decisions today about the ownership of and access to technologies (through patents and licenses) will affect the paths of research and development for decades ahead. CONCLUSION To develop BiOS, Jefferson has had to dedicate years of effort and ingenuity, calling on all his talents as scientist, entrepreneur, innovator, fund-raiser and cheerleader. To create a flagship application for BiOS, he and his colleagues have invented a novel technology for genetic transformation of plants, designed to be unencumbered by prior patent claims. To ensure its development follows the open source model, he has fashioned the BiOS license, porting the open source licensing concept from copyright to a more complex world of patent protection and biosafety regulation. Given the magnitude of the task, it is no surprise that the development of BiOS as a sustainable institutional innovation is still a work in progress. But at this stage, the story merits a close reading. Jefferson has indisputable credibility as a witness to the multidimensional challenges of acquiring freedom to operate in agricultural biotechnology. From a policy perspective, the major lesson is implicit. Almost the entire effort in creating BiOS constitutes expenditure of valuable, if not unique, resources that would be unnecessary, absent a patent system, or a system of efficient license agreements. This effort, then, constitutes a concrete example of the “excess burden” of the patent system, as it exists in developed countries, that is, its cost to innovators that does not get transferred to others as benefits, but is lost as economic waste. The availability of global communication at virtually zero cost offers unprecedented opportunities for exploiting specialization and the division of labor in biotechnology research. Unfortunately, the recent revolution in patent protection, and constraints imposed by biosafety regulations, have had the opposite effect, forcing “in-house” aggregation of essential agricultural biotechnology innovation capabilities within a few vertically-integrated firms. As this has happened, the innovation race has slowed to a crawl. Thus far, the prudent caution regarding biosafety, and the slowdown in biotechnology innovation, have had no serious effects on food consumption; past research investments, and rich-country food subsidies, have kept prices low and innovations / Davos 2008
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Sara Boettiger and Brian D. Wright supplies high. Given the current surge in biofuels demand, and the continuing increase in world population, it would be foolhardy to assume that this situation will continue. At present, open source is a promising, but problematic, way to preserve some freedom to innovate in a world of patent thickets. Achievement of a less restrictive patent regime would allow the full creative potential of open source collaboration to be realized in ensuring an adequate supply of food for the years ahead. Endnotes
1. Other models include patent pooling, clearinghouse mechanisms, and humanitarian licensing. 2. It is not clear that biotechnology per se is less amenable to specialization and open source collaboration, absent biosafety and intellectual property constraints. The potential efficiencies of specialization and collaboration in synthetic biology are illustrated by the BioBricks initiative <http://www.biobricks.org/>. See Endy (2005). 3. In the interest of brevity, we discuss only highlights of several differences between patent and copyright law and their significance for the translation of the OS model are provided. In fact, differences in the legal systems have wide-ranging implications for OS that deserve more in-depth analysis. 4. Robert Cook-Deegan (2003) describes how a group of academic institutions and thirteen private firms formed a consortium to ensure the SNPs remained broadly accessible and were not privately appropriated. He writes: “The SNP Consortium did not just dump the data. They filed patent applications and then characterized the SNP markers enough so that they could be sure that nobody else could patent them. At that point, they would abandon the patent. It is a very sophisticated intellectual property strategy that in the end was intended to bolster the public domain. It requires coordination, lots of paperwork, and it costs money to file and process applications, but it appears to be an effective defensive patenting strategy.” 5. Lancashire (2001) reports 33 different nationalities among Linux contributors. 6. There are two principal international copyright conventions: the Universal Copyright Convention (or UCC) and the Berne Convention. To protect copyright internationally the name of the author is required and (for the UCC) the year of publication and a © symbol. 7. Jill Coffin (2006) notes: “For [an open source project] to function…an organizational and political structure must support it. Hybrid, flexible political systems based upon meritocracy motivates participants, provide rewards in the absence of capital, and encourage a community-wide sense of project ownership. In addition to the bottom–up, peer–administered hierarchy described in the analysis of Wikipedia, the benevolent dictator and consistently active personnel keep the project alive and dialog open from above, so to speak…A transparent meritocratic structure also allows for smooth succession in administrative and leadership positions.” 8. For instance the Berkeley Software Distribution (BSD) style licenses. 9. Generating genetically modified crops requires several indispensable technologies including those necessary to transfer foreign DNA into a plant cell, selection gene markers to distinguish genetically modified cells from untransformed cells, and marker-excision technologies to remove superfluous DNA after successful integration of the trait gene into the plant genome. This packet of core technologies is complemented with other research-specific technologies, which may also be protected by IP. Of the transgenic crop technologies, transformation and selectable markers may be considered “bottleneck” areas where the restricted access to the technologies can impede innovation. 10. Broothaerts et al. found that the transformation efficiency of non-Agrobacterium bacterial species ranged from less than 1% to almost 40% of that of Agrobacterium-mediated transforma-

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Open Source in Biotechnology: Open Questions
tion, depending on the transformation assays and species used. (Gene Transfer to Plants by Diverse Species of Bacteria, Nature 433, 629-633 (10 February 2005) 11. The GPL (http://www.gnu.org/copyleft/gpl.html), requires in clause 2(b) that any works derived from the licensed software must also to be distributed under the GPL. 12. Another anomaly differentiating the commercial use of the BiOS license from academic has to do with federal funding and obligations that are common in university policy as a consequence of the adoption of the Bayh Dole Act. 13. PIPRA, The Public Intellectual Property Resource for Agriculture, www.pipra.org, has completed an in- depth analysis of the BiOS license from the perspective of a U.S. university as a potential licensee. 14. For a legal discussion of the BiOS license see Boettiger and Burk (2004). 15. See Eicher (2006).

References
Boettiger, S. and D. L.Burk (2004). “Open Source Patenting”. Journal of International Biotechnology Law, Vol. 1, pp. 221-231. Available at SSRN: <http://ssrn.com/abstract=645182> Coffin, J. (2006). “Analysis of Open Source Principles in Diverse Collaborative Communities,” First Monday, 11:6, <http://www.firstmonday.org/issues/issue11_6/coffin/index.html> (accessed 3 March 2007). Cook-Deegan, R. (2003). “The Urge to Commercialize: Interactions Between Public and Private Research Development in The Role of Scientific and Technical Data and Information” in The Public Domain: Proceedings of a Symposium, Julie M. Esanu and Paul F. Uhlir, Eds., National Academies Press, Washington, D.C. Eicher, C., K. Maredia, I. Sithole-Niang (2006). “Crop biotechnology and the African Farmer,” Food Policy, 31 pp. 504-527. Endy D. (2005). “Foundations for engineering biology,” Nature, 24 November. DOI:10.1038/nature04342 Lancashire, D. (2001). The Fading Altruism of Open Source Development, First Monday, 6:12 (December), <http://firstmonday.org/issues/issue6_12/lancashire/index.html> (accessed 3 March 2007). Lei, Z., R. Juneja and B. D. Wright (2007). “Implications of Intellectual Property Protection for Academic Agricultural Biologists.” Mimeo, University of California, Berkeley. Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of Nations, Book 1, Chapter 1. < http://geolib.com/smith.adam/won1-01.html>, last accessed March 4, 2007. Von Hippel, E. (2005). Democratizing Innovation. Cambridge, MA: MIT Press, 2005. Wright, B.D. and P.G. Pardey (2006). “Changing Intellectual Property Regimes: Implications for Developing Country Agriculture.” International Journal of Technology and Globalization 2, nos. 1/2: 93-114.

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Yochai Benkler

Commons-Based Agricultural Innovation
Innovations Case Discussion: CAMBIA-BiOS

Computation and access to existing scientific research are important in the development of any nation, yet both still operate at a remove from the most basic needs of the world poor. On its face, it is far from obvious how the emergence of the networked information economy can grow rice to feed millions of malnourished children or deliver drugs to millions of HIV/AIDS patients. On closer observation, however, it becomes apparent that a tremendous proportion of the way modern societies grow food and develop medicines is based on scientific research and technical innovation. Important implications for the direction of innovation and for access to its products exist in the basic choice between two models: (1) a system that depends on exclusive rights and business models that use exclusion to appropriate research outputs and (2) a system that weaves together various actors—public and private, organized and individual—in a nonproprietary social network of innovation. The failure of the exclusive rights model in meeting the needs of people in developing countries has received considerable public attention in the context of

Yochai Benkler a Professor of Law at Yale Law School. His research focuses on the effects of laws that regulate information production and exchange on the distribution of control over information flows, knowledge, and culture in the digital environment. His particular focus has been on the neglected role of commons-based approaches towards management of resources in the digitally networked environment. He has written about the economics and political theory of rules governing telecommunications infrastructure, with a special emphasis on wireless communications, rules governing private control over information, in particular intellectual property, and of relevant aspects of U.S. constitutional law. This discussion is excerpted from The Wealth of Networks: How Social Production Transforms Markets and Freedom (New Haven: Yale University Press), 2006, pp. 341-356. The editors of Innovations initiated the proposal to publish this excerpt, benefiting from the provisions of Creative Commons Noncommercial Share alike license under which an online version of The Wealth of Networks was distributed.
© 2006 Yochai Benkler
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Commons-Based Agricultural Innovation the HIV/AIDS crisis in Africa—particularly with regard to the lack of access to existing drugs because of their high costs. However, that crisis is merely the tip of the iceberg. It is the most visible to many because of the presence of the disease in rich countries and its cultural and political salience in the United States and Europe. The exclusive rights system is, as a general rule, a poor institutional mechanism for serving the needs of those who are worst off around The failure of the exclusive rights the globe—not only the victims of model in meeting the needs of HIV/AIDS. Its weakpeople in developing countries has nesses pervade the problems of food received considerable public security and agriculattention in the context of the tural research aimed at increasing the supHIV/AIDS crisis in Africa— ply of nourishing food throughout the particularly with regard to the lack of developing world, access to existing drugs because of and of access to medicines in general, and their high costs. However, that crisis to medicines for is merely the tip of the iceberg. developing-world diseases in particular. Each of these areas has seen a similar shift in national and international policy toward greater reliance on exclusive rights, most important of which are patents. Each area has also begun to see the emergence of commons-based models to alleviate the problems of patents. Leaving aside national efforts in developing nations, there are two major paths for commons-based research and development in agriculture that could serve the developing world more generally. The first is based on a loose affiliation of university scientists, nongovernmental organizations, and individuals such as played significant role in the development of free and open-source software. The second is based on existing research institutes and programs cooperating to build a commons-based system, cleared of the barriers of patents and breeders’ rights, outside and alongside the proprietary system. The most promising current effort in the former vein, and probably the most ambitious commons based project for biological innovation currently contemplated, is BIOS (Biological Innovation for an Open Society). The most promising models of the latter are the PIPRA (Public Intellectual Property for Agriculture) coalition of public-sector universities in the United States, and, if it delivers on its theoretical promises, the Generation Challenge Program led by CGIAR (the Consultative Group on International Agricultural Research). innovations / Davos 2008
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Yochai Benkler CAMBIA-BIOS As Richard Jefferson’s case narrative in this issue of Innovations describes, BiOS is an initiative of CAMBIA (Center for the Application of Molecular Biology to International Agriculture), a nonprofit agricultural research institute based in Australia. BiOS is based on the observation that much of contemporary agricultural research depends on access to tools and enabling technologies—such as mechanisms to identify genes or for transferring them into target plants. When these tools are appropriated by a small number of firms and available only as part of capital-intensive production techniques, they cannot serve as the basis for innovation at the local level or for research organized on nonproprietary models. One of the core insights driving the BiOS initiative is the recognition that when a subset of necessary tools is available in the public domain, but other critical tools are not, the owners of those tools appropriate the full benefits of public domain innovation without at the same time changing the basic structural barriers to use of the proprietary technology. To overcome these problems, the BiOS initiative includes both a strong informatics component and a fairly ambitious “copyleft”-like model of licensing CAMBIA’s basic tools and those of other members of the BiOS initiative.1 The informatics component builds on a patent database that has been developed by CAMBIA for a number of years, and whose ambition is to provide as complete as possible a dataset of who owns what tools, what the contours of ownership are, and by implication, who needs to be negotiated with and where research paths might emerge that are not yet appropriated and therefore may be open to unrestricted innovation. The licensing or pooling component is more proactive, and is likely the most significant of the project. BiOS is setting up a licensing and pooling arrangement, “primed” by CAMBIA’s own significant innovations in tools, which are licensed to all of the initiative’s participants on a free model, with grant-back provisions that perform an openness-binding function similar to copyleft.2 In coarse terms, this means that anyone who builds upon the contributions of others must contribute improvements back to the other participants. One aspect of this model is that it does not assume that all research comes from academic institutions or from traditional government funded, nongovernmental, or intergovernmental research institutes. It tries to create a framework that, like the open-source development community, engages commercial and noncommercial, public and private, organized and individual participants into a cooperative research network. The platform for this collaboration is “BioForge,” styled after Sourceforge, one of the major free and open-source software development platforms. The commitment to engage many different innovators is most clearly seen in the efforts of BiOS to include major international commercial providers and local potential commercial breeders alongside the more likely targets of a commons-based initiative. Central to this move is the belief that in agricultural science, the basic tools can, although this may be hard, be separated from specific applications or products. All actors, including the commercial ones, therefore have an interest in the
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Commons-Based Agricultural Innovation open and efficient development of tools, leaving competition and profit making for the market in applications. At the other end of the spectrum, BiOS’s focus on making tools freely available is built on the proposition that innovation for food security involves more than biotechnology alone. It involves environmental management, locale-specific adaptations, and social and economic adoption in forms that are locally and internally sustainable, as opposed to dependent on a constant inflow of commoditized seed and other inputs. The range of participants is, then, much wider than envisioned by PIPRA or the GCP. It ranges from multinational corporations through academic scientists, to farmers and local associations, pooling their efforts in a communications platform and institutional model that is very similar to the way in which the GNU/Linux operating system has been developed. As of this writing, the BiOS project is still in its early infancy, and cannot be evaluated by its outputs. However, its structure offers the crispest example of the extent to which the peer-production model in particular, and commons-based production more generally, can be transposed into other areas of innovation at the very heart of what makes for human development—the ability to feed oneself adequately. THE PUBLIC INTELLECTUAL PROPERTY RESOURCE FOR AGRICULTURE The Public Intellectual Property Resource for Agriculture (PIPRA) is a collaboration effort among public-sector universities and agricultural research institutes in the United States, aimed at managing their rights portfolio in a way that will give their own and other researchers freedom to operate in an institutional ecology increasingly populated by patents and other rights that make work difficult. The basic thesis and underlying problem that led to PIPRA’s founding were expressed in an article in Science coauthored by fourteen university presidents.3 They underscored the centrality of public-sector, land-grant university-based research to American agriculture, and the shift over the last twenty-five years toward increased use of intellectual property rules to cover basic discoveries and tools necessary for agricultural innovation. These strategies have been adopted by both commercial firms and, increasingly, by public-sector universities as the primary mechanism for technology transfer from the scientific institute to the commercializing firms. The problem they saw was that in agricultural research, innovation was incremental. It relies on access to existing germplasm and crop varieties that, with each generation of innovation, brought with them an ever-increasing set of intellectual property claims that had to be licensed in order to obtain permission to innovate further. The universities decided to use the power that ownership over roughly 24 percent of the patents in agricultural biotechnology innovations provides them as a lever with which to unravel the patent thickets and to reduce the barriers to research that they increasingly found themselves dealing with. The main story, one might say the “founding myth” of PIPRA, was the story of golden rice. Golden rice is a variety of rice that was engineered to provide dietary vitamin A. It was developed with the hope that it could introduce vitamin A supplement to populations innovations / Davos 2008
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Table 1. Selected University Gross Revenues and Patent Licensing Revenues
Sources: Aggregate revenues: U.S. Dept. of Education, National Center for Education Statistics, Enrollment in Postsecondary Institutions, Fall 2001, and Financial Statistics, Fiscal Year 2001 (2003), Table F; Association of University Technology Management, Annual Survey Summary FY 2002 (AUTM 2003), Table S-12. Individual institutions: publicly available annual reports of each university and/or its technology transfer office for FY 2003. Notes: a. Large ambiguity results because technology transfer office reports increased revenues for yearend 2003 as $178M without reporting expenses; University Annual Report reports licensing revenue with all “revenue from other educational and research activities,” and reports a 10 percent decline in this category, “reflecting an anticipated decline in royalty and license income” from the $133M for the previous year-end, 2002. The table reflects an assumed net contribution to university revenues between $100-120M (the entire decline in the category due to royalty/royalties decreased proportionately with the category). b. University of California Annual Report of the Office of Technology Transfer is more transparent than most in providing expenses—both net legal expenses and tech transfer direct operating expenses, which allows a clear separation of net revenues from technology transfer activities. c. Minus direct expenses, not including expenses for unlicensed inventions. d. Federal- and nonfederal-sponsored research. e. Almost half of this amount is in income from a single Initial Public Offering, and therefore

does not represent a recurring source of licensing revenue. f. Technology transfer gross revenue minus the one-time event of an initial public offering of LiquidMetal Technologies.

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Commons-Based Agricultural Innovation in which vitamin A deficiency causes roughly 500,000 cases of blindness a year and contributes to more than 2 million deaths a year. However, when it came to translating the research into deliverable plants, the developers encountered more than seventy patents in a number of countries and six materials transfer agreements that Increasing appropriation of restricted the work and delayed basic tools and enabling it substantially. PIPRA was launched as an effort of publictechnologies creates barriers to sector universities to cooperate in achieving two core goals that entry for innovators—publicwould respond to this type of sector, nonprofit organizations, barrier—preserving the right to pursue applications to subsisand the local farmers tence crops and other developthemselves—concerned with ing-world-related crops, and preserving their own freedom feeding those who cannot to operate vis-à-vis each other’s signal with their dollars that patent portfolios. The basic insight of PIPRA, they are in need. which can serve as a model for university alliances in the context of the development of medicines as well as agriculture, is that universities are not profit-seeking enterprises, and university scientists are not primarily driven by a profit motive. In a system that offers opportunities for academic and business tracks for people with similar basic skills, academia tends to attract those who are more driven by nonmonetary motivations. While universities have invested a good deal of time and money since the Bayh-Dole Act of 1980 permitted and indeed encouraged them to patent innovations developed with public funding, patent and other exclusiverights-based revenues have not generally emerged as an important part of the revenue scheme of universities. As table 1 shows, except for one or two outliers, patent revenues have been all but negligible in university budgets.4 This fact makes it fiscally feasible for universities to use their patent portfolios to maximize the global social benefit of their research, rather than trying to maximize patent revenue. In particular, universities can aim to include provisions in their technology licensing agreements that are aimed at the dual goals of (a) delivering products embedding their innovations to developing nations at reasonable prices and (b) providing researchers and plant breeders the freedom to operate that would allow them to research, develop, and ultimately produce crops that would improve food security in the developing world. While PIPRA shows an avenue for collaboration among universities in the public interest, it is an avenue that does not specifically rely on, or benefit in great measure from, the information networks or the networked information economy. innovations / Davos 2008
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Yochai Benkler It continues to rely on the traditional model of publicly funded research. More explicit in its effort to leverage the cost savings made possible by networked information systems is the Generation Challenge Program (GCP). The GCP is an effort to bring the CGIAR into the biotechnology sphere, carefully, given the political resistance to genetically modified foods, and quickly, given the already relatively late start that the international research centers have had in this area. Its stated emphasis is on building an architecture of innovation, or network of research relationships, that will provide low-cost techniques for the basic contemporary technologies of agricultural research. The program has five primary foci, but the basic thrust is to generate improvements both in basic genomics science and in breeding and farmer education, in both cases for developing world agriculture. One early focus would be on building a communications system that allows participating institutions and scientists to move information efficiently and utilize computational resources to pursue research. There are hundreds of thousands of samples of germplasm, from “landrace” (that is, locally agriculturally developed) and wild varieties to modern varieties, located in databases around the world in international, national, and academic institutions. There are tremendous high-capacity computation resources in some of the most advanced research institutes, but not in many of the national and international programs. One of the major goals articulated for the GCP is to develop Webbased interfaces to share these data and computational resources. Another is to provide a platform for sharing new questions and directions of research among participants. The work in this network will, in turn, rely on materials that have proprietary interests attached to them, and will produce outputs that could have proprietary interests attached to them as well. Just like the universities, the GCP institutes (national, international, and nonprofit) are looking for an approach aimed to secure open access to research materials and tools and to provide humanitarian access to its products, particularly for subsistence crop development and use. As of this writing, however, the GCP is still in a formative stage, more an aspiration than a working model. Whether it will succeed in overcoming the political constraints placed on the CGIAR as well as the relative latecomer status of the international public efforts to this area of work remains to be seen. But the elements of the GCP certainly exhibit an understanding of the possibilities presented by commons-based networked collaboration, and an ambition to both build upon them and contribute to their development. CONCLUSION The BiOS initiative and PIPRA are the most salient examples of, and the most significant first steps in, the development of commons-based strategies to achieve food security. Their vitality and necessity challenge the conventional wisdom that ever-increasing intellectual property rights are necessary to secure greater investment in research, or that the adoption of proprietary rights is benign. Increasing appropriation of basic tools and enabling technologies creates barriers to entry for
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Commons-Based Agricultural Innovation innovators—public-sector, nonprofit organizations, and the local farmers themselves—concerned with feeding those who cannot signal with their dollars that they are in need. The emergence of commons-based techniques—particularly, of an open innovation platform that can incorporate farmers and local agronomists from around the world into the development and feedback process through networked collaboration platforms—promises the most likely avenue to achieve research oriented toward increased food security in the developing world. It promises a mechanism of development that will not increase the relative weight and control of a small number of commercial firms that specialize in agricultural production. It will instead release the products of innovation into a self-binding commons—one that is institutionally designed to defend itself against appropriation. It promises an iterative collaboration platform that would be able to collect environmental and local feedback in the way that a free software development project collects bug reports—through a continuous process of networked conversation among the user-innovators themselves. In combination with public investments from national governments in the developing world, from the developed world, and from more traditional international research centers, agricultural research for food security may be on a path of development toward constructing a sustainable commons-based innovation ecology alongside the proprietary system. Whether it follows this path will be partly a function of the engagement of the actors themselves, but partly a function of the extent to which the international intellectual property/trade system will refrain from raising obstacles to the emergence of these commons-based efforts.
This is similar to the General Public License of the GNU project <http://www.gnu.org/copyleft/gpl.html>. For further description, see chapter 3 of Yochai Benkler (2006), The Wealth of Networks (New Haven, CT: Yale University Press), available for free download at <www.benkler.org> 2. Wim Broothaertz et al. (2005), “Gene Transfer to Plants by Diverse Species of Bacteria,” Nature 433:629. 3. Richard Atkinson et al. (2003), “Public Sector Collaboration for Agricultural IP Management,” Science 301: 174. 4. This table is a slightly expanded version of one originally published in Yochai Benkler (2004), “Commons Based Strategies and the Problems of Patents,” Science 305:1110. 1.

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innovations
TECHNOLOGY | GOVERNANCE | GLOBALIZATION

INNOVATIONS IS JOINTLY HOSTED BY GEORGE MASON UNIVERSITY School of Public Policy Center for Science and Technology Policy HARVARD UNIVERSITY Kennedy School of Government Belfer Center for Science and International Affairs

with assistance from The Lemelson Foundation The Schwab Foundation for Social Entrepreneurship The Ash Institute for Democratic Governance and Innovation, Harvard University The Center for Global Studies, George Mason University

School of Public Policy

mitpress.mit.edu/innovations innovationsjournal.net

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