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An MIT Press Journal
TECHNOLOGY | GOVERNANCE | GLOBALIZATION
Special Edition for the World Economic Forum Annual Meeting 2009
Social Innovation in a
Social Innovation in a Post-Crisis World Klaus Schwab & Hilde Schwab Social Ventures as Learning Laboratories J. Gregory Dees Macro Impact on Microfinance Roshaneh Zafar A Bank as Courageous Investor Ellen Seidman & Ron Grzywinski The Upside of the Downturn Peter Blom
Cases Authored by Innovators
Power Play Rory Stear and Kristine Pearson Ending Dependency Cosmas Okoli Empowering the Rural Poor to Develop Themselves Bunker Roy Garden in the Desert Ibrahim and Helmy Abouleish From Fear to Hope Karen Tse
Perspective on Policy
The Resilience Imperative Philip Auerswald and Debra van Opstal
FEATURING SCHWAB SOCIAL ENTREPRENEURS
Editors Philip Auerswald Iqbal Quadir Contributing Editor Francois Bonnici 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: firstname.lastname@example.org. 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: email@example.com. Innovations: Technology | Governance | Globalization is indexed and/or abstracted by CAB Abstracts. website: http://www.mitpressjournals.org/innovations/ © 2007 Tagore LLC.
TECHNOLOGY | GOVERNANCE | GLOBALIZATION
Introduction 3 Philip Auerswald and Mirjam Schöning Lead Essays 7 11 17 23 29 Social Innovation in a Post-Crisis World Klaus Schwab and Hilde Schwab Social Ventures as Learning Laboratories J. Gregory Dees A Bank as Courageous Investor Ellen Seidman and Ron Grzywinski Macro Impact on Microfinance Roshaneh Zafar The Upside of the Downturn: How Sustainable Banking Can Deliver a Better Future Peter Blom
Cases Authored by Innovators 33 Power Play: Freeplay Energy and the Freeplay Foundation Expand Access to Energy, Information, and Education Rory Stear and Kristine Pearson Case discussion: Freeplay Energy and Freeplay Foundation Johanna Mair and Kate Ganly Case discussion: Freeplay Energy and Freeplay Foundation Christopher Bull Empowering the Rural Poor to Develop Themselves: The Barefoot Approach Bunker Roy Case discussion: Barefoot College of Tilonia John Elkington
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Special Edition for the World Economic Forum Annual Meeting 2009
Ending Dependency: MAARDEC Takes a Multi-Dimensional Approach to Rehabilitation of Disabled Nigerians Cosmas Okoli Case discussion: MAARDEC Amos G. Winter and Amy Smith Garden in the Desert: Sekem Makes Comprehensive Sustainable Development a Reality in Egypt Ibrahim and Helmy Abouleish Case discussion: Sekem William J. Baumol Case discussion: Sekem Ayman El-Tarabishy and Marshall Sashkin From Fear to Hope: Upholding the Rule of Law via Public Defenders Karen Tse Case discussion: International Bridges to Justice Kenneth Neil Cukier
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Perspective on Policy 203 Coping with Turbulence: The Resilience Imperative Philip Auerswald and Debra van Opstal
Innovations is about entrepreneurial solutions to global challenges. The journal features cases authored by exceptional innovators; commentary and research from leading academics; and essays from globally recognized executives and political leaders. The journal is jointly hosted at George Mason University's School of Public Policy, Harvard's Kennedy School of Government, and MIT's Legatum Center for Development and Entrepreneurship.
Philip Auerswald and Mirjam Schöning
Everything flows, nothing stands still. —Heraclitus, ca. 500 BC Turning and turning in the widening gyre, The falcon cannot hear the falconer; Things fall apart; the centre cannot hold… —William Butler Yeats, “The Second Coming,” 1920 That change is a constant is one of the most enduring ideas in human thought. The tension between creation and destruction is among the most fundamental themes in human history. Yet each era must once again come to terms with change. Each historical moment requires a new language, a new lens. We are, right now, in the midst of a global shift of epic proportions. Not only is change occurring—as it always has—it is occurring with greater volatility, and greater reach, than ever before. As a consequence of the wrenching turn taken by the global economic system in the past six months, millions of the world’s citizens may descend, or return, into poverty—an alarming reversal in the progress made over the past quarter century in advancing the human condition. To make matters worse, a widespread economic slowdown will certainly reduce the resources available to create new opportunities, at the very time when such investments are most needed. This year’s annual meeting of the World Economic Forum in Davos-Klosters brings together some of the world’s most adept and experienced change leaders, yourself included. The collective task facing those assembled (and the global array of institutions you represent) is a monumental one: nothing less than “Shaping the Post-Crisis World.” The Schwab Foundation for Social Entrepreneurship, in partnership with Innovations journal, has produced this collection of readings with one goal: to introduce into the conversation components of a new language to describe the challenges ahead, and to offer for your use the rough cut of a new lens through which you may perceive elements of a solution. The language centers on the words “social innovation”; the lens is designed to help us all perceive the mechanisms of resilience in times of disruptive change. This special edition includes five lead essays from thought leaders and outstanding social entrepreneurs commenting on the challenges of the moment; five narratives authored by innovators describing successful approaches to shaping © 2009 Philip Auerswald and Mirjam Schöning innovations / Davos-Klosters 2009
Philip Auerswald and Mirjam Schöning “post-crisis” or otherwise desperate environments; and a “perspective on policy” essay describing the imperative of resilience as it applies to companies and governments. Klaus Schwab and Hilde Schwab set the stage by highlighting how the current financial crisis has demonstrated the interconnectedness of even the most abstract parts of the economy with the immediate human realities of societies across the world. As pioneers in the terrain that links economy to society, social entrepreneurs offer business models with proven impact—organizational prototypes that demonstrate how companies, government, and civil society can work in partnership in times of duress. Greg Dees describes how social ventures serve as learning laboratories—developing and testing innovative solutions to social problems. This exploratory and experimental aspect of the work of social entrepreneurs is particularly valuable in times of crisis. The ensuing lead essays are authored by social entrepreneurs describing how three financial institutions have thrived in times of uncertainty by focusing on their beneficiaries and their social impact: • In 1996, Roshaneh Zafar started the Kashf Foundation as the first sustainable microfinance institution in Pakistan. In 2008, Pakistan faced a rise in political violence, the assassination of the opposition party leader, and was on the brink of a food crisis as food and fuel prices soared. Zafar describes the multifaceted challenges her foundation and other such institutions face when credit is not available on global capital markets and their clients face increasing poverty. • ShoreBank understands how to respond to catastrophe: it was founded in 1973 to respond to the housing crisis that emerged in the 1960s and pioneered community development banking as one of the original lenders to “risky” clients. Ron Grzywinski, a co-founder of ShoreBank, and Ellen Seidman, the bank’s executive vice president, share their decades of experiences of running a bank oriented toward its clients and mission, and their strategies for assisting those affected by the collapse of the property markets. • Peter Blom explains how Triodos, a successful, sustainable bank, has remained buoyant despite the international banking crisis, through a commitment to making money work for positive social, environmental, and cultural change. The cases that follow, each authored by an innovator, reflect the reality that crises of different scale and scope are a regular feature of the human experience. Crises are occurring every day in households, communities, countries, and regions across the globe. Some crises are caused by nature and some by humans; some are caused by lack of political power and others by its abuse; some are crises of action while others are crises of neglect. As we face a new crisis marked by its global scope and potentially enduring consequences, we have much to learn from innovators who in other circumstances shaped their environments to improve lives: • Rory Stear and Kristine Pearson have applied Freeplay’s electricity generation technology to promote tolerance through radio in post-genocide Rwanda, to
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Introduction bring education about HIV/AIDS to isolated communities in sub-Saharan Africa, to carry news to refugees in places ravaged by disaster or war, and to provide safe illumination to communities far removed from the amenities and opportunities of the global economy. • Bunker Roy has stubbornly insisted on the principle that people who live in poor places are in a better position to perceive, develop, and scale solutions to the daily crises that define poverty than are privileged outsiders; in applying this principle he has This special edition includes enabled the development, over more than thirty-five years, of five lead essays from thought the Barefoot College of Tilonia in Rajasthan, India. leaders and outstanding • Cosmas Okoli sought first to social entrepreneurs end the daily trials he faces as a person with disability in commenting on the Nigeria. When he had some succhallenges of the moment; cess, he undertook immediately to assist his fellow Nigerians five narratives authored by with disabilities to find their innovators describing own paths toward diminished reliance on their communities. successful approaches to The result is MAARDEC—a shaping “post-crisis” or model for technical ingenuity, community action, and political otherwise desperate engagement in the service of the more than a billion people environments; and a worldwide who suffer from a “perspective on policy” essay physical impairment. • Ibrahim and Helmy Abouleish describing the imperative of chose some of the most arid resilience as it applies to land in Egypt on which to build their “Garden in the Desert.” companies and governments. Over thirty years, this fatherand-son team worked with other family members and committed employees to build an improbable experiment in organic farming into a major international company. Today Sekem boasts market-leading products and an exemplary commitment to the lives of its workers, the communities within which they operate, and the country that is their home. • Karen Tse visited Cambodia in the post-Khmer Rouge era and saw a justice system in chaos. Given the turmoil of the preceding decades, the disarray Karen witnessed was understandable, but to her it was unacceptable. So she founded
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Philip Auerswald and Mirjam Schöning International Bridges to Justice with the aim, quite simply, of ending the routine use of torture in police interrogations, not only in Cambodia, but around the world. Finally, in the essay that concludes this special edition, one of us (Philip Auerswald) joins with Debra van Opstal of the U.S. Council on Competitiveness to describe how government and business alike can, and must, reassess goals and systems of incentives to ensure that, in the future, resilience is as much of a priority as growth has been in the past. The current global transformation is challenging people in board rooms and at dinner tables around the world to review assumptions about the future and to rethink strategies. Who anticipated the present? Who can see the future? As the highest flyers will readily attest, turbulence makes novices of everyone. The essays and narratives that follow are not recipes, and this is not a cookbook. But we do hope that you will find in these pages some insights that you will savor and share, narratives that will give you a taste for social innovation, and a stock of knowledge that will inspire you to envision creative solutions to global challenges. Whether a coming generation enjoys feast or famine depends to a substantial degree on whether you and others in positions of leadership succeed or fail in shaping the post-crisis world in which we have, quite suddenly, found ourselves. —Philip Auerswald and Mirjam Schöning Philip Auerswald is a Founding Co-Editor of Innovations, an Assistant Professor and Director of the Center for Science and Technology Policy at George Mason University, and a Research Associate at Harvard University’s Kennedy School of Government. He welcomes your feedback and suggestions for partnership. He can be reached at <firstname.lastname@example.org>. Mirjam Schöning is the Senior Director of the Schwab Foundation for Social Entrepreneurship. She can be reached at <email@example.com>. Both Professor Auerswald and Ms. Schöning welcome your comments and proposals for partnership. Acknowledgements The Schwab Foundation for Social Entrepreneurship and Innovations thank the World Economic Forum for their support and partnership in the production of this special edition. We also, and importantly, thank François Bonnici, who contributed substantively to the production of the special edition and ably managed editorial communications. Finally, we thank Helen Snively and Dody Riggs, who contributed to the effort their considerable talents as editors.
innovations / World Economic Forum special edition
Klaus Schwab and Hilde Schwab
Social Innovation in a Post-Crisis World
The current financial crisis has clearly demonstrated our global interdependence. It has also shown us that the economy and society are closely interconnected, with impacts reaching even the most marginalized populations in society. The economy is not in an independent realm, contained and limited in its impact on society. It is, in fact, integral to society. We therefore need to reshape our economy to serve society more broadly. We have already been provided with revolutionary social innovators who have been reshaping this relationship between society and the economy. To support these social entrepreneurs and promote their vital models of sustainable social change, we established the Schwab Foundation for Social Entrepreneurship ten years ago. Pioneering social innovators from the Schwab Foundation’s community of leading social entrepreneurs have shared their perspectives in the special edition of this journal. The considerable economic difficulties facing the world in the coming years will have an impact on our collective efforts to address social and environmental issues. Given the turbulence in the global financial system and its consequences for the global economy, even more people around the world will be facing such devastating problems as unemployment, poverty, and hunger as global trade shrinks. With economies in recession or with diminished growth, and with an increase in government debt from financial bailouts in many countries, it is likely that expenditures on local and international social programs will diminish and new projects will be shelved for several years. In the present era of concurrent economic, social, and environmental challenges, the need for innovation is greater than ever to offer resilience in turbulent times and seek new opportunities and strategies for social transformation. Despite agreement from public and corporate sectors alike on the need for innovation to solve the complex national, regional, and global challenges, significant barriers remain. As the world’s institutional, legal, and regulatory frameworks are reviewed, we should seek to understand how to facilitate the work of innovators, particularly social entrepreneurs who innovate in the broader public interest. Professor Klaus Schwab is the Founder and Executive Chairman of the World Economic Forum and Co-Founder of the Schwab Foundation for Social Entrepreneurship. Hilde Schwab is the Chair and Co-Founder of the Schwab Foundation for Social Entrepreneurship. KickStart, ShoreBank, Aravind, and Narayana Hrudayalaya are all part of the Schwab Foundation's community, representing a group of 154 leading social entrepreneurs from 45 countries. © 2009 Klaus Schwab and Hilde Schwab nnovations / Davos-Klosters 2009
Klaus Schwab and Hilde Schwab In its efforts to depoliticize international problems and reform the way that multilateral negotiations take place around global challenges, the World Economic Forum has proposed a new global cooperation system that leverages technology, diversity, and trust to support, not replace, existing governance structures and international institutions. The World Economic Forum has created a Global Agenda Council of experts selected by peer review, which includes scientists, economists, academics, business and civil society leaders, to address 68 of the most pressing issues. The intention is to create a network of around 1,000 Global Agenda “trustees” who will develop into a central intelligence hub to provide early warnings and solutions to major international problems. Already, 700 global experts have come together, at the Summit on the Global Agenda in Dubai in November 2008. While The economy is not in an there is significant promise in bringindependent realm, ing together the foremost experts on contained and limited in its each one of the issues, the real breakthrough was in cross-linking impact on society. It is, in all the experts from different disciplines and sectors, given the interfact, integral to society. linked nature of the challenges the world faces. Social entrepreneurs stand at the nexus of many of these issues. Social entrepreneurs can readily provide key insights into many of these global challenges, as they have proven solutions that have already been implemented at significant scales where many experts and international agencies have failed in the past. In addition to a dedicated Global Agenda Council on Social Entrepreneurship, the Schwab Foundation has strategically positioned social entrepreneurs in numerous other councils, in addressing issues including water, energy security, health care, and financial empowerment. They can connect global decision-makers to a rapidly changing world that today is more bottom-up than top-down. In the financial services sector, where derivatives and other financial instruments received much attention from investors seeking new frontiers for profit, many important social innovations have emerged over the last few decades, creating enormous social and economic value. Novel banks, such as the Grameen Bank in Bangladesh, have led many others in the field in providing microfinance at scale to millions of borrowers who would not be deemed creditworthy by most traditional banks. Meanwhile, in the U.S., ShoreBank began as one of the original lenders of housing credit to poor communities and provided financial backing to invest in and regenerate communities. "In Europe, Triodos Bank has flourished on the principle of sustainable and ethical banking. In this journal's special edition, Peter Blom elucidates why Triodos is somewhat impervious to the current downturn and continues to prosper. 8 innovations / World Economic Forum special edition
Social Innovation in a Post-Crisis World All three of these financial institutions developed long-term relationships of trust with their clients and investors, motivated by principles of trust, transparency, and sustainability. The reason the banks existed was to serve their clients, not only to enrich their shareholders. In other words, they were mission driven, not profit driven, and they realized the importance of remaining solvent and liquid with a healthy balance sheet. As a result of these trust-based relationships and a focus on the broader impact of their investments, all three institutions continue to prosper despite the international banking crisis we are experiencing today. Will such socially or ethically oriented businesses, and those that serve the economic Our belief in the power of groups at the base of the pyrasocial innovators lies not only mid, prove to be resistant to or even thrive in the current in the direct impact of the downturn in the global econogoods and services their my? As yet, there is no evidence of the downturn’s impact on organizations deliver, but social entrepreneurs—and the microfinance industry has not particularly in the role they reported any negative play as catalysts for broader impacts—it may be partially resilient to the current volatility, social transformation. as its clients at the lower end of the global income scale show robust reliability. In this special edition of Innovations, Ellen Seidman and Ron Grzywinski describe ShoreBank’s resilience and innovation in dealing with the housing and mortgage crisis in the U.S. The ShoreBank Corporation, headquartered in Chicago, is a US$ 2.6 billion company that owns, operates, invests in, and advises development banks around the world. In 2007, as the signs of the housing market collapse became evident in the U.S., ShoreBank realized it needed to intervene early in order to protect its communities from facing foreclosures as payments increased. To refinance many home loans that had been issued by unscrupulous non-bank lenders, it launched its Rescue and Prevention Loan Program, reaching out to those at risk and doing in-depth underwriting. Default rates in its portfolios have remained below 2% and the bank continues to turn a profit; its missionfocused lending is also its most profitable. Although the current economic downturn will create further challenges for social entrepreneurs in gaining access to credit, working capital, and philanthropic funding, it is also a time of opportunity for social innovators. The world now recognizes that it needs revolutionary and ambitious approaches to revitalize our societies and economies. Traditional philanthropy or corporate social responsibility may become more attracted to the strategies of social investing because of its emphasis on cost-effective social impact and preservation of capital. Social entreinnovations / Davos-Klosters 2009 9
Klaus Schwab and Hilde Schwab preneurship provides a powerful opportunity to deliver meaning at a time when other “returns” seem less appealing. The past year saw turbulence beyond the financial sector, with insecurity and violence emerging afresh in places like Kenya, Pakistan, and India, in addition to the ongoing conflicts around the world. There is also much to learn from studying social entrepreneurs working in these environments, who have developed strategies of resilience and have had to innovate to continue their missions under such conditions. This journal has previously 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 in Kenya, Tanzania, Mali, and Burkina Faso, allowing them to start small-scale businesses. It has helped to start 73,821 new businesses and has created US$ 81 million a year in new profits and wages as people in Africa use its products. When the post-election violence erupted in Kenya, hundreds of thousands of people were displaced; farming ground to a halt, and severe food shortages resulted. Even more people lost the ability to support their families and were driven into poverty. Although the violence was politically motivated in Kenya, it emerged from poverty and inequity and a sense of despair. Many companies would have packed up and left amid this turmoil. Instead, KickStart launched a major new program called Imarisha Maisha (Swahili for “improve” or “strengthen your life”) to help Kenya get back to work and to kick-start the recovery. By collaborating with relief agencies in the areas most impacted by the violence, using live demonstrations and radio advertisements, it got the “back to work” campaign well on its way to supporting over 17,000 people through the irrigation of 5,000 acres of land. The increased food production from this land also helps to lower the cost of fruits and vegetables for hundreds of thousands of Kenyans. Our belief in the power of social innovators lies not only in the direct impact of the goods and services their organizations deliver, but particularly in the role they play as catalysts for broader social transformation. ShoreBank arose out of a housing crisis in the U.S. in the 1960s; as the first community development financial institution in the U.S., it served as the model for a federal program that spearheaded the proliferation of such community development banks across the US. Meanwhile, in India, two leading social innovators have proven that low-cost models of private health care can be sustainable and profitable: Dr. Govindappa Venkataswamy established Aravind Eye Hospital, and Dr. Devi Prassad Shetty built Narayana Hrudayalaya for cardiac care. Social innovators have proven to be models of success in uncertain market conditions and in unstable environments. Their accomplishments and resilience are a guiding light in a dark time when we desperately need ways to tackle multiple economic, social, and environmental challenges. All of us—governments, business, academia, and citizens—must commit to bolstering innovations in the public interest to guide us through these turbulent times.
innovations / World Economic Forum special edition
J. Gregory Dees
Social Ventures as Learning Laboratories
We have seen that the function of entrepreneurs is to reform or revolutionize the pattern of production... —Joseph A. Schumpeter, Capitalism, Socialism, and Democracy If ever the world needed new patterns of production, it certainly does now—during the worst financial downturn in decades. Innovations, developed and tested by entrepreneurs, will help us respond to the challenges of the crisis and move into a new era of prosperity. Entrepreneurship is part of the solution to the crisis, but, ironically, it was also part of the problem. Capital market innovations, such as interest-only adjustable rate mortgages and credit default swaps, helped to revolutionize the pattern of production in credit markets, resulting in permanent damage. Innovation can be risky business, especially if the innovators and early adopters are focused only on what is likely to be profitable for them in the short term. These capital market innovations present a worst-case version of Schumpeter’s idea of “creative destruction.” In this case, the harm from the destruction exceeded the value of the creation. That is not the kind of entrepreneurship we need more of. What we need now is entrepreneurship that creates greater long-term value while drawing on fewer resources and generating fewer destructive consequences. We need business entrepreneurs whose innovations will jump-start the economy, create jobs, and cause minimal disruption. We need more of the non-destructive creation that Columbia professor Amar Bhide has written about.1 We also need more social entrepreneurship.
J. Gregory Dees is a Professor in the Practice of Social Entrepreneurship and Nonprofit Management and is the founding Faculty Director of the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business. In 2007 he received a Lifetime Achievement Award from the Aspen Institute and Ashoka for pioneering work in social entrepreneurship. He is co-editor, with Jed Emerson and Peter Economy, of Enterprising Nonprofits (Wiley, 2001) and Strategic Tools for Social Entrepreneurs (Wiley, 2002). He is also a member of the World Economic Forum's Global Agenda Council on Social Entrepreneurship. © 2009 J. Gregory Dees innovations / Davos-Klosters 2009
J. Gregory Dees RECOGNIZING THAT SOCIAL PROBLEMS ARE MORE PRESSING THEN EVER Nowhere is this kind of value-creating innovation more important than in our efforts to tackle pressing social and environmental problems. This is where social entrepreneurs come in. They reform or revolutionize the patterns for addressing social issues. They measure their success in social impact. Social entrepreneurship has not gotten as much attention as business entrepreneurship and is not as well supported, but it is extremely important to the quality of our lives on this planet. It is particularly important in times like these, where financial pressures are likely to make social problems worse. As economies shrink or, in the best cases, grow much more slowly than previously expected, we can anticipate increases in poverty and unemployment. This will exacerbate the many problems associated with poverty. Fewer people will receive adequate health care. Because of the financial burden that formal education can place on parents, fewer children will attend school. Tensions and violence may increase as the poor compete for jobs and income opportunities, as they did recently on the border of Zimbabwe and South Africa. Progress will be lost, as families that have been successful in moving out of poverty fall back into it. Though carbon emissions should decline with declining economic activity (though the dropping price of oil complicates matters), any decline is unlikely to make an appreciable dent in the growing problem of global warming. As government, business, and household budgets tighten, costly environmental protection and clean-up efforts are in jeopardy. With declining oil prices, the economics of alternative energy may become less attractive. Because many social and environment issues are time sensitive, failure to recognize the importance of social entrepreneurship and provide adequate support for such efforts during this downturn would be a serious mistake. Damage will be done that cannot easily be undone. Social entrepreneurship is not a luxury that can be suspended while we wait for the economy to turn around. FOSTERING A VIBRANT SOCIAL LEARNING LABORATORY Social entrepreneurs offer us a learning laboratory: they develop and test innovative solutions to social problems. As with any form of innovation, it is impossible to know in advance what will work. This is especially true when “working” involves reducing or solving a social problem. Only by fostering a wide range of experiments can we hope to find which proposed solutions are viable, cost-effective, and scalable. This is the beauty of the small, new, resourceful ventures that social entrepreneurs tend to create. As Stanford economist Nathan Rosenberg and his coauthor L. E. Birdzell, Jr., have argued, “New enterprises are useful devices for experimenting with innovation, because they can be established on a small, experimental scale at relatively low cost and therefore in large numbers, and their efforts can be intensely focused on a single target.”2 Independent social entrepreneurs have 12 innovations / World Economic Forum special edition
Social Ventures as Learning Laboratories greater flexibility to experiment, uninhibited by the biases, standard operating procedures, bureaucracy, cultures, strategic commitments, and other rigidities common in established organizations of all kinds. Because of their local knowledge and motivation to find solutions to social problems, social entrepreneurs see and construct opportunities that governments, corporations, and profit-seeking business entrepreneurs miss. Consider 2006 Noble Because of their local Peace Prize winners Muhammad Yunus and knowledge and motivation to Grameen Bank. When Yunus find solutions to social conceived the idea of Grameen Bank, with its focus on microproblems, social entrepreneurs credit and its cost-effective see and construct peer-group business model, he was driven by the desire to alleopportunities that viate poverty. The Bangladeshi government, the banks, the governments, corporations, international relief agencies, and profit-seeking business and local business entrepreneurs did not see this as an entrepreneurs miss. opportunity. Yet, microfinance has grown to be a business that now attracts mainstream banks and profit-seeking business entrepreneurs. The business opportunities in microfinance were neglected until social entrepreneurs, such as Yunus and the other pioneers of microfinance, spent decades demonstrating its viability as a market. Grameen has been free from outside funding for over a decade while serving millions of customers in Bangladesh and inspiring replications around the world. Only now are markets responding to this opportunity. PROMOTING RESOURCEFULNESS AND CREATIVE BUSINESS MODELS As a matter of necessity, entrepreneurs, social or otherwise, have to be resourceful. They become quite skilled at doing more with less and at attracting other people’s resources to their ventures, directly or through partnerships. This resourcefulness is reflected in their creative and pragmatic approach to business model design, as illustrated by Grameen’s use of borrower peer groups and its very low-cost structure. It is useful to think of social venture business models as running along a spectrum, from fully reliant on philanthropy and government subsidy at one end to fully commercial at the other. In recent years, many social entrepreneurs have been driving toward the commercial end of that spectrum to reduce their dependence
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J. Gregory Dees on philanthropic or governmental subsidies. Commercial strategies are not optimal for all social ventures. The business model has to align with the strategy for social impact, but when possible, social entrepreneurs do work to create sustainable, scalable ventures. For-profit ventures, social business ventures, and hybrid ventures that mix elements from the philanthropic and commercial worlds have become common. For instance, Water Health International is a for-profit social venture that combines an innovative, relatively low-cost technology for water purification in rural areas of developing countries with an innovative business model in which villages finance the purchase of the equipment and the villagers pay a small fee for the clean water they use. VisionSpring is a nonprofit example of creative business model development. It provides low-cost reading glasses, a productivity-enhancing product, by buying the glasses produced in China and selling them through micro-franchisees, who live in the villages of the countries where it does business. Thus, it provides affordable glasses and creates income opportunities for its vision entrepreneurs. The emergence of for-profit social ventures and the increase in nonprofits generating earned income are controversial, but this kind of experimentation is essential if we are to find ways to improve the productivity of the scarce resources we devote to social problems. When it works (i.e. aligns with social impact), it leads to a more effective allocation of scarce philanthropic and government funds. These subsidies can be freed up to flow to the organizations and causes that need them most. Through creativity in business model development, social entrepreneurs are crafting more sustainable and scalable innovations. SCALING IMPACT AND SHARING KNOWLEDGE While it is essential to support the early-stage innovations that make up the “learning laboratory” of social entrepreneurship, the real value comes in what society does with the results of that learning laboratory. Value is created when successful innovations are identified and then scaled or replicated to maximize their impact. It is important to note, however, that not every successful social innovation (successful in the sense of achieving its intended social impact) is amenable to scaling or replication. Local successes sometimes depend on rare conditions, scarce skills, or inefficient business models. Innovations need to be evaluated not just on their social impact, but also on their transferability and cost-effectiveness, and on the organization’s readiness for a scaling or replication effort. However, with the right kind of rigorous due diligence, key resource providers (particularly philanthropists, social investors, potential corporate partners, and government funders) can identify viable candidates for scale or replication and provide the support they need to achieve widespread impact. In a time of financial crisis, this disciplined approach is even more important. It may be hard to pick a few “winners” for
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Social Ventures as Learning Laboratories major investment, since everyone is well intentioned, but it is essential to capture the value of the experimentation. The second way to reap value from this learning laboratory is to harvest the lessons from both the successes (scalable or not) and the failures and to share this knowledge with those who can put it to good use. Tremendous waste occurs in the social sector when knowledge is not captured and shared effectively. No one likes to admit failure, and few are willing to open their failures to inspection. Even the successes are rarely analyzed in a critical way that can contribute to a common body of knowledge. However, the learning laboratory is more likely to yield effective scalable innovations in the future if the players in the laboratory know enough not to repeat past failures and can find ways to build on past successes. This is a role for universities, consultants, associations, think tanks, and journals, such as Innovations. TAKING SOCIAL ENTREPRENEURSHIP SERIOUSLY The current financial crisis will force us to be smart about our investments in social change. This could be a healthy development for social entrepreneurship, provided that philanthropists, social investors, governments, corporations, and other key players actively foster a vibrant learning laboratory of social entrepreneurs, assess the results of these experiments, support the scaling or replication of high-leverage ventures (those that promise greater social impact per unit of financial investment), and collaborate with efforts to capture and share knowledge along the way. Leaders in any society have much to gain from taking the concept of social entrepreneurship seriously and providing social entrepreneurs with the same kind of disciplined strategic support that they provide for innovation in business.
1. See Amar Bhide, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton University Press: Princeton, 2008), especially Chapter 13. 2. See Nathan Rosenberg and L. E. Birdzell, Jr., How the West Grew Rich (Basic Books: New York, 1986), p. 276.
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Ellen Seidman and Ron Grzywinski
A Bank as Courageous Investor
ShoreBank is an American bank born during an earlier housing crisis. The 1960s were a period of intense racial turmoil in the United States, especially in northern cities. Chicago was no exception. Between 1960 and 1970, Chicago’s South Shore neighborhood—full of lovely apartment buildings and solid single-family houses, bordering both Lake Michigan and the city’s famed park system—changed from nearly all white to nearly all African-American. House prices plunged, businesses fled, and credit was virtually unavailable. And in 1972, the community’s last bank, South Shore National Bank, announced it was moving downtown after losing half of its deposits and shrinking to $40 million. In 1973, Ron Grzywinski (one of the co-authors of this essay), Mary Houghton, and two now-deceased partners, were running a small business loan unit for African-American borrowers at Hyde Park Bank in the university neighborhood just north of South Shore. Their positive small business lending experience convinced the group that providing full, respectful banking services to communities like South Shore could both stabilize the community and release the entrepreneurial energy of those who now called it home. Putting their reputations on the line, and using $800,000 in equity from ten socially oriented investors, the four founders bought South Shore National Bank. The group chose a commercial bank as the vehicle for social investment and community change for two complementary reasons. First, banking services would be both sustaining and sustainable for the community in the long term. Second, they reasoned that if they used a standard, well-known, highly regulated corporate structure, their success would demonstrate to an audience far beyond Chicago that providing banking services to communities like South Shore was more than a feelgood proposition—it was commercially viable. At the same time, investors recognized the importance of patient capital that expected most of the bank’s profits to be reinvested in the community rather than distributed and that did not expect a bonanza by selling out.
Ronald Grzywinski is Chairman/CEO of ShoreBank Corporation. He was selected by the Schwab Foundation for Social Entrepreneurship as an Outstanding Social Entrepreneur in 2007. Ellen Seidman is Executive Vice President of ShoreBank Corporation and was the chief regulator of the Office of Thrift Supervision during the Clinton Administration. © 2009 Ellen Seidman and Ron Grzywinski innovations / Davos-Klosters 2009
Ellen Seidman and Ron Grzywinski Fortuitously, the Federal Reserve Board of Governors had identified community development as a permissible activity of bank holding companies in 1970. This let ShoreBank Corporation strategically complement the services provided by the core commercial bank. The holding company structure has in the past included a nonprofit job-training organization and a for-profit real estate development company. It now includes not only another commercial bank (in the Pacific Northwest, focused on environmental sustainability) but also four nonprofit loan funds, a for-profit international consulting company, an international equity investment management company, and two cutting-edge nonprofits that help guide commercial bankers in the United States and the developing world to better serve people and communities like those ShoreBank itself serves. ShoreBank has always done inShoreBank’s first two decades were characterdepth underwriting, a critical ized by experimentation, element of sustainable failures as well as successhomeownership. The bank doesn’t es, and slow growth. In the early 1990s, the large rely on credit scores. Instead it banks in Chicago became investors, recognizing that asks: What is the customer’s an investment in a speincome, and how steady is it? How cialized urban bank would help them meet much are they paying on their their obligations under Community mortgage? What do insurance and the Reinvestment Act, federal property taxes cost? What are their legislation requiring other debts? How many people are insured depositories to serve low-income geograthey supporting? phies within their market areas. By 1995, the bank board recognized that the bank’s long-term success, as well as its ability to continue to experiment and diversify, required a much larger asset base. The bank doubled its size by purchasing another community bank that served Chicago neighborhoods near and like South Shore. At the request of, and with the capital support of, leaders in Cleveland and Detroit, the holding company also expanded into similar neighborhoods in those cities. The strategy was successful, and over the next decade, ShoreBank was able to prosper, grow, and continue experimenting. Its signature product is support for entrepreneurs, almost entirely either African-American or immigrant, who buy and rehabilitate small apartment buildings. Its success is due to its deep local mar-
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A Bank as Courageous Investor ket knowledge and skilled relationship banking. Borrowers complete high-quality rehabilitation of apartments that rent at affordable prices. ShoreBank also began to do more single-family lending. Our philosophy has much in common with all quality community banks: know and care about your customer, because both of you have a strong interest in the customer’s success in repaying the first loan, growing net worth, and becoming more successful. We believe that customers deserve a complete look at their finances to determine whether they can afford the loan they need to buy the property they are interested in. ShoreBank makes only long-term, self-amortizing, fixed-rate mortgage loans, and it makes them to responsible investor-owners as well as to owner-occupants because there is substantial demand for quality, affordable rental housing. The result: a charge-off rate on owner-occupied houses even today of only 15 basis points, compared to the average for our peers of 32 basis points. As the current decade unfolded, the bank’s lenders began to notice some troubling signs. Homeowners and buyers were being inundated by primarily non-local, non-bank lenders offering single-family mortgage products that would have been unsafe for anyone, but especially for borrowers with tight balance sheets and modest incomes. ShoreBank could not compete with those offering “no down payment, low monthly payment” loans whose payment would increase dramatically six months to three years after the loan was originated, and depended for repayment on being able to refinance. We stayed in the market and had some success, but became concerned about the damage being done to our communities as house prices climbed to unsustainable levels, supported by mortgages that were also unsustainable. By 2007, foreclosures in Chicago had started to increase dramatically; as bankers who cared deeply about our communities, we knew that more drastic measures were needed. In September 2007, we launched the Rescue and Prevention Loan Program with the goal of reaching at least 1,000 of the more than 10,000 families in our communities who had mortgages they would not be able to afford when their payments increased. We wanted to find them before they got into trouble, and to refinance as many as possible into quality long-term mortgages they could afford, consistent with the safety and soundness standards of a commercial bank. The Rescue and Prevention Loan Program has five critical elements: outreach, in-depth underwriting, loans that sustain homeownership over the long term, counseling, and funding. Through August 31, 2008, we have made 137 loans under the program, for a total of almost $25 million. We are able to refinance almost 70% of those who apply. Finding borrowers who need and can benefit from our program is not easy. Many borrowers who have “exploding” adjustable rate mortgages or mortgages that don’t include an escrow for property taxes don’t realize the trouble they could be in until after it happens. And borrowers in our communities, as in communities around the country, are both proud and scared; the combination makes them reluctant to reach out until they are desperate, and by then it is far more difficult innovations / Davos-Klosters 2009 19
Ellen Seidman and Ron Grzywinski to help them. So we assembled a well-trained, community-sensitive marketing team. That team has done 40 formal outreach seminars and meetings since the program started, but they also operate informally: the head of mortgage lending now goes to church several times on Sunday to make sure the community knows what we have to offer. ShoreBank has always done in-depth underwriting, a critical element of sustainable homeownership. The bank doesn’t rely on credit scores. Instead it asks: What is the customer’s income, and how steady is it? How much are they paying on their mortgage? What do insurance and property taxes cost? What are their other debts? How many people are they supporting? In the Rescue and Prevention Loan Program, the bank pushes its underwriting standards a little further than usual in terms of traditional debt-to-income and loan-to-value ratios. Rescue Loans are funded largely through a high-yield savings account, an online savings account that pays depositors a market rate of interest (currently 3.5%) and attracts both new and existing account holders who are interested in supporting our social mission. The bank has raised more than $27 million in deposits through this mechanism, and deposits have held stable since the bank lowered the interest rate from an initial premium rate. A low interest rate $15 million deposit from the MacArthur Foundation will cover some of the bank’s loan losses and provide funds for low-interest-rate, deferred-payment second mortgages. The support from MacArthur is particularly welcome, as the current crisis has resulted in an increase in ShoreBank’s charge-off rate on all 1- to 4-unit properties (both owneroccupied and rental) from a historically low 16 basis points annually to 86 basis points today. ShoreBank’s response to the current mortgage and housing crisis represents the same spirit that gave birth to ShoreBank: a strong belief by the bank and by socially-interested investors across the country that lower-income neighborhoods and the people in them can thrive. What they need is a combination of patient capital, financial discipline, and entrepreneurial creativity. In ShoreBank’s case, acting on that belief has resulted in 34 consecutive years of profitable operations, growth to $2.6 billion in total assets, current capacity to advance about $450 million annually in new community development and/or environmental loans, and participation in a growing global network of social enterprise. **** So far we have discussed why and how ShoreBank has stepped up in its communities in response to the ongoing U.S. mortgage crisis. ShoreBank is one of approximately 50 certified Community Development Financial Institution banks; there are about 150 certified credit unions, and 600 non-profit loan funds. The CDFIs have a primary purpose of service to low- and moderate-income communities. They are tied closely to these communities not only through their loans, but also because their boards and employees are members of the communities. They are small institutions and almost always hold—and thus retain the risk of—the loans 20 innovations / World Economic Forum special edition
A Bank as Courageous Investor they make, rather than selling them into the capital markets. This gives them both the insight to understand what is happening in the neighborhoods, and the incentive to help their customers succeed—and to work with them quickly when they run into problems. More far-flung organizations and those that do not serve lower-income neighborhoods did not have either this knowledge or—having apparently disposed of the risk of default—the incentive to help fix the problems that were frequently of their own creation. The result was that they encouraged and facilitated the development and exponential growth of the “originate to sell” model of mortgage financing. Under this model, mortgage brokers sold unsuitable, often predatory, mortgage loans funded through the capital markets rather than by deposits that depended for repayment on constantly increasing house prices. Some have blamed the mortgage debacle on the Community Reinvestment Act’s (CRA) requirement that banks serve low- and moderate-income communities. Federal bank regulators have all firmly stated that CRA was not responsible for the sub-prime debacle or its broader implications. While lower-income and minority communities were disproportionately the victims of predatory financing, these loans were widespread. The vast majority were made to borrowers and in communities that were never the focus of CRA, and they were mostly made by independent mortgage bankers who are not subject to CRA. ShoreBank is by far the largest of the CDFI institutions, and while several others hold and/or manage assets of more than $500 million, the industry as a whole has under $20 billion under management. Looking more broadly, the 7,700 banks and thrifts in the United States with under $1 billion in assets—the standard, though by no means perfect, definition of a community bank—have $1.5 trillion in assets. In contrast, home mortgages outstanding in the United States totaled approximately $10 trillion. Of these, approximately $900 billion were sub-prime mortgages, the sector most in crisis. While ShoreBank and other mission- and community-oriented institutions can help individual families and businesses in their communities, the crisis truly exceeds their capacity. The larger lending organizations, which originated, packaged, sold and now service the loans most at issue, must step up, as must the government, in a manner different from what they have done to date. While house prices had clearly been inflated far beyond intrinsic values, and needed to decline, governments at all levels and lenders must step in to dampen the dangerous downward spiral in which foreclosures depress property values which in turn generate further foreclosures, especially as the economy has fallen into recession. Lenders and servicers must modify loans to standards of affordability. Governments must work with lenders, developers, and community organizations to keep properties occupied even if the loan defaults and to quickly put vacant properties back into service or—in overbuilt or depopulating areas—to demolish them. And we must all take advantage of this situation to rebuild financially strong and environmentally healthy communities for all Americans.
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Macro Impact on Microfinance
Throughout 2008, Pakistan’s economy shadowed the meltdown of the global financial system; however, certain elements of the economic set-up here have especially affected households at the bottom of the pyramid. Over the past year, the Pakistani economy has faced many challenges including a growing fiscal deficit, a plummeting exchange rate, and increased inflationary pressure caused by rising energy and commodity prices. The Sensitive Price Index (SPI), which measures a basket of goods related to food items, has been growing at an average rate of 31% this year, while energy prices have risen more than six-fold. According to the latest inflation monitor report from the State Bank of Pakistan (October 2008), the SPI will continue to increase, in contrast to the global decline in commodity, oil, and food prices. In Pakistan, prices of most food items, including wheat, pulses, rice, vegetable oil, and vegetables, continue to rise substantially. Wheat prices alone have contributed 15.9% to the SPI and will likely continue to exert this pressure in the coming months, given the devaluation of the rupee and Pakistan’s growing reliance on food imports. Furthermore, the report tells us, inflation is having a regressive impact on low-income households. The relentless increase in food prices has quickly eroded the purchasing power of low-income households, which tend to spend a large proportion of their income to meet their basic consumption needs. For example, Kashf Foundation research has shown that on average, low-income households are spending 66% of their household income on food. In other words, they are highly food dependent, and in the long run the rise in food prices can seriously damage their nutritional intake and in turn their health, thus perpetuating endemic poverty. The current economic scenario creates a multidimensional dilemma for microfinance institutions (MFIs). MFIs traditionally provide financial services to the “unbanked,” households that are not included in the documented and formal economy. Microfinance includes a broad range of demand-oriented services, including but not limited to credit, savings, insurance, and remittances. The secRoshaneh Zafar is the Founder and Managing Director of Kashf Foundation based in Pakistan. Zafar is a Schwab Social Entrepreneur, an Ashoka Fellow, and a Skoll Fellow. She is a member of the Gender Gap and the Financial Empowerment Global Agenda Councils of the World Economic Forum. Ms. Zafar has also been awarded the Tamgha i Imtiaz, one of Pakistan's highest civilian awards, by the President of Pakistan. © 2009 Roshaneh Zafar innovations / Davos-Klosters 2009
Roshaneh Zafar tor has evolved from a basic focus on micro-credit only to a focus on inclusive financial services, to enable low-income households to make better and more informed financial decisions. The key question to ask is this: How are the growing economic crisis and the inflation in food prices, affecting microfinance operations, and how will that process continue? They are having at least four distinct impacts. • The first is on the ability of low-income households to make payments on their existing loans, which could in turn damage the portfolio quality of outstanding loans. • The second impact could be on the demand for loans: given the impact of inflation and the decline in the exchange rate, people will need larger loans to set up small businesses. Meanwhile, more and more households may drop below the poverty line, thus enhancing the overall demand for financial services. • The third impact is related to the ability of MFIs to raise funds for lending in a very tight and illiquid financial environment; this could in turn limit the ability of MFIs to provide their clients with long-term and continuous access to financial services, thus negating the impact microfinance can have on poverty in the short run. • The fourth impact occurs as rising food prices affect the ability of households to invest in the future of their families, as they have less ability to invest in nutritional intake, health care, schooling, etc. Traditionally, microfinance has improved the lives of clients’ families, bringing them better nutrition, health care, and the chance for children to attend more years of school. To understand the first impact, consider the case of Bank Rakyat Indonesia (BRI), a publicly-owned commercial bank with a large micro-loan segment, during the Far East financial crisis of 1997-98. During the height of the financial crisis in Indonesia, when many private and public financial institutions were being liquidated, the BRI’s micro-loan portfolio remained viable, and it was able to ride out the storm. In fact only BRI’s corporate lending segment was restructured, given its many non-performing corporate loans; it was then merged with other banks. It is well known that BRI’s 3 million borrowers continued to repay their loans throughout the crisis; today BRI is rated among the highest-earning banks in Asia, with an ROE of 28%. The BRI example shows that, to some extent, microfinance clients are decoupled from the formal economy, given the nature of their businesses and their overall economic status. In Pakistan, the portfolio quality for MFIs continues to be sound overall, with 3.1% of the portfolio at risk for the sector, compared to 2.1% for Asia as a whole. However, other aspects need to be considered to help MFIs manage the current crisis and to ensure that the portfolio quality remains strong. In times like this, it is important to remain prudent and to focus on ensuring long-term and transparent relationships with clients. Kashf has evolved a clear and strong code of consumer protection that focuses on three principles—truth in lending, non-abusive or non-
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Macro Impact on Microfinance
Table 1. How Clients Cope with Food Inflation. Source: Kashf Food Security Survey, August 2008. coercive recovery practices, and customer care—in order to promote robust clientstaff relationships. Moreover, being prudent means curtailing innovations in product lines and not offering new financial products right now. In fact, we had planned to scale up two new products in 2008: a home improvement loan and a mandatory health insurance scheme. Though both of these products were well received in a stable financial environment, we have rolled them back until the country’s economic situation improves. To understand the second impact, Kashf Foundation recently conducted a study on the impact that food price inflation has had on our clients; the results are in Table 1 above. We found that microfinance clients are not only demanding larger loans to help sustain their businesses, but are also requesting more loans so they can establish more businesses per household as a mitigating step. The food price spike has forced many Kashf clients (99% of them women) to take on new jobs, in addition to running their own businesses, in order to contribute more to their family income. Sixteen percent of the clients we surveyed have even established a new business to increase cash flow. This trend will certainly increase the demand for loans. Keeping these trends in view, Kashf has slightly increased its initial loan size, from $125 to $190, to account for the impact of inflation on the purchasing power of the rupee. Furthermore, we are looking at ways to bring down transactional costs for clients and are currently engaged in an extensive process of re-engineer-
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Roshaneh Zafar ing to improve our product features and procedures and to make them more client friendly, while at the same time providing adequate risk-management tools. The third impact, as mentioned earlier, results from the current lack of liquidity in the capital markets and the inability of MFIs to raise money from commercial sources. In the beginning of 2008, liquidity quickly dried up in the financial sector as the State Bank of Pakistan enacted a tight monetary policy. Unlike 2007, when the Foundation was able to raise $32 million in the commercial market to meet its growing capital needs, in 2008 access to finance was highly constrained. In March 2008, therefore, Kashf decided to revise its target of reaching out to 550,000 clients by December 2008, aiming instead at 350,000. In addition to reducing our growth target, we established a higher cash reserve ratio to ensure that our institution would remain liquid and able to meet our refinancing needs at the end of the year. Inflation was also affecting the cost of our operations: funds cost more and salaries rose, along with transportation and utility costs. Despite the pressure on its own-lending rate, the Foundation did not increase its interest rate to its clients; this did not seem politically prudent, given the highly inflationary environment. As a result, our financial viability has fallen, and our overall financial sustainability has suffered. In the long run, we will need to adjust the rates we charge our clients, but for the moment we have decided to continue with our previous pricing and plan to seek grant funding to enable us to manage the current financial deficit in 2009. Previous impact assessments of Kashf Foundation have revealed that with sustained access to financial services, over 30% of microfinance clients are able to move above the poverty line within three years. In fact, repeated access to small loans has helped to build up the confidence of thousands of women and their families and has restored dignity and pride at the grassroots level. Consider Salima, who has had to contend with a range of difficulties and traumas. Her husband was a drug addict, which made him extremely violent and abusive towards his family. Seven years ago Salima heard about Kashf Foundation and took out a loan of $75, which she used to purchase cloth and stuffing materials to make children’s toys. She was able to earn $75 to $100 per month from her first venture. She took out further loans to expand her business and was able to increase her returns rapidly. Today this has enabled her to send all her children to school, and her two elder sons have finished high school. The success of Kashf Foundation’s ground-breaking work in Pakistan can be seen in the story of Salima and its impact on the lives of its clients’ children. However, as our survey found, 79% of clients now eat significantly less than before the current inflationary trend began, and 29% reported that they had gone hungry for one to four days. A full 97% said their families were getting less nutrition, especially because they were eating fewer fruits and vegetables. As we all know, malnourishment and undernourishment lead to poorer health, lower productivity, and other problems. In the long run, this trend could have an impact on
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Macro Impact on Microfinance the overall financial performance of low-income households and could thus drive down the quality of the portfolio. It is worth reflecting on the BRI case again to understand how microfinance can help sustain clients in this current economic crisis. During the financial crisis in Indonesia, a key reason for BRI’s success was the 23 million low-income depositors who continued to save with the bank to manage uncertain future cash flows. With this purpose in mind, Kashf Foundation has recently sponsored the Kashf Microfinance Bank Limited, which will provide low-income households with the opportunity to open deposit accounts. Kashf Microfinance Bank’s other sponsors include International Finance Corporation (IFC), Shore Cap International and the World Women Banking Equity Fund in the U.S., and Triodos Bank in the Netherlands. It is well known that societies that save are more likely to build strong economies. By providing low-income depositors with the opportunity to save and to borrow, both Kashf Foundation and Kashf Microfinance intend to promote “Prosperity with Dignity” all across Pakistan. Jointly, the two organizations will be able to provide financial services to over 1.5 million poor households by 2012. Such is our goal, despite the world financial crisis.
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The Upside of the Downturn
How Sustainable Banking Can Deliver a Better Future
Sustainable banking has been developing for decades, but it has accelerated rapidly as the financial crisis has taken hold. Why? What makes these apparently unconventional financial institutions more crisis-resistant than their mainstream contemporaries? And can they offer a viable alternative, plotting a path for the future that other banks can follow? Sustainable banking is becoming a significant force in the world’s financial markets. The ten best known sustainable banks in the developed world have assets of around $30 billion, not including the much wider-reaching, more mainstream institutions like the co-operative banks. These commercially solid, growing banks focus on financing environmental projects, social entrepreneurship and community businesses. Even though they operate in emerging markets, microfinance banks have realized extraordinary growth rates in both volume and profit. The total assets of all microfinance providers are estimated at $50 billion; they serve 150 million people in the developing world. As the sustainable banking industry has flourished, so have some of the key institutions driving it. Triodos Bank is one. Founded in the Netherlands in 1980, today it has offices in five European countries. Over two decades the bank has built assets under management of almost $5 billion, and grown by 25% per year, delivering a consistent profit. It has almost 10,000 sustainable businesses and projects in its loan book and close to 200,000 customers. Investors, customers and commentators alike are increasingly familiar with this kind of solid growth. Perhaps more surprising, these organizations have been propelled forward by the credit crunch and the turbulence that followed it. That Triodos has been able to side-step the worst impact of the crisis, and prosper despite it, is not a matter of luck. As the core of our banking, Triodos finances sustainable businesses delivering clear social, environmental and cultural benefits. Peter Blom has been CEO & Chairman of the Executive Board of Triodos Bank since 1997. During that time he has led Triodos Bank Group from a start-up to a global bank with nearly €4 billion assets under management. Blom was recently awarded the Dutch Royal distinction of Knight of Oranje Nassau for his contribution to social banking and sustainability. © 2009 Peter Blom innovations / Davos-Klosters 2009
Peter Blom As such, it is directly connected to the real economy, only financing businesses and projects that provide services and products that people need. In essence, Triodos offers basic banking. A decent profit, a strong capital base (15% BIS-ratio) and a stable funding base from savers’ deposits are integral parts of our business approach. And we think this straightforward model is the way banking should be. Investing depositors’ money in packaged and repackaged sub-prime mortgages is precisely the opposite. The issue is not so much the sub-prime mortgage itself. It’s the demise of the relationship between bank and homeowner, inescapable in arrangements involving the iterated bundling of loans, that has led to such catastrophic consequences for the markets and millions of people connected to them. Banks bundled these mortgages together and sold them to ‘the market’ but the buyer had no idea what to do if the borrowers failed to pay interest or missed their repayments. The relationship between borrower and lender was lost, and we’re now living through the consequences. HOW DID WE GET INTO THIS MESS? For many years basic banking—raising deposits and granting loans—has meant high operational costs for banks, and limited profits. Shareholders came to expect ever-increasing returns, and substantial management bonuses created incentives for the banks that delivered them. Together they created a voracious appetite for ever more profitable products and services. This shifted the average bank’s emphasis away from basis banking and the real economy, into potentially lucrative but more complex and less transparent products. Securitization of assets became common, creating markets for Collateralized Debt Obligations (CDOs) and thus creating massive profits—as long as a volatile market continued to go up. This approach led to unprecedented profits—and also to the enormous losses banks face today. Banks like Triodos, which were not prepared to invest in these riskier complex leveraged financial products, have fared much better. Indeed, at the height of the crisis, Triodos Bank grew its deposit base by 15% in just two months. Many of these new customers are increasingly savvy about what a bank should, and shouldn’t, do. People who used to be sceptical about smaller banks now understand that staying close to the real economy is safer than being big and involved in global markets for leveraged financial products. Another factor helped determine which banks won and lost in the financial crisis: whether or not they are listed on a stock exchange. Triodos Bank deliberately chooses not to be listed, not least because the conventional shareholder relationship is anonymous. Instead, Triodos wants to be close to its shareholders and explain its long-term strategy. While our shares aren’t liquid on an exchange, they are issued and can be sold on a match bargain market. And the principle used to calculate their price is based on the value of the underlying businesses we finance, not on the vagaries of market sentiment. The quality of our loan portfolio determines Triodos Bank’s value, not the market. This approach is straightforward,
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The Upside of the Downturn grounded in real companies and the people who run them, and prevents speculation. In contrast, listed banks have to fight the perception of being weak as stock prices drop. And, because they’ve dropped so far, depositors have become anxious, transferring their money quickly via the internet. This left some banks facing systemic problems and needing government intervention to rescue them. These problems have a profound impact on the public, making increased regulation inevitable. Because, if nothing else, the financial crisis made it abundantly clear that the financial markets are not able to regulate themselves. WHAT DOES THE FUTURE HOLD? How can we learn from what has happened and change the way we handle our money, so our banks can become the solid pillars of our financial system and not the biggest threat to its longer-term health? And is there a role for sustainable banks like Triodos? The past few calamitous months show that banks are not just ordinary businesses with money as their core product. Money, especially savings, is fundamental to the way we live our lives—just like clean drinking water, electricity, healthcare, and education. In this sense the banks provide a public service, looking after our money when we’re not using it and allowing us to send it to each other. But if we do not want to nationalize these core functions, we need bank regulation that is clear and linked to a reliable savings guarantee program, one that protects savers’ money should a bank go under. The only way to make sure this happens is to separate basic banking from the extraneous financial functions now offered by so many modern mainstream banks. To regulate savings, loans and payment facilities and call the institution that provides them a bank is simple, transparent and makes a depositor’s guarantee scheme affordable. Other functions, like insurance and investment banking need to be kept separate. This should be the first challenge for governments and regulators alike. WHAT SHOULD WE EXPECT OF OUR BANKS? A solid banking sector is needed to finance solutions to the real problems we face, especially climate change and poverty. Worldwide, a significant and growing minority of people want to invest their money in a more sustainable future and need the banks to help them do it. They should respond, not least because they can. Instead of generating artificial profits from complex financial instruments and unacceptable risks, banks are in a unique position to facilitate lasting change. The paradigm taking over now, whether we like it or not, is that financial capital is no longer the limiting factor for growth and prosperity. We need a new, better balance between the three key elements of production: natural resources, labor
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Peter Blom and capital. Despite the financial crisis, we’re not short of money; we just have to make better use of it. Banks play a critical role in this process. Sustainable banks, including microfinance banks in emerging economies, have proved that their core business works. They service their customers, helping them to become successful social entrepreneurs and contributing to sustainable development. They are profitable, social innovators in the financial sector. Three important lessons can be learned from their success: Sustainable banks focus on the relationship with their customers. They institutionalise the relationship between the depositor and the borrower, not just with money but by highlighting the interdependence between the two. The result is committed depositors who understand what their bank is using their money for, and borrowers who feel supported by it. Equally important, the increasingly controversial reward systems that offer inflated financial bonuses need to be informed by the ‘value’ of relationships, not just transactions. Sustainable banks know their shareholders and most are not listed. The relationship with their shareholders goes well beyond a financial return. Instead, shareholders and sustainable banks share a common mission. This makes them extremely robust in the face of external shocks, and shocks don’t come much bigger than the current financial crisis. Questions of ownership are critical. Either banks can choose not to be listed, or they can choose to follow clear, strong codes for socially responsible shareholding, so shareholders know exactly what they’re letting themselves in for if, and when, they invest. Sustainable banks are about core banking. They focus on the sectors they know well, financing businesses in the real economy. And they provide inclusive financial services in emerging markets for poor but commercially astute people. Their success highlights the need for a regulatory framework that makes sure banks only work in savings, loans and transactions creating capital as a buffer for depositors— the core business they came from, and know best. If that approach is implemented consistently the banks will start to make the margins they need to deliver healthy, effective and key banking services. The frontrunners in this field are all established, solid, profitable and fastgrowing banks. Brought together, they could be a powerful force for change. So, in March of 2009, we plan to do just that at the inaugural meeting of what will be the Global Alliance for Banking on Values. The new group’s goal will be to show the world just what is possible if banking moves from a place of opportunistic selfinterest, to serving the public and meeting the greatest challenges of our time.
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Rory Stear and Kristine Pearson
Freeplay Energy and the Freeplay Foundation Expand Access to Energy, Information, and Education
Innovations Case Narrative: Freeplay Energy and Freeplay Foundation
Thirty-five percent of the world’s population has no access to electric power. Another 35 percent has access to electricity, but only intermittently. Only the 30 percent of people residing in the world’s wealthiest places can rely on electricity as a dependable resource for life and work. For places without power, the existing energy options are biomass, candles, kerosene, and batteries. These sources of energy are not just unsustainable, they are actively destructive. Household dependence on biomass cook-stoves depletes forests, contributing to erosion, threatening ecosystem viability, and exacerbating the adverse impacts of climate change. Candles and kerosene are costly; kerosene is also a hazardous chemical inappropriate for household storage. The health impacts of relying on these energy sources are severe. The pollutants released from the burning of biomass and kerosene within households constitute the world’s Rory Stear is the co-founder and chairman of Freeplay Energy. Stear is a member of the London chapter of the Young President’s Organization; serves on the Dean’s Council of Harvard’s John F. Kennedy School of Government and the advisory board of the business school at Nelson Mandela University; and is also a CNN/TIME/Fortune “Principal Voice.” Kristine Pearson is the CEO of the Freeplay Foundation. She serves on the Women’s Leadership Board of Harvard’s Kennedy School of Government and was honored with the James C. Morgan Global Humanitarian Award in 2005, presented by the Tech Museum of Innovation. In 2001, representing the Freeplay Foundation, she accepted the first Tech Museum Award in Education. In 2003, the Schwab Foundation for Social Entrepreneurship recognized Pearson and Stear as Oustanding Social Entrepreneurs. In 2007, TIME magazine selected them as “Heroes of the Environment.” Pearson and Stear have been married since 1995. © 2009 Rory Stear and Kristine Pearson. innovations / Davos-Klosters 2009
Rory Stear and Kristine Pearson leading air pollution problem, responsible for more than two million premature deaths globally per year.1 Among the sources of energy on which the majority of the people in the world depend, disposable batteries are arguably are the worst of all. Batteries are energy sinks, since they require 50 percent more energy to be produced than they will ever return. When used, they become dangerous pollutants—more toxic even than kerosene. By concentrating energy in a condensed form, they facilitate the concentration of power within households; in many places, men routinely take the batteries with them when they leave the house to ensure that women or children do not “waste” the Thirty-five percent of the valuable energy resource in their world’s population has no absence. As a consequence of the high cost and otherwise undesiraccess to electric power. able characteristics of batteries, Another 35 percent has access household appliances that depend on batteries drain the to electricity, but only family of resources rather than contributing to their enhanceintermittently. Only the 30 ment. percent of people residing in The urgency of providing the majority of the world’s popthe world’s wealthiest places ulation with reliable and suscan rely on electricity as a tainable energy sources cannot be overstated. Power means prodependable resource for life ductivity, and productivity means progress. Recent developand work. ments in the world economy have only served to underscore the interdependence of the global economy. A central element of this interdependence is that the world’s wealthiest 30 percent will face diminished prospects if we do not find ways to include the 70 percent who continue to be either imperfectly integrated into the world economy, or are excluded altogether. The Freeplay Energy Group is the developer and distributor of technology and products that deliver the energy to excluded and marginalized members of the world’s population. Freeplay Energy has developed and marketed self-sufficient products that harness human, solar, and rechargeable energy to power durable portable devices, from radios to lanterns to mobile phone chargers. The Freeplay Foundation, an independent but related organization, is a pioneer in making information and education accessible through sustainable energy. Together, the two organizations—one a for-profit company, the other a not-for-profit foundation—share a common mission of energizing development by empowering people. Over a period of 13 years, Freeplay Energy has sold well over five million prod34 innovations /World Economic Forum special edition
Power Play ucts, of which hundreds of thousands have gone to underserved and neglected people in the developing world, largely through the efforts of the Freeplay Foundation. Freeplay’s technology is the product of three distinct phases of development, each of which has been patented successfully. With a global scope of operations that has included the U.S., Europe, Africa, India, and China, Freeplay PLC conducted a successful stock offering on the AIM (London Stock Exchange) in 2005. In July 2008, Freeplay Energy was created out of Freeplay PLC as a private company. This case narrative tells the story of the Freeplay initiatives. The first half of the essay is authored by Rory Stear, the co-founder and co-chairman of the Freeplay Energy Group. The second half is authored by Kristine Pearson, the CEO of the Freeplay Foundation. The authors have been married since 1995. PART I. BY RORY STEAR. I hail from Port Elizabeth, South Africa. Starting at age 18, I worked my way through a series of entrepreneurially based businesses—a mobile disk-jockey operation that provided entertainment at parties and a somewhat primitive sports marketing business, to name a couple. Eventually I started a restaurant with a friend. We ultimately sold that business. From the experience of that sale, I not only accumulated my first real capital, but also realized that many other people wished to sell food service establishments like my own. Since I knew something about the industry by then, I began to broker a lot of those sales. Subsequently, I branched out into brokering sales of other kinds of businesses, and then merged my operation with a national operation belonging to a friend of mine. As a fiftyfifty joint venture, we ran a brokerage fee-based business, buying and selling enterprises across South Africa. Our business received an unexpected boost in 1990 when Nelson Mandela was released from prison. Mandela’s release, and the election that was expected to follow, had a chilling impact on South Africa’s business climate.2 As emigration from the country surged, many South African business owners were suddenly interested in selling. (Potential buyers were not as numerous.) During that period, Chris Staines, who would come to play a major role in the Freeplay story, came to work for me in the Cape Town office of my business brokerage. Staines came from the United Kingdom, and knew a lot about mergers and acquisitions from working in some of the bigger accountancy houses there. In 1993, the assassination of Chris Hani3 caused the pre-election environment of South Africa to worsen, and Staines returned to England. We maintained a formal business relationship, however. Since we wanted to be more than a South Africa based operation, Staines began watching for deals that came available in his region. As the election approached, it became apparent that Mandela and the ANC would win. As a result it was a time of hope and opportunity. From a business perspective, for the very first time we could look to Africa as a market, which during apartheid was largely closed to white South Africans like me. In an enormous innovations / Davos-Klosters 2009 35
Rory Stear and Kristine Pearson stroke of luck, on April 15th, 12 days before the general election, Staines saw a BBC television program in England called Tomorrow’s World that featured a British inventor who had come up with a concept called a “clockwork radio.” This radio had gotten nowhere close to being a commercially viable product, but had proven an engineering principle of harnessing human energy using wound metal coil. (See text box below titled “Freeplay Driven.”) A series of companies had declined the opportunity to acquire the rights to the technology. When Chris saw the TV show, he phoned me and asked, “What do you think of this?” We acted immediately in order to beat others who had seen the program. Staines met with the inventor just two days later on April 17th with a business plan in hand that he had written with my input. We struck a deal. At a moment when a market comprised of 660 million people was about to open to commerce from South Africa for the first time, we were newly in possession of a technology for a hand-crank radio that we theorized could, to a substantial, extent obviate the need for batteries across an entire continent. We sought to develop our newly acquired technology and added to our initial momentum throughout the rest of 1994, by acquiring our first sum of money from a very unlikely source: the U.K.’s Overseas Development Administration (now called the Department for International Development [DFID]). Staines had filled out and submitted a huge number of forms to receive a grant from DFID, and Andy Bearpark, then the Head of Emergency Preparedness, had happened to look at them. Following the Rwandan genocide and aware of the role that radio had played in the crisis, Bearpark had seen the power and relevance of the medium. Having funds available he gave us a grant of £143000 to commercialize the product. Additionally, Hylton Applebaum, who headed the foundations for Liberty Life and Liberty International in South Africa, invested a million South African rand toward setting up the company, marketing the radio, and developing the technology. Based on this initial progress and with the encouragement of Kristine Pearson—who had a much better sense for the needs of Africa than I did—in late 1994 I left the corporate financing firm in which I was involved and I began to work on the radio project full time. We never intended to manufacture our products ourselves; indeed, when Hylton Applebaum from Liberty Life invested, he had done so on the basis that we would manufacture abroad in a low-cost manufacturing environment. Manufacturing in South Africa was difficult because the unions that had played such a positive role in the struggle to bring down apartheid in South Africa were now approaching business owners with a militant attitude. Our new venture was up against a wall, though. Originally intending to manufacture in China, we soon found that to produce there we would need to order a minimum of 30,000 units. With a new technology previously untested in the market, we weren’t sure that we could sell even that minimum amount, nor did we have enough working capital to carry so much inventory. South Africa seemed like our only manufacturing option, despite its drawbacks and the many cautions we received from senior figures in the South African business community. 36 innovations /World Economic Forum special edition
Power Play The Origin of the Freeplay Foundation The foundation was born out of the realization that the self-powered technology and the radio it powered weren’t getting to the people who needed it the most and who could afford it the least. In 1997, we began to grapple with the dilemma of how we would remain true to our initial vision of bringing our radio to Africa and how we could broaden the social mission that was at the core of our brand. Almost all of our sales at that time came from the U.S. and the U.K. at an average price between $50 and $70. I responded to this with the idea of establishing a complimentary non-profit organization that would operate independently from us. At the start, there was a lot of resistance to this concept. Even as I was pitching the foundation at a board meeting, I noticed one of the directors who represented a corporate investor write a note to his colleague, which said, “This is the dumbest idea I’ve ever heard.” From his paradigm of how businesses work, this was just ludicrous; but we managed to convince the great majority of the board to do this, and the foundation was successfully established in the U.K. in 1998. The first trustees of the Freeplay Foundation were civil society leaders who had expressed support for Freeplay and its technology, like Terry Waite, Bill Leeson (the founder of War Child*), Andy Bearpark, Hylton Appelbaum and Baroness Lynda Chalker. We set out to find a director, a process that progressed along an interesting trajectory that led to my wife, Kristine Pearson, organizing the foundation and formulating its goals using her extensive knowledge of an experience in Africa. Kristine initially started as director for a three-month interim basis working pro-bono while taking a sabbatical from her professional consulting position. In the meantime, the board and its trustees would find a full time director who had experience running a non-profit. Ultimately, Kristine took on the job of CEO; as a result, what it is, what it does, how it does it, and what issues it attacks today are all things she and her team identified. With the foundation we began to address the issues of how to get Freeplay technology into the hands of the people who most needed them [See Part II, by Kristine Pearson for more on the Freeplay Foundation].
* Founded by Bill Leeson and David Wilson in 1993, War Child assists children affected by violent political conflict in regions around the world.
Applebaum was, and is, an incredibly creative guy, and he stepped forward with an idea. Seeing the situation, he suggested that we create a workforce utilizing the constituents from one of the organizations his foundation financed: the disabled movement of South Africa. Committing a million rand to us (which became share capital in the company owned by the disability movement), Applebaum started the partnership with that community to manufacture the hand-crank radio
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Rory Stear and Kristine Pearson in South Africa. As a consequence of that expeditious partnership we received an astounding amount of positive press coverage. On the marketing side, we enjoyed another stroke of luck when the BBC traveled to South Africa to film an episode of the television show Q.E.D. that featured our new venture.4 Shot in June of 1995 in Cape Town, the show was a phenomenal piece about how Staines and I had put together the company. They interviewed Hylton Applebaum and spoke to Dr. William Rowland, the blind head of the disability movement in South Africa. By chance, we even managed to feature Mandela commenting on our innovation at a breakfast meeting we had set up with him for that purpose. This 30 minute video provided us with an enormous amount of publicity and was a turning point for the company. But it was also pure luck, as we hadn’t formulated or employed a strategy to attract the coverage. All of the positive press that stemmed from the Q.E.D. documentary had the pivotal result of introducing us and our product to new partners who would help to build Freeplay. Among them were Gordon and Anita Roddick of The Body Shop.5 Having seen the Q.E.D. documentary in 1995 when it aired, Gordon Roddick contacted me. In late 1995, he came to see me in South Africa, initially expressing interest in the project because of the potential it had to benefit the Kayapo Indians of South America, a people whose cause he had taken up. To help us, he invested $500,000, which bought him a share of the company. (Since then he has thrown us several lifelines at our moments of most pressing financial need.) Other investors would join Gordon during that period, including General Electric’s Pension Trust Fund, Worldspace Inc., and Zephyr Management through their South African Capital Growth Fund. Also during this time, we began to make lasting relationships with supporters of the technology and our commitment to realizing its potential in the developing world. Among those supporters is Terry Waite,6 who today remains active with the Freeplay Foundation. I met Terry at a trade show in the U.K. in 1997, where he told me story about being given a transistor radio late in his time spent in solitary confinement. Desperate to keep the batteries from running out, he would listen for only a couple of minutes a day to hear the news, knowing the proper time from the public call to prayer. To me, this was such a powerful story about the limits of batteries and what the technology of radio could be without them. Terry and I became friends after that, and in 1998, we invited him and Nelson Mandela (two of the world’s most high-profile former detainees) to open our second factory in South Africa. To staff this factory, we again received the help of Hylton Applebaum, and this time employed rehabilitated offenders and abused women. The opening of this factory and the attention it received established our firm social commitment, and we continued to find new avenues for getting our responsibly manufactured products into the hands of those who needed them the most. (See text box above titled “The Origins of the Freeplay Foundation.”) However, the core values that inspired these actions would face tough tests as the new millennium approached, when the model we relied on began to unwind.
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Power Play Y2K Reveals a Bug in the Freeplay Business Model In 1999 and 2000, the Freeplay company reached a new turning point, as we made major transitions and faced squarely some significant obstacles that brought our company to the brink of collapse. Like almost all technology companies, we were losing a substantial amount of money on every dollar we made because of tremendously high costs, particularly in research and development (R&D). The R&D expense alone made doing business unfeasible, as we, like many of our other high-tech contemporaries, tried to navigate through the new market space without any sense of its size. In 1999 our sales reached a peak of $37 million, but we lost $6 million. This problem was only exacerbated in 2000. The primary driver for our sales in North America (which represented about 60 percent of our total in 1999) had been Y2K preparedness— the phenomenon prior to the turn of the millennium wherein many believed that a computer glitch would cause a complete shutdown of the world’s network infrastructure. The wind-up radio would help during such a crisis by operating without power from the primary grid. However, by January 2, 2000, everyone realized that the clocks hadn’t stopped. At Freeplay we had underestimated the impact that the evaporation of Y2K sales would have on our revenues. Suddenly our warehouse was full with $12 million worth of inventory. Despite these major problems, we were slow to respond. Positive press had put us in a state of denial. BusinessWeek had just recognized Chris Staines and I among the “Entrepreneurs of the Year” for 1999.7 Groups invited me to speak at their events. We were hailed as archetypal “children of the new economy.” But amidst all the acclaim, we faced the hard fact that our vertically integrated business model just wasn’t working. An operation like ours wasn’t sustainable. Would we go for the easy option and sell the business, leaving it to someone else to figure out the answers to the challenges we faced? Would we do nothing and go out in a blaze of glory? Or would we start to make the really tough choices required to make our business sustainable? In trying to figure out our next step, we spent about $500,000 on detailed and extensive market research to assist us in determining if the technology we had developed and the products it powered was viable in the future. Information we received from the U.S., U.K., and Germany suggested that we had something valuable, but we had to bring down the price, which meant lowering our costs. Our organizational model as it existed covered every aspect of product development and production: we conducted the research on the technology, undertook the product design, managed the manufacturing, and shipped to our own warehouses in the U.K. and the U.S. Furthermore, since South Africa lacked any consumer electronics industry of note, we had to import and pay cash for all of the parts for the radios. This translated into a need for a huge amount of working capital in order to keep the business going. The bottom line was that we had to identify aspects of our organization where we could spend less through outsourcing, in addition to partnering with other companies to boost our income.
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Rory Stear and Kristine Pearson Freeplay Driven: The Evolution of Freeplay Technologies The development of new Freeplay products has closely followed the innovations in the technology used to power them. This technological development has largely centered around the relationship between the harvest of energy from external sources, like wind-up energy and solar, and the efficient storage and release of that energy. A “negator” arrangement powered the first Freeplay radios, as a pre-formed flat metal band, tightly coiled around a storage spool, winds around another spool as the user cranks the radio. As the metal band returns to its original form, power is transferred to a DC motor that acts as a generator, earning the product the nickname of the “clock-work radio” for its mechanically oriented configuration. Designed to power the radio at full volume, any excess energy accumulated by playing the radio at a lower volume would charge a capacitor, and the power release from both the capacitor and the spring powered the radio. The second Freeplay radio also included a solar panel. Rechargeable batteries with an extremely long lifespan, referred to as NiMH (Nickel-Metal Hydride), became affordable in the late 1990’s, and replaced capacitors as the main storage mechanism in Freeplay’s first flashlight. The incandescent bulb employed by the light required a steady voltage in order to avoid drastically reducing the life of the light bulb. Freeplay designers provided this by placing the battery in parallel to the generator and coil, ensuring that the light drew a steady stream of power from the battery itself. The greatest technological innovation employed by Freeplay in its next generation of products eliminated the need for the coil entirely. Known as direct charge, this system generates electrical power through the immediate conversion of human energy to electricity, which is then stored in a battery. Direct charge technology rectified many of the drawbacks of the coil system, such as size, weight, and the possibility of breaking the radio by winding it counter-clockwise. Efficiency improved from 40% to an overall more than 70%, and allowed for a wide range of generator sizes. This system, in combination with the introduction of LED (light-emitting diodes) light bulbs for lighting devices, acts as the primary power generation system currently employed in Freeplay products. The solution we came up with was to trim the company down to its “core competencies.” We retained our R&D because we believed, and still do, that we are the best in the world at harvesting human energy, storing it, and controlling its release to power our products. We also determined that we were, at times at least, world class product developers (although then, and now, I held the view that our products could benefit from a bit more “sex appeal”—as with an iPod, once you see it, you just have to own it.) At the junction of R&D and product development, we determined that we had an excellent track record of taking technology and putting it into appropriate products, particularly in the developing world—notably, the Lifeline radio and Kristine’s work with the Foundation. (See part II of this case narrative.) 40 innovations /World Economic Forum special edition
Power Play The current suite of products offered by Freeplay give the user the option of charging the battery in a variety of ways, including solar, hand-crank, and even plugging directly into the outlet. Products designed for the home, emergency readiness, or outdoor use include the Jonta heavy-duty flashlight, the Indigo lantern, and the Eyemax and Summit Radios. Other products, including the Freecharge and the Weza foot-powered generator, provide portable energy generation for emergency or development use. The Lifeline and Scout radios, in addition to the ECO charge LED flashlights, play crucial roles in aid projects in Africa and India, and illustrate Freeplay’s continued commitment to bringing renewable energy products to those who can use them most. Among our hurdles were our still relatively fresh deals with Motorola and Coleman. Partnering with them was part of a very logical strategy for controlling our margins, which on the manufacturing side we rectified by moving out of South Africa, and on the sales side by partnering with the larger companies who had established brands in industries where we believed we could have great success. In the particular cases of Coleman and Motorola, however, flaws in the specific deals and problems within those particular companies prevented our cobranded products from really taking off. With both companies, which had hundreds of products each, we felt that we lacked input in the sales process. The product designs on which we had spent so much money were in the hands of people in those companies who simply weren’t accountable for their success or failure, which I know now to be crucial. Additionally, Coleman had been taken into bankruptcy by its struggling parent company, American Home Products. Motorola, on the other hand, was undergoing a major reorganization, and the teams of engineers in that corporation tasked with certifying and testing the FreeCharge for use with their phones had been scattered about the company. So despite the money we had spent designing the product, not to mention the enormous amount of publicity it was receiving (Time.com had named it one of 2001’s Inventions of the Year),8 it never went to market. We terminated the Motorola relationship, and with Coleman we simply allowed the contract we had with them to expire.
Partnering with other organizations for marketing and distribution were critical as well. Although we had to control the sales process, we didn’t need to do everything ourselves. In 2000, we began to identify those organizations that had huge distribution networks, products that complimented ours, and thus with whom we could co-brand. I ultimately concluded a deal with Coleman for the camping and outdoor market, and together we produced the Sentinel Flashlight and Outrider Radio, which utilized our new direct-charge technology. We also signed an agreement with Motorola to bring a phone charger to market, branded as “Freeplay Driven.” Finally, we concluded negotiations with Swiss Army Brands. However, after the attacks of September 11, 2001, that company faced the biggest innovations / Davos-Klosters 2009 41
Rory Stear and Kristine Pearson
Figure 1. The Clock-Work Radio crisis in their history as they quite suddenly lost the core of their business: selling knives in airports. Although they had some product extensions at the time, they reinvented themselves as largely a luggage and clothing organization. With this change in direction, our organizations mutually agreed to leave aside our plans for cooperation. Starting in 2000, we began the most difficult component of our transition: outsourcing our labor. This meant closing our South African factories and moving our production to facilities in China. After having for a time been the darling of the South African media, I personally went to being a demon in no time at all. I recognize now that we did handle the transition poorly. We were politically naïve, and in against pros—the unions were feeding out to the media the confidential information that was being discussed in meetings. We looked insensitive, but I don’t think anyone appreciated or gave us credit for the comprehensive efforts we undertook to find employment for every worker. To make matters worse, I had to be in Japan during the latter stages of the negotiations with the unions, and so instead of concluding the talks personally, I relied on the CFO of the company to do it. We might have been better off taking a very tough position by shuttering the business and starting again, rather than attempting to do the right thing by everyone involved. I believed at the time that we had an obligation to staff and to customers. It was much more expensive to make the transition as we did, but ulti-
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Power Play mately I believed moving forward and making it work was what we stood for as a company, and that’s what we needed to do. Moving our production out of South Africa remains one of the most difficult decisions I’ve had to make. I do think that the transition ended up being pretty well structured, and that overall we did a whole lot right. But reading the South African media at the time you would have gotten an entirely different impression. Freeplay Goes Public Following our transition, we continued to grow the company by developing new products, both on our own and in partnership with other companies and organizations. The Lifeline radio was among these new products. Developed specifically for the aid sector and with funding received from the Freeplay Foundation, we set out to create a radio against a design brief that the Foundation submitted to our engineers in 2002. (See Part II of this case narrative for more on the Lifeline radio.) The technology that powered the Lifeline replaced the metal spring technology in the original radio with direct charge, a concept we implemented in our new generation of consumer products as well. Over the next couple of years, the designs for the new suite of products had enormous potential to bring in new income, although we began to run into hurdles actually getting them to market. An additional hindrance with which we had to contend came from our agreements with shareholders. We addressed this hindrance and regained more control over Freeplay’s business by entering the public market in the United Kingdom in March 2005. Before the public stock offering we had three different classes of shares belonging to different investors. By going public, we replaced the three classes of shares with ordinary shares only. Additionally, the public offering raised capital that allowed us to take the products we’d developed and put them into production; while we were still private we didn’t have enough money to invest in taking our product development into the next phase. By selling shares publicly, we could get the product to market, in addition to making money available for me to hire some of the executives that I needed. We had to retire our existing shareholders’ agreement for the sake of the growth of the business. The new arrangement gave us flexibility. We’d been hampered as a consequence of negative control from big institutional investors; with the new structure we no longer had to ask permission for every strategic decision. As a public company, Freeplay’s board of directors could run the company as they saw fit. The markets, however, do shine bright lights on a business. Slow sales in 2005, coupled with the enormous cost of R&D for new products, made for a difficult transition. We improved sales in the years following the public offering, and in an effort to further improve our share price and continue to grow the company we acquired Dixie Sales, a distribution operation in Greensboro, North Carolina. This would not only appease the market but also help to develop those aspects of Freeplay that I believed to be the most vital—brand, and distribution. Technology alone can be something of a red herring, even for a company like ours. Even the best ideas can’t get off the ground if distribution isn’t right and the brand isn’t innovations / Davos-Klosters 2009 43
Rory Stear and Kristine Pearson built. With Dixie, we acquired an excellent foundation to ensure that this key box was checked for Freeplay. A Breakthrough Partnership in India In addition to the acquisition of the distribution company, Freeplay made another tremendous step in 2006 when it entered into a fifty-fifty joint venture with the Narang Group in India to do business in that country. I had been interested in India for a long time because I felt that our products met the needs of that market very appropriately, but in India a domestic partner is crucial. Even major corporations like General Motors and Coca Cola went in and were carried out on a stretcher because they hadn’t started by making the appropriate partnerships. By chance, Freeplay’s own opportunity for building such a relationship came in February 2006 at the Global Leadership Conference of the Young Presidents Organization (YPO), of which I am a member. There Devin Narang, the head of the Narang Group in India, had been introduced to Freeplay products from some demonstrations we had given, and instantly understood that this was potentially very lucrative for the Indian market. Devin is also a member of YPO and had acted as president of his family’s company, which had specialized for many years in India in the brewing industry. They had just sold those holdings to SAB Miller, and the company was well-structured to enter a new sector. Devin and I developed a great friendship, and in October 2006 we announced a fifty-fifty joint venture between the Narang Group and the Freeplay Energy PLC to start Freeplay India, which would get our renewable energy products into the Indian market. I served on the board of that company from the start, and was excited about the real opportunity that India represented for us to redirect our business to where we had always intended—the developing world. Earlier this year (2008), I became frustrated that Freeplay’s share price wasn’t going anywhere, despite the inroads we were making in India and a huge order there from the Indian Farmer’s Fertiliser Cooperative (IFFCO), which represents 55 million Indian farmers. Although we were moving in the direction I thought was right for the company, I knew it would take some time to unlock that potential. In the interim, we would still face the obligation to report earnings to the market every six months. In an effort to circumvent this pressure, I devised a strategy whereby the public Freeplay company would sell the Freeplay business entirely. Our Indian partner, Devin, made an offer, financed in part by our major customer IFFCO. A colleague and I, representing the public company, negotiated with Devin and reached an agreement whereby the public company sold Freeplay Energy for cash while Devin would also take all the Freeplay related debts off the public company’s balance sheet. After closing the deal, I negotiated to purchase a bigger stake in Freeplay than I ever had while it was publically held. Now Freeplay Energy is well capitalized, and by doing business in India, we avoid most import duties by manufacturing locally. (See Text Box, “The Pressures Toward the Charitable Model,” for more on the impact of duties.) I can increase the focus on Africa once again, and spend more of my time in the aid and human44 innovations /World Economic Forum special edition
Power Play itarian sector without having to worry about presenting to shareholders skeptical about the pace of building a business focused largely, but not exclusively, on the developing world. What remains of the public company now is an investment holding vehicle with Dixie Sales as currently its sole operating company. (The trademark and our production business now belong to the new, private Indian company.) In India, where energy poverty is also a major issue, we’re well-positioned with Devin’s huge network and our very appropriate technology to take advantage of the tremendous opportunities in a very large market. We’ve done specific product development for India’s needs, and will focus more on self-powered lighting products that are simpler and cheaper than existing options. The lighting products could subsequently obviate the rationed kerosene prevalent in rural areas, saving billions of dollars of subsidy expense per year for the Indian government and addressing many of the health issues associated with kerosene use. Another opportunity exists in powering cell phones: India adds seven million new mobile users every month. In rural areas, Freeplay can be a part of that dramatic increase in connectivity with the technology we’ve already developed for other markets. All this happens as we continue to do excellent business in the developed world, where the focus is less on self-powered technology and more on appropriate energy usage from a multitude of renewable energy sources. In the energy environment of those regions, the crank acts as a backup where one can charge the radio or light by plugging it in. We’re utilizing solar technology as a power source usable even for digital radios—devices that in the past have used far more power than a traditional radio, but which we’ve managed to redesign for substantially improved energy efficiency. We have a partnership with Roberts Radio in the U.K. for Digital Audio Broadcasting (DAB) radio products that rely on this technology; we have applied the lessons we learned from our past partnerships in structuring this new arrangement. Over the 13 years that Freeplay Energy has been in existence, learning has been the primary constant. After many attempts, we have finally reached a point where we can truly unlock the potential of the technology that motivated us to launch the company in the first place. Technological innovation can do a tremendous amount of good for people in poor places, but only if the products of innovation are commercially viable and thus reliably accessible to those who need them most. Having been a pioneer in energy technology, Freeplay is now poised be a pioneer in energy impact. PART II. BY KRISTINE PEARSON. “Yesterday I didn’t know anything, but tomorrow, I will know everything,” announced Fatima, a 60-year-old grandmother of 24 who had never before owned a radio. Fatima’s exclamation of hope and possibility last year impressed upon me the urgency of Africa’s need. Africa has once again been left behind, this time missing
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Famed Kenyan distance runner Tegla Loroupe, the author Kristine Pearson, and 60 year-old grandmother Fatima with her Lifeline radio. the Information Revolution. Historically, the great inventions pass Africa by. The first sub-Saharan African city to use the printing press, Cape Town, did so in 1806, more than 350 years after Gutenberg invented it. Engineers built the first electric power grids to serve households and businesses in Europe and the United States well over a century ago, but even today more than 500 million Africans have no access to modern energy. By 1904, millions of Americans were using the telephone, but it has only been in 21st century, and thanks to cell phones, that most Africans have had the opportunity to benefit from telecommunications. Computer use exploded in developed countries in the1980s, but in sub-Saharan Africa, where less than 5 percent of the population has access to the Internet, the impact of the computer revolution remains to be felt. It is this historic knowledge gap—this energy inequity—that I am seeking to narrow through the work of the Freeplay Foundation. My involvement in the Freeplay Foundation developed as something of an accident, but it’s certainly been no mistake. As a girl growing up in Sacramento, California, I never traveled beyond a week-long vacation in the family station
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Power Play wagon to Disneyland. But nevertheless, I fell in love with Africa on the glossy pages of National Geographic. When I completed university, my curiosity to explore and understand other cultures became so intense that I set off on my own. As a young woman, in 1986 I spent three months traveling alone in East and Southern Africa, and I knew that I belonged there. (Since then, I’ve been fortunate to travel to more than 90 countries, each one giving me a deep appreciation of the strength and dignity of the human spirit.) I immigrated to South Africa in 1988, at the height of the country’s political crisis. I moved to Africa not as a humanitarian aid worker, but as someone who intrinsically recognized the enormous potential of women to shape the future of the continent. I arrived passionate about role and potential women and created a consultancy specializing in the development of women in business. That led to my appointment as an executive with a large banking group involved with creating sweeping change-management initiatives that affected thousands of employees. In 1998, Rory, my husband and the co-founder of Freeplay Energy, approached me to lead the newly formed Freeplay Foundation. I thought it would only be temporary—lasting until the foundation’s board could install an experienced nonprofit CEO. But I had believed in this technology and encouraged Rory from the start—I knew that what Freeplay sought to achieve was appropriate and important. Taking the job would not only alter my worldview. It would define my life. The penny dropped while sitting on the ground with rural women in a traditional mud and thatch village in Mozambique early in 1999. They told me that men had money and they bought radios and the batteries to power them. Women told me that men even removed batteries from their radios so the women couldn’t use them. This meant that the men controlled access to listening and that there was a good chance that the women weren’t hearing important, possibly life-saving radio programs. I realized then and there that if women had unfettered access to information, Africa and the poverty that besieged it could have a different outcome—and this radio could help improve the lives of millions. Women are the very foundation of African life, especially in rural areas. They grow crops, rear children, collect firewood, cook food, raise animals, and care for the ill. But what many don’t do is go to school and become educated as males do. I saw that Freeplay radios could provide to women an essential tool to rectifying this imbalance: information. If we could just get the radios into their hands, they would gain greater control and freedom in their lives. Millions of dollars are invested each year in important developmental radio content aimed at the poor; however, what is the point of programming if you can’t hear it? I agreed to take on the role of CEO based on these realizations, and set the foundation on a course that would empower key constituencies—women and vulnerable children—to access the information they needed to make more informed choices and decisions. Ten years later, the Freeplay Foundation has worked in more than a dozen African countries, is a registered non-profit on three continents, and has assisted an estimated ten million people. We partner with organizations ranginnovations / Davos-Klosters 2009 47
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Masaii women listening to a health program broadcast in the Masaii language in Kenya. ing from national governments and international corporations to in-country local charities, and we work across many disciplines including health, education, agriculture and disaster relief. We regularly refine our methodologies for applying Freeplay technology based on radio usage and distribution. Although, due to our successes, Rory and I might be seen as pioneers in the social enterprise sector, I don’t feel that I did anything especially remarkable. I’ve thought creatively about how to achieve the goal of the foundation despite the constraints that have arisen, and tried to conceive of new solutions through the innovations that technology can provide for those who need it. In the case of the Lifeline radio especially, the force of new ideas in technology and product design have won enormous support, illustrating for me how resonant the concept is among so many even in the age of nanotechnology! Early Involvement in Africa and Child-Headed Households Asking the right questions and active listening are paramount in the development sector. This has been clear to me from our first major project, when thousands of Freeplay’s original hand-crank radios were distributed to Mozambicans displaced by the catastrophic floods in 2000. The relief community justifiably focused on providing food, clean water, and medicine. But when interviewing flood-displaced people myself, they told me how frightened they were and that they wanted to
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Power Play know what their government was doing, but had no way of finding out. They wanted to know how to locate relatives from whom they had been separated, if more rains would come, when they could return home, and to how to replace lost identity documents. This illustrated to me how vital basic information is to those who have lost everything and face an uncertain future. In refugee camps, rumors are rife, and radio also provides a reliable, and cost-effective way to reach displaced populations immediately. But refugees don’t have batteries at hand and there isn’t exactly a kiosk to buy them. The solution was for Media Action International9 to create informational programming for the displaced in their own languages and to use our radios to hear it on demand. Freeplay radios played a critical role in the relief efforts that year. I truly began to internalize the power of radio while working on an early project in Rwanda with children who headed their own households. In 2000, few were aware that disease and conflicts unfolding across sub-Saharan Africa were causing an added crisis by orphaning millions of young people throughout the region. Family systems were collapsing, and many children became caregivers of parents who were dying from AIDS, or lived in a house without any adult at all. Little has changed in 2008. These children often exist in destitution. Traumatized from their loss, they face discrimination and exploitation, and most are malnourished. They receive scant outside financial or psycho-social support. The heads of households, some as young as nine (and mostly girls), must eke out a living on the land, fetching water and firewood, cooking and doing whatever they can to keep their families alive and intact—often without the most basic of necessities. Where they get the courage to cope and carry on, I just don’t know. I was astonished, and still am, by their resilience and their efforts to better their lives. Although no one really knows the number of orphans in sub-Saharan Africa, the best estimates are more than 42 million. Surely this is the first generation in the history of our world, that I am aware of, that must raise itself. We became involved early on in this issue in Rwanda, where original-model Freeplay radios were distributed to these young families. I interviewed dozens of the child recipients, and their feedback was contrary to what I expected. When I asked what they listened to, they all said, “the news.” They wanted to be informed, to increase their knowledge, to get ideas and feel empowered, which resonated so strongly in an environment where the children didn’t trust the adults around them. In post-genocide Rwanda, they said that their adult neighbors treated them badly, but with the radio, the adults would come over, listen, and become friends. Some children even suggested that the radio was like a parent or brother. Another favorite show was a health soap opera drama called Urunana, broadcast in the local language, Kinyarwanda, which has a child family woven into the storyline. Not only could the young listeners learn about HIV/AIDS, but they also related to the challenges the soap opera’s child characters faced, and the program thereby helped provide the guidance they were missing. They also wanted to listen to practical programs on farming, peace and reconciliation, children’s rights, and, of course, like everyone, they wanted to hear weather reports. When they did listen to music, innovations / Davos-Klosters 2009 49
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A girl following the radio teacher, Mrs. Musando, and writing numbers on the blackboard in Lusaka, Zambia. The “mentor” or voluntary teacher looks on. The distance education program, "Learning at Taonga Market", is a collaboration between the Education Development Center and the Ministry of Education. it was most often gospel, where they could sing along, feel closer to God, and feel hope for the future. They all said that the radio eased their isolation and helped them to feel safer and more secure at night. Most told me that they listened to the radio the entire time they were awake. Children as Design Consultants and the Birth of an Idea However, those original radios had serious limitations. The handle would wind only in a clockwise direction and if it was turned counterclockwise, it would break. Also, children snapped off the antennae and used it to herd goats or to stir the food in their cooking pot. For those to whom the radio played such an important role, a breakage was devastating. It made me realize that we needed to design a radio that would overcome the limitations of those original black spring-powered radios and create a new one specifically engineered for children living on their own, as well as for distance education. I asked these users what would be the “perfect” radio. They wanted a radio that didn’t need batteries, that could play for many hours with loud voices they could understand, would be easy to operate, and wasn’t black (it got too hot to hold when in the sun). Girls told me that if it was shaped like a handbag they could carry it 50 innovations /World Economic Forum special edition
Kerosene’s Deadly Side Effects The World Bank estimates that 780 million women and children worldwide inhale kerosene fumes that are the equivalent of smoke from two packs of cigarettes a day. Two-thirds of female lung cancer victims in developing countries are non-smokers. In Africa, local health workers cannot perform even basic procedures effectively after dark without light. Pit latrines have been built across Africa to combat diseases, but many people still use buckets by their bedside at night for toilet use. There are risks like snakes and other dangers—real or imagined—just walking to a toilet in the dark. Children are afraid to walk at night without a light. Malaria kills more than a million children each year in Africa, and mosquito nets, though effective, may catch fire if a candle or kerosene lamp is placed too close to the net. In South Africa alone thousands of shacks catch fire each year, claiming the lives of between 2,500 and 3,000 people. Many thousands more suffer serious burns, which carry lifelong physical and psychological scars. Children drink kerosene believing it to be water. In the last year, we undertook lighting needs assessments of very poor and vulnerable families (child- and granny-headed households) in rural and urban slum areas in South Africa. We found that child-headed families mainly depended on the generosity of neighbors for candles and matches. Only in households with a live-in grandmother, who received a government pension, did we find that families could afford to burn kerosene. Children described how they had to share a candle to study, either by taking turns or cutting it in half. If children studied by kerosene, they complained that they could only do so for a few minutes at a time, citing the noxious fumes and their eyes becoming red and sore. Many commented on how “stressed” they felt when using candles or kerosene. To diminish dependency on fuel-based lighting and toxic batteries, the Freeplay Foundation is working to provide lighting solutions that rely on efficient and bright light emitting diodes (LEDs) powered by a robust hand crank and coupled with solar power. The first of our new range of portable light sources, called Lifelights, has recently been field tested in South Africa. For this project, we’re working to move beyond women’s participation as only consumers. We plan to launch a sweeping effort called “Women Lighting Up Africa,” in which women will be engaged in every step of our Lifelight effort. It will incorporate replicable, scalable micro-lending and micro-business schemes for African women to start their own small energy businesses to rent or sell Lifelights and power low-energy devices. With World Bank Development Marketplace funding, we piloted an income-creation initiative in Rwanda ,whereby women used a Freeplay foot-powered generator to earn fees for charging cell phones, small LEDs, and other devices. “Women Lighting Up Africa” would build on those successes and lessons learned.
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A Rwandese secondary school boy studying by his Lifelight. It replaced a kerosene lamp made out of a tin can, which stung his eyes and made his throat hurt from the noxious fumes. into the fields so they could listen while they were farming. My interviews and their suggestions would drive the birth of a radio that would correct the faults of the original design and would be called the Lifeline. I returned from my interview trip in late 2000 committed to developing this radio. Few people, with the exception of Rory and my team, thought this idea had traction or a market. It would be fair to say that I responded like a single-minded zealot. But the idea made sense to me. And to its credit, the Lifeline radio has had an unbelievable impact since I launched it in a Tanzanian refugee camp in 2003. Aid and development organizations working in Africa recognize the Lifeline as a valuable tool in their arsenals, and seldom a week goes by that the foundation is not asked to donate Lifeline radios to some good project or another. The development of the Lifeline radio began with an unexpected success— winning the first Tech Museum of Innovation Award for Technology Benefiting Humanity in November 2001. I had learned about the award, brand-new that year, 24 hours before its submission deadline. My colleague, Michelle Riley, and I
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These Weza pioneers in Zambia earn income from charging cell phone and other small devices dropped everything to submit a paper on the concept of what would become the Lifeline radio. The committee named us as finalists, but I doubted whether in the high-tech heartland the judges would “get” analogue radio. They did, and we used the $50,000 grant to fund the research and development of the radio. Freeplay Energy’s engineering team was true to the design brief created by the children in Rwanda, and every progressive prototype of the radio was field tested in focus groups of Rwandan, Kenyan, and South African orphans who had little or no exposure to technology. I learned only afterwards that our Lifeline project team had instinctively followed the Lemelson Foundation’s proven “Idea to Impact” process.10 The funding from the Tech award, combined with additional grants from Vodafone Group Foundation, Anglo American, Leonard J. Fassler, and technology pioneer Brad Feld, enabled the Lifeline to progress from concept to market in just 24 months. Exactly two years after the Tech Award application was submitted, Devotte Hafashimana, a shy 17 year-old Burundian refugee living in a Tanzanian refugee camp, became the first Lifeline radio recipient as part of a Voice of Americasponsored project.
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Pokot women under a tree in the West Pokot district of Kenya. This was the first radio that they had ever owned. The Many Facets of Energy Poverty With our Lifeline radio efforts solidly in place and growing in communications projects across Africa, it was clear we had to continue to innovate if we were to begin to close the gap, especially for the abjectly poor. In 2007, my attention turned to another energy inequity, specifically how the Freeplay Foundation could help light up Africa. My own evenings in the dark in Africa showed me the link between energy poverty, lighting, and the pressing issues of health, education, and productivity in rural communities. Something as simple and straightforward as safe lighting could transform people’s lives immediately. The overwhelming majority of Africans lack access to modern energy. They spend anywhere from 15 to 40 percent of their meager incomes on candles and toxic kerosene (a diesel fuel) and batteries for flashlights. Forests are denuded in the quest for firewood for cooking, which also provides residual lighting. Furthermore, the majority of Africans live near the equator, where the sun rises and sets at the same time every day. People have to finish up their activities before the sun goes down, and after a hard day of scratching out a subsistence living, a rural African has little light remaining to study, read, or undertake income generation tasks like sewing or weaving. The brunt of energy poverty, like all aspects of poverty, is borne by girls and women. Self-powered lighting could provide additional productive hours each day for those who have so little. Lighting projects that utilize Freeplay technology are progressing through their development stages, and I have continued to plan for new product development 54 innovations /World Economic Forum special edition
Power Play Gender Bias in ICTs Gender bias remains a tangible issue in Africa with all information and communication technologies (ICTs). Every technology has a gender bias in Africa, driven by restrictive cultural, traditional, religious and economic factors. Economically, women have less money for radio batteries, mobile phones, air time and Internet use. Rural Internet telecenters have far fewer girls and women using them. Working in fields, households, and doing chores, they simply don’t have the time, and on the whole women are less literate than their male counterparts. In any ICT initiative, including radio, the needs and circumstances of women and girls must be considered and catered to in order to maximize their chances for inclusion in all forms of information delivery and transfer.
opportunities. For example, we are adapting the Lifeline radio to include MP3 capability to help revolutionize rural information delivery. The content possibilities for an MP3-enabled Lifeline radio would be limited only by one’s imagination. Educational, agricultural, environmental, peace building, climate change, basic financial literacy, and health programming could all be recorded onto a memory stick. For rural schools, which depend on radio distance instruction, an MP3 Lifeline radio could replay lessons on demand, and repeatedly for those with learning disabilities, at a time convenient for pupils. Audio content from computers at rural telecentres and Internet cafes can be downloaded and played back later on a memory stick in local communities when they had time to listen. The further extension of educational content is only one application of an MP3-enabled Lifeline radio. This innovative device will help bridge the gap between radio and the Internet, making pre-recorded content available on any subject 24/7 without electricity or expensive disposable batteries. The introduction of recorded content to the Lifeline radio will significantly increase the effectiveness of reaching even larger populations, including those living in isolated areas and pastoral and nomadic communities in their own languages. Every technology has its limitations, and radio is no exception—in some parts of Africa, reception can be poor and inconsistent, especially in mountainous terrain and in stormy weather. The dependable wind-up and solar charging systems of the Lifeline radios will work equally well with a low-power consumption MP3-enabled device. As was the case with the successful Lifeline radio, the Freeplay Foundation believes there is a significant demand for an MP3-enabled radio. We plan to begin field trials early in 2009. When products are developed for Western consumers, end-users are consulted, as companies don’t want to make mistakes in their highly competitive environment. However, product options for “majority of the pyramid” end users are often limited and of inferior quality. Our approach employs rigorous field trials in order to fully understand for what purpose and how a radio or light is to be used, carefully considering the ergonomics and other factors that impact a product and its innovations / Davos-Klosters 2009 55
Rory Stear and Kristine Pearson use. The poor deserve quality, safe products and proper instruction in their use, whether it is a mosquito net, a solar home cooker, a lantern, or a radio. The Difficult Path to Funding I hadn't expected to have the level of emotional engagement with this work and this also applies to fundraising which is a constant squeaky wheel. Designing programs and implementing projects in Africa is deeply rewarding. Weeks can be spent putting your heart and soul into writing a proposal you know that would benefit thousands of children. Then with all the 'warmth' of a bank manager, a rejection email arrives from someone who may never have been invited into a rural home, met a child orphaned by AIDS, or even visited Africa for that matter. It is a demoralizing experience which is all too frequent in the non-profit sector. Many donors demand low overheads but allow no way to recoup time and admin costs on an unsuccessful proposal. It takes the same amount of staff time and resources to raise $10,000 as it does $200,000 and may attract the same reporting requirements. I've encountered donors who have asked me to revise our proposals to suit their own outcome needs. This would not happen in business when an investor invests in a stock, as they wouldn't require the company to rework its business plan to fit their special interests. Unrestricted funding allows a non-profit the flexibility it requires, but is the most difficult support to obtain. From my vantage point, the donor relationship and sometimes even the project itself is most successful when all parties treat each other with trust and as equal partners. To ensure a more reliable income stream and to partially negate the reliance on donor and grant income, we have established the for-profit Freeplay Foundation Trading Ltd. (FFTL). This trading company will procure all products for the humanitarian sector for either by the Freeplay Foundation or other aid agencies. Profits earned will accrue to the foundation to support our work as unrestricted funding. Given the "hit" that charitable organizations will take in the near and medium term due to the global financial crisis, this trading arm contribution will provide necessary cover for our non-project overhead expenditure. Non-profits rely heavily on sponsors and patrons, particularly during uncertain economic times. The Freeplay Foundation is very grateful to our strong supporters, including the actor Tom Hanks. Tom encountered Freeplay technology on his own and has since helped to fund several Freeplay Foundation projects. He takes a real interest in the new applications of Freeplay technology, and is the primary funder for both our lighting research and development and for the creation of the new MP3-enabled Lifeline radio. Tom provides priceless visibility by serving as our American Ambassador, which he has done since 2003. Political and Bureaucratic Barriers to Development The success, quality and vibrancy, of many community radio stations in Africa have a great deal to teach those in the development sector in other regions of the world. As media has become liberalized both economically and politically on the continent, Africa has led the way in establishing community-based radio stations, 56 innovations /World Economic Forum special edition
Power Play The Pressure Toward the Charitable Model High import duties, corruption, bureaucratic barriers…the African economic environment is fraught with protectionism and inefficiency that close those countries to business, development, and the distribution of much needed goods to an underserved market. In the developing world, price is everything, but most products cost more in Nairobi than in New York because of the expense of wrangling with inefficient bureaucracies and taxes. These forces make the charitable model the only alternative to organizations like Freeplay, and to this day the Freeplay Foundation, as well as other humanitarian organizations like the United Nations and the Red Cross, remain our biggest customers precisely because of their exemptions from duties. Even despite these exemptions, battles with government customs in some countries make delivering needed products to African communities an extremely expensive endeavor. Despite the income generation aspects of many of the Freeplay Foundation’s programs in Africa, the potential increased tax base is overlooked in favor of the short-term gain from duties. Although some argue that domestic manufacture avoids the high cost of importing, the scale of a country’s domestic market and the cost of importing a device’s components when none are available in country must be taken into account. The African continent contains an estimated 955 million people in 54 countries, each with a sovereign government and bureaucratic apparatus with which one must deal individually.* India also has a high import duty, but has a billion people under one government. They have an enormous scale and a domestic manufacturing base, and Freeplay has an incredible opportunity in that country to reach people who can benefit from our product and acquire it at a price they can afford.
* Almost 800 million people live in the 47 countries of sub-Saharan Africa, and the U.S. government expects the population to increase by one billion by 2020.
which broadcast in local languages to nearby populations. Lifeline radio recipients tell us news programs are most popular, exemplifying my belief that having access to information from diverse sources is a basic human right. However, control of information for political aims persists in many countries, to the detriment of its citizens who are left with hearsay, rumor and government propaganda. In addition, male-dominated social structures may detour accurate and helpful information away from women and vulnerable children. Mistrust of government-owned news sources is prevalent in many African countries, and it is no wonder then that when asked, many listeners choose foreign news services like the BBC and Voice of America as their primary information providers. In Zimbabwe, any outside source of information accessible by the pub-
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Rory Stear and Kristine Pearson lic—and especially the Lifeline, with its two shortwave bands—could pose a threat to government control In Kenya, during the political crisis following the disputed presidential elections, I was pleased that our radios provided access to foreign news services which offered much needed, trusted information during a very unsettled time for that country. However, the process by which the radios got into Kenya in the first place illustrates how many African governments have made development AM, FM, and shortwave radio work and providing aren’t exactly sexy technologies, access to information like climbing a ladder without but ... radio remains the only rungs. Late in 2004, technology that has the potential 10,000 Lifeline radios, jointly funded by the to reach entire populations Vodafone Group Foundation and immediately and cost effectively. Safaricom Fondation landed in Kenyan customs, where they languished for 30 months. A government ministry was determined to extract more than $100,000 in duties from us. Despite filling out all of the forms according to their instructions, clear labeling in multiple languages that the radios were not for sale, together with reams of paperwork describing the various humanitarian projects in which the radios would be used, the civil servants remained intransigent and apathetic.11 More than half the radios were earmarked to support the government’s own educational broadcasts, but no one cared. The situation was outrageous. Amid claims of lost paperwork, expired forms, bureaucratic doublespeak, and months spent chasing up the finance ministry, I became intensely disheartened. Regardless, we had a moral and ethical to both our donors and the people whom we sought to serve and we persevered. Finally, a change of ministers and support from more enlightened government officials secured the release of the radios from customs without anyone asking for anything in return. However, our entire distribution and training budget had been eaten up through this process. Vodafone Group Foundation generously made another grant that enabled us to cover our local distribution and training costs. Unilever was extremely helpful in assisting us with offsetting some of the transport costs, and with the assistance of our partner organizations, like Plan Kenya, UNHCR, PATH, Tegla Loroupe Peace Foundation, and the Kenya Met Service, we were able to distribute almost all 10,000 radios in three months across the country to impoverished and underserved communities. Reflections on the Foundation’s First 10 Years In the ten years since I started at Freeplay Foundation, bureaucratic bottlenecks
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Power Play like the one noted above have continued to be a threat to constructive development work. But positive changes also have occurred. The social enterprise sector has demonstrated incredible potential, and market force trends for non-profits have accelerated the rate at which things get done and systems get changed. Despite these changes in the global economy and innovations in the methods of philanthropic organizations, we are still able to utilize an existing, perhaps almost antique, technology in new and innovative ways. AM, FM, and shortwave radio aren’t exactly sexy technologies, but despite the emergence of computer-based platforms for health and education, radio remains the only technology that has the potential to reach entire populations immediately and cost effectively. It provides benefits not easily measured, like easing isolation; providing safety, security, and a voice people can trust; feeling safe at night; and education about food, health, and taking care of children and animals. Information and education spread via radio can change people’s lives overnight, and a turn of a knob opens their world—provided they have access. Therein lies the role for technology in transcending the limits imposed by energy poverty. CONCLUSION. BY KRISTINE PEARSON AND RORY STEAR. Our friend and mentor Anita Roddick long ago observed to us that business often measures the wrong things. In the journey we have shared over more than a decade with Freeplay Energy and the Freeplay Foundation, we have had many occasions to reflect on Anita’s insight. For Freeplay Energy, the discipline of market acceptance has tested our strategic vision time and time again. At the outset we measured ourselves by the standard of technical ingenuity. We focused almost entirely on developing marketleading technology. We grew rapidly, but neglected to assess risks to our business model or to focus adequately on costs. Our learning over time has placed us in a position to achieve the impact to which we have long aspired. We fully expect that success for Freeplay Energy in the future will be reflected in conventional business metrics, as the market opportunity we have the possibility to create is substantial. However, for Freeplay Energy just as for the Freeplay Foundation, we will certainly miss the mark, miss the moment, if our planning and self-assessment is focused on quarterly reports to our respective boards. For all of the emphasis that is rightly placed on the need for institutional sustainability, enduring as an organization still matters less than providing a quality service to people. At Freeplay Energy and at the Freeplay Foundation, we are very serious about getting self-powering radios and lights into homes, and getting the kerosene, candles, and batteries out. Over the coming decade we look forward to tallying with great pride the number of women, children, and men whose days have been extended, minds have been expanded, and opportunities have been enhanced, thanks to our products. But we are also serious about keeping with us the words, and the spirit, of Anita Roddick. We are providing radios not for the hours of programming they
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Rory Stear and Kristine Pearson deliver, but for the feelings of pride, dignity, comfort, and empowerment that the radios offer. We are providing lights not for the increased average household earnings that can result from an extended workday, but for the moments of hope, promise, and happiness that increased opportunities create. No one reading this essay will ever know the courage it took for a 17 year-old boy to enroll in first grade radio school to get over his humiliation at not being able to read money, or the anxiety of a tired schoolgirl trying to finish her reading lessons before her stub of a candle burns out, all the while afraid she might fall asleep and accidentally tip it over while it is still burning. No one among us will likely feel the anguish of a refugee who, having lost his home and been separated from his family, is then deprived of any information that might be a guide to safety as a consequence of the simple fact of a dead battery. We believe that we will have succeeded when this and the many other human moments of angst, pain, and deprivation that follow from energy inequities gradually resolve—like the system of apartheid we saw crumble as this venture was born—into the fading scars of history. Acknowledgements The authors thank Adam Hasler, Winthrop Carty, and Philip Auerswald for their assistance in preparing this case narrative.
1. John P. Holdren and Kirk R. Smith, “Energy, the Environment, and Health,” in The World Energy Assessment: Energy and the Challenge of Sustainability, ed. Jose Goldemberg, New York: UN Development Programme, 2000, pp. 61-110. 2. Nelson Mandela was released from Victor Verster Prison on February 2, 1990. Once freed, he again became active with the African National Congress in negotiating for multi-racial elections in South Africa and an end to apartheid. 3. Chris Hani, head of the South African Communist Party and a participant in the African National Congress’s negotiations for multi-racial elections, was shot outside of his home in Boksburg, South Africa on April 10, 1993. 4. Q.E.D. was a BBC science documentary that aired in the United Kingdom from 1982 to 1995. The episode “Clockwork Radio,” aired on August 8, 1995. 5. Gordon and Dame Anita Roddick, the now deceased founders of Body Shop International, have wide fame as supporters of environmental, animal, and human rights issues. Four out of this year’s five finalists for the U.K. Social Entrepreneur of the Year award noted Gordon as a supporter of their projects. 6. Hostage negotiator and special envoy to the Archbishop of Canterbury, Terry Waite became internationally known when, between 1987 and 1991, he was held in solitary confinement as a hostage by the Hezbollah. He is now an active writer and lecturer on humanitarian issues. 7. “Freeplay’s Fast Track,” BusinessWeek, January 10, 2000, p. 82. 8. “2001 Inventions of the Year,” Time.com, November 11, 2001. 9. Registered in Berne, Switzerland in 1998, Media Action International is a non-profit organization of professional journalists that monitors crisis reporting in the developing world to ensure its accuracy and compliance with international journalistic standards. 10. See “From Idea to Impact: Funding Invention for Sustainability” by Julia Novy-Hildesly, Innovations 1(1), Winter 2006, for more on the Lemelson Foundation and the “Idea to Impact” social enterprise model. 11. U.N. agencies have bi-lateral agreements with host nations and received duty/VAT exemptions as a norm, but it is not always possible to partner with the UN.
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Johanna Mair and Kate Ganly
Social Entrepreneurship as Dynamic Innovation
Innovations Case Discussion: Freeplay Energy and Freeplay Foundation
Together the Freeplay Energy Group and Freeplay Foundation represent an exciting and dynamic case of social innovation and entrepreneurship. We have observed the Freeplay business model grow and change over the past five years, since we began teaching this case study in courses on entrepreneurial strategies for social impact at IESE Business School in 2003. The case is an important one for several reasons. As a complex illustration of social innovation in practice, it helps us to understand the ways in which business and social goals can be both simultaneous and complementary. It generates insights for education and for the next generation of managers and entrepreneurs to adopt out-of-the-box thinking and to make the “social” in social entrepreneurship obsolete as entrepreneurship naturally comes to involve “social” opportunities. As a relatively new field of research, social entrepreneurship offers scholars a “source of explanation, prediction and delight”;1 a unique opportunity to rethink assumptions and concepts from different fields of management and social science research. Theorists working on social entrepreneurship will find that the Freeplay case helps us to identify key features of the phenomenon, each of them providing stimulating spaces for researchers, not only to contribute to emerging theory but also to enlighten and challenge our existing paradigms. Johanna Mair is Associate Professor of Strategic Management at IESE Business School in Barcelona, Spain. She teaches corporate strategy and entrepreneurial strategies for social impact and has written numerous teaching case studies of social entrepreneurs and their organizations including the Freeplay Foundation. In 2007 she was recognized as a “Faculty Pioneer” by the Aspen Institute and received the “Ashoka Award for Social Entrepreneurship Education”. Kate Ganly is a research affiliate of the IESE Platform for Strategy and Sustainability and holds an MSc in Anthropology and Development from the London School of Economics. © 2009 Johanna Mair and Kate Ganly innovations / Davos-Klosters 2009
Johanna Mair and Kate Ganly Innovation When Rory Stear recognized the potential of commercializing human-powered wind-up energy, he saw a business opportunity in the field of renewable resources. However, he was also imagining a market in Africa that did not yet exist: he had grasped the power of the technology for use in contexts of deep poverty. The “innovation” in this case study has many different elements, but at its heart is Rory and Kristine’s ability to shape organizational vehicles that bring Freeplay products to existing markets and also help to create new ones. The Foundation’s efforts to support and encourage energy “microentrepreneurs” supplying their communities with battery-charging services for their mobile phones or self-powered lighting products is one such example. We view social innovation as the mechanism that defines social entrepreneurship. A mechanism that involves experimentation and leads to the generation of solutions to old and new problems. Although some persist in viewing innovation as merely limited to invention, we view innovation as a process that achieves goals and objectives by rejecting institutionalized means and experimenting with unconventional, often unaccepted or deviant, practices and tools. In a recent paper, Phills, Deiglmeier, and Miller2 reflect on the meaning of social innovation and see it as being composed of four basic elements: the process of innovating (generating a novel product or solution); the product or invention itself; the diffusion and adoption of the innovation; and the ultimate value created by the innovation. In the case of Freeplay, the invention itself, the wind-up technology licensed by Rory Stear, becomes a significant social innovation only through the processes of developing products to satisfy social needs and solve social problems, and of creating different organizational vehicles, not only to bring those products to existing markets but to diffuse the innovation throughout regions where markets have failed. The overall value created by this type of innovation is far greater than the sum of its parts. We must reshape our heroic view of innovation as “invention” and broaden the scope of what we consider innovative to include interventions for social good, whether they focus on technology, structures, or processes and mechanisms. Social innovation often involves overcoming important bottlenecks that prevent the marginalized and the poorest from accessing the benefits of many technological and social advances. For example, the innovation of Aravind Eye Hospitals3 was the ability to make eyecare affordable to even the most indigent patients and to extend its reach into rural areas without sacrificing quality. Freeplay further demonstrates that products aimed at social good do not have to sacrifice aesthetics either. Companies should take this type of social innovation seriously because it often provides “proof of concept” in the most difficult circumstances: i.e., if wind-up radios can work in the remotest, most deprived areas of sub-Saharan Africa, they can work anywhere. A similar case is provided by SEKEM in Egypt; if biodynamic agriculture can be successful on a large scale in the Egyptian desert, then it can be successful anywhere.4 Another reason why companies should look to social entre-
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Social Entrepreneurship as Dynamic Innovation preneurs for models of innovation is their flexibility and ability to create the feedback loops that allow organizations to scout for unintended consequences and refine outcomes at an early stage of the innovation process, and to quickly integrate these refinements into product design. In the Freeplay case, for example, early feedback from Kristine and the Foundation on the fragility of radio aerials (and their attraction for other uses) led to a reengineering of the original Lifeline radio into something far more durable and user friendly. Experimentation Another key element of social entrepreneurship exemplified by Freeplay is that of experimentation. The case corroborates our view of social entrepreneurship as a dynamic explorative space, not only in the realms of product and service offerings but also experimentation with business models, organizational forms and ownership structure. The experience of Freeplay demonstrates that social entrepreneurship business models are not static. We can see from the case history that there is a constant shifting of elements within the overall model, as well as reconfiguring of activities from R&D to distribution. Experimentation goes hand in hand with the flexibility to rethink resource configurations and to change or adapt elements of the business model to align more closely with long-term objectives. This is a feature of Freeplay’s innovative approach. Freeplay has experimented with many different organizational forms: first the Freeplay Group encompassed all the company’s activities; then the Foundation was created as a separate entity to fulfill a specific social mission. Following this, the private company underwent an IPO in order to raise cash and simplify the structuring of debt. Most recently, Stear has taken the business private again so that he and his business partners have more control over its strategic direction. Freeplay offers perhaps an extreme case of experimentation with different organizational forms, and, as such, it provides an excellent illustration of the wide variety of forms that social entrepreneurial ventures can take. Social entrepreneurs are increasingly experimenting beyond the traditional non-profit and charity vehicles, especially with hybrid forms and partnerships. In fact, the organizational form itself becomes an important element or tool in the overall model for increasing social impact. In other words, it becomes a resource that is integrated into the total business model and must be aligned with the other elements and structures. A part of this experimentation with organizational form has been Stear’s tinkering with the ownership structure—something that is perhaps not yet resolved and may yet see more experimentation. Resourcefulness Given the limitations posed by raising funds, both through markets and private sources, social entrepreneurs have to be particularly resourceful. In the early stages Freeplay was able to access funds from different sources, such as the grant from the U.K.’s Overseas Development Administration (now called the Department for International Development [DFID]) to develop the wind-up technology. Today innovations / Davos 2009 63
Johanna Mair and Kate Ganly governments and multilateral institutions are offering funds to a wide variety of actors and organizations developing market-based solutions to global social problems. This trend is definitely a positive one. The World Bank’s Development Marketplace is perhaps the best known of these schemes and has, to date, supported 201 winning proposals by a broad array of actors, including NGOs, academic institutions, private businesses, and government agencies, as well as various partnerships between each of the above. However resources, or at least financial resources, are not the bottleneck for developing solutions to social problems. Rather, it is the flow of new ideas and innovation—in the unconventional, behaviorally deviant sense discussed above—that needs to be nurtured and encouraged. In this respect, it is therefore extremely positive that development funding is now offered on a competitive basis for good ideas and no longer based solely on the requirements of legal form (such as non-profit or NGO). Partnerships Among Freeplay’s various experiments with organizational structure was the decision to carve out a completely new organization that could specifically pursue the social goal of bringing wind-up energy products to poverty-stricken parts of Africa. The resulting Freeplay Foundation has a non-profit structure and the mission of “transforming lives through dependable, self-sufficient and environmentally friendly technologies”5 Not only has this enabled the Freeplay company to concentrate on developing and marketing new products, it has also led to a productive and symbiotic relationship with the Foundation that has resulted in considerable sales to the humanitarian sector. The Freeplay Foundation continues to be a source of innovation and creativity for the company by remaining close to low-income (and even no-income) potential markets and providing a link to the development sector, which represents a significant proportion of Freeplay Energy’s sales revenue. The Foundation also has an important role to play in accessing resources for further experimentation with suggestions for new products and new uses for products developed by the company. The Foundation’s winning entry in the World Bank Development Marketplace, for example, allowed the Foundation to pilot a project to create micro-enterprises by equipping entrepreneurs with a Weza footpowered generator that could charge mobile phones and batteries. This has led to further experimentation with Freeplay lighting products for a similar market. The symbiotic partnership between the Foundation and the company allows each the independence to concentrate on their core strengths: for Freeplay Energy it is product development and sales through existing market channels; for the Freeplay Foundation it is reaching the unreached with energy solutions that can help solve social problems. We take a dynamic view on partnership. In the case of Freeplay, the synergy is generated from the flow of resources both up and down the value chain: the Foundation is able to distribute to unreachable areas downstream, while the strength of the company is to push the technology frontier with product innovation upstream. 64 innovations / World Economic Forum special edition
Social Entrepreneurship as Dynamic Innovation This kind of synergy leads to the fourth element of innovation identified by Phills and colleagues: the ultimate social value created, which can be multiplied through partnerships to produce something greater than the sum of its parts. The important lesson here is that we should not view partnerships as static any more than we see innovation or organizational form as static. Each partner develops over time. Thus, while we see Freeplay Energy experimenting with form and structure, we also see the Foundation spinning off a for-profit arm to create a reliable income stream through the sales of Freeplay’s humanitarian products to the development sector. Positive examples of symbiotic partnerships involving social entrepreneurs are becoming more and more common. There has been a trend towards cross-sectoral business groups that combine non-profit and for-profit organizations under the one umbrella. This is exemplified by the SEKEM group, which consists of five different companies selling different biodynamic products (from cotton to phytopharmaceuticals), a non-profit entity committed to social development and a cooperative formed by its employees. Another example is a recent Skoll awardee, Thailand’s Population and Community Development Association (PDA), which maintains a similar separation of business and non-profit activities so that the former can provide a reliable and unrestricted income stream to the latter. One could also point to the synergy between Aravind Eye Hospital and its surgical products manufacturer Aurolab. Even more encouraging is the increasing incidence of creative partnerships and joint ventures between social entrepreneurial initiatives (particularly nonprofits) and companies. An example is the partnership between the Bangladeshi recycler WasteConcern and the national fertilizer company MapAgro. Previous research6 has examined how WasteConcern sought a processing and distribution partner for the raw organic compost it was producing from Dhaka city’s waste, and by so doing managed to build an entirely new (and profitable) market for organic fertilizer. We hope to see more innovation and experimentation with partnerships along these lines. Learning A final attribute we want to discuss here that is shared by social entrepreneurs is the ability to learn from their mistakes and to incorporate learning strategically into the business model. Social entrepreneurs do not act in isolation. Rather, their actions are embedded in social and economic realities—the same realities that give rise to the kinds of social needs and market failures they are addressing. As a result, their actions tend to provoke and be affected by competitive forces. This is why it is important to understand the dynamism that is an integral part of social innovation. Above all, the raison d’etre of social entrepreneurs is to trigger change. Therefore their business models must be equipped to react to change. Moreover, because their social mission is ultimately what is at stake here, it is even
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Johanna Mair and Kate Ganly more important that the business models of social entrepreneurs adapt very quickly to changes in the competitive landscape. They must be able to judge opportunities based on both social impact and the financial bottom line in order to be sustainable. This requires the kind of agility we see in Freeplay Energy and the Freeplay Foundation: the ability to rearrange activities, resource configurations as well as competitive tactics while maintaining the anchor of a social objective that determines long-term strategy. In a fast-paced and ever-changing environment where opportunities constantly emerge and quickly cease to exist, an ability to adapt strategy and incorporate learning is vital to long-term stability. We believe this should provide an encouragement to social entrepreneurs to share their learning and, in particular, to share “what does not work.” Case studies such as this one offer an opportunity to both practitioners and researchers to do just that. Conclusion This case presents some of the most important elements of the phenomenon of social entrepreneurship and offers a variety of insights into how innovation can be harnessed to fulfill both social and commercial goals. Freeplay exemplifies our central premise that innovation is far more than just “invention”: it represents an exciting space for experimentation and a dynamic strategy for achieving social change which can be seen as the ultimate value created by the innovation. In fact, it is the adherence to a social objective that not only determines strategy, but also provides the authenticity to manoeuvre in the ocean of change that is the competitive landscape.
1. J. Mair and I. Marti,. “Social Entrepreneurship Research: A Source of Explanation, Prediction, and Delight,” Journal of World Business, 41(1), 2006, p. 36. 2. J. Phills, K. Deiglmeier, and D. Miller, “Rediscovering Social Innovation,” Stanford Social Innovation Review, Fall 2008, pp. 34-43. 3. K. Rangan, and R. D. Thulasiraj, “Making Sight Affordable. Innovations case narrative: The Aravind Eye Care System.” Innovations, 2(4), Fall 2007, pp. 35-49, 4. I. Abouleish, and H. Abouleish, “Garden in the Desert: Sekem Makes Comprehensive Sustainable Development a Reality in Egypt,” Innovations, 3(3), Summer 2008, pp. 21-48. 5. Mission statement from Freeplay Foundation website: http://www.freeplayfoundation.org/who_we_are.html. Accessed: 11-14-08. 6. C. Seelos and J. Mair 2007. “Profitable Business Models and Market Creation in the Context of Deep Poverty: A Strategic View.” Academy of Management Perspectives, 21(4), 2007, pp. 49-63.
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Freeplay’s Dual Business Models Bring Good Design to Those Who Need It
Innovations Case Discussion: Freeplay Energy and Freeplay Foundation
As I read this case, it struck me that: • Tension arises when a social agenda competes with a business agenda, • Successful products absolutely must have good design, and • It is very difficult to get empowering technologies into the hands of those who will benefit most. BUSINESS MODEL The serendipitous combination of media attention, famous personalities, and political and market restructuring gave Freeplay the foothold it needed to become a viable organization. But it was the ability to evolve its business model and product line that has given the enterprise a life of 14 years and will be the key to its continued success. Freeplay’s original business model was a single organization that used its profits from sales to those with sufficient means, along with donor funds, to subsidize distribution to those who could not afford the technology. Aravind Eye Hospital, whose wealthy patients support operations for the poor,1 and One Laptop per Child, with its buy one, give one approach, have shown some level of success with this model in organizations where the social goals dominate. Freeplay, looking for a more balanced approach, recognized the need to separate the for-profit and nonprofit sides of its original organization and chose to move to a strategic alliance of the two. In The Collaboration Challenge, James Austin explores the creation of strategic alliances between nonprofits and businesses. He describes the stages an alliance goes through, from purely philanthropic (typically one-way), Christopher Bull is a senior lecturer at Brown University working in the fields of material science, technology for development, and social entrepreneurship. He is involved in several aspects of water and agricultural projects in Kenya and public health in Mali. © 2009 Christopher Bull innovations / Davos-Klosters 2009
through transactional (with a flow of resources in both directions), to integrated, even to the point of having common board members. In this light, Freeplay’s example is striking. It chose to move from being fully integrated to having a more transactional relationship. The motivation, one might surmise, was to free both organizations to pursue strategies that best fit their specific goals. The business side could make decisions with profit as the driver, using access to market capital and having a clearer conscience about its manufacturing operations. The foundation gained the ability to raise funds directly and choose partners and projects independently. Although the foundation is an entirely separate entity, it is hard to imagine that the talk in the Pearson-Stear household does not frequently turn to the intersection of the two. What is the symbiotic relationship between the organizations? The Freeplay Energy Group (FEG) needs the Freeplay Foundation (FF) to help fulfill FEG’s social mission, to inform the design process, and to facilitate product distribution. In turn, the foundation relies on FEG for funding and product. In some senses, the foundation has benefited more from the alliance: it appears to have been relatively stable, compared to the rough ride FEG has endured over the past ten years. That ride was the result of decisions it made about manufacturing, the vertical integration of the organization, and the business climate in which it has operated. Separating the organizations shielded the foundation from these issues. What effect has the choice had on the impact of each organization? The foundation receives $230,000 annually from the business and, by having significant input into its development, has gained a range of products (radios, electric generators, and lighting) designed specifically for its clients. The business, on the other hand, struggles to retain clarity about its social goals and to sell the products it develops for the foundation in developed-country markets. Given the rapid change of technology and the changing web of needs and resources, it must continuously adapt.
DESIGN Design is central to both organizations. Rory places research and development squarely at the core of the business. Kristine points to understanding the user’s context and needs as one of the foundation’s most important functions. The objective is to deliver good technology (and perhaps something with “sex appeal,” as Rory puts it) to an extremely broad range of consumers. Consider that the amount of use a tool gets depends not only on its meeting the need but also on its look, feel, balance, intuitiveness, reliability, efficiency, and simplicity—and the list goes on. Add to this the more elusive qualities such as the way it fits the context and the confidence it inspires. The relative importance of each of these qualities changes with the circumstances. A look at
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Freeplay’s Dual Business Models Bring Good Design to Those Who Need It
Freeplay’s current mix of products shows a single function executed in two very distinct ways. The Lifeline radio, distributed by the foundation, has toy-like qualities: it is big, boxy, and bright. It is designed to be used where people (some of them children) live and work. The radios designed for the E.U. and U.S. markets are small, sleek, and lightweight, designed to be carried away from where people live and work. Design problems are typically broad and complex; they become broader and more complex for the 90 percent of the world’s population that typically cannot pay for research, development, and industrial design. The problem may be engaged from a variety of directions (technical, cultural, economic), each with its own advantages and disadvantages. Nick Moon and Martin Fisher from Kickstart,2 and Jan Chipchase from Nokia,3 have demonstrated the pivotal role of participatory/inclusive design in the success of a product for this riskadverse market. Frequently, in products for those without resources, the aesthetic is utilitarian, with little thought given to what pleasure the user might find in interacting with the product. While this aesthetic might meet the need, it does not inspire the user, and hardly makes it a viable product in developed countries. When your market is as diverse as Freeplay’s, it is a great challenge to create one design that works across all contexts.
Empowering Technologies The great potential for these products to transform users’ lives, powerfully brought out in the stories of Terry Waite and Fatima, cries for action on many fronts. What is the best way to get the technology into the hands of the user? How can you do it in a way that addresses some of the gender bias? How can the cost be driven down? What is the most effective way to organize the endeavor? How do you develop trusted sources—sources that are perceived to be unbiased? Who defines the boundary between information and propaganda? Should the Freeplay radio be considered politically neutral or was the Kenyan ministry right in its assessment that radio would change the political landscape? The work of Freeplay illuminates the many and changing challenges in creatively addressing energy and information poverty; it gives hope that a host of well-designed products will be available and accessible to help meet these challenges.
1 M. Ibrahim, et al, “Making Sight Affordable,” Innovations, 1(3), Summer 2006. 2 M. Fisher, “KickStart’s Pumps Help Kenyan Farmers Transition to a Cash Economy,” Innovations, 1(1), Winter 2006. 3 Sara Corbett, “Can the Cellphone Help End Global Poverty?” New York Times Magazine, April 13, 2008.
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Bunker Roy with Jesse Hartigan
Empowering the Rural Poor to Develop Themselves:
The Barefoot Approach
Innovations Case Narrative: Barefoot College of Tilonia
Two roads diverged in a wood, and I— I took the one less traveled by, And that has made all the difference. —Robert Frost, “The Road Not Taken,” 1920 Empowering the rural poor means developing their capacity. It means developing their skills so they become competent decision-makers with the confidence to act on their choices. Thus far, conventional approaches to such empowerment have failed. The approach that big donors and Western-conditioned experts have taken to reach the poor—forget about allowing the poor to develop themselves—has been patronizing, top-down, insensitive, and expensive. It excludes the marginalized, the exploited, and the very poor and keeps them from making decisions on their own. Thus it disempowers them, leaving them dependent and hopelessly ill prepared to improve their lives. Moreover, these “patrons,” however well intentioned, have refused to learn from their mistakes. They are stuck in a rut that wastes money on a process that simply has not worked. But there is another way to empower the poor. It starts with giving the poor the right to decide for themselves how they want to improve their quality of life. They must have the right to choose whether they want the urban experts to come into their villages with “modern” ideas. They must have access to information and knowledge and the right to decide whether they would like to be independent of advice and skills from outside when they already have such incredible technical, Bunker Roy is the founder of the Barefoot College of Tilonia. Mr. Roy and the Barefoot College are the recipients of numerous awards including the Skoll Award for Social Entrepreneurship, the Stockholm Challenge Award for Information Technology, and the Tyler Prize for Environmental Achievement. Mr. Roy was also selected by the Schwab Foundation for Social Entrepreneurship as an Outstanding Social Entrepreneur in 2005. © 2008 Bunker Roy innovations / Davos-Klosters 2009
Bunker Roy with Jesse Hartigan Box 1. The Roots of Barefoot College Registered as the Social Work and Research Centre (SWRC) in February 1971, the Barefoot College started in a small village called Tilonia 350 kilometers southwest of Delhi in Rajasthan state. The college began with no high expectations. The idea was to listen and learn. We wanted to get the farmer and the “professional” together so they could interact and learn and unlearn from each other. Though this was unheard of in the early 1970s, we brought together a geologist, a geophysicist, a cartographer and a gentleman farmer in one place to address a need for water. We started with a survey of 110 villages spread over 500 square miles to examine their groundwater situation. In 1974 we submitted our findings to the government, which used it as the basis for a decision to extend grid electricity to 100 villages in the area where we were working. We were delighted that in two years we could make such a difference. But with urban-trained professionals vastly outnumbering the rural colleagues in the organization a crisis was inevitable: in ideology, in approaches, in decision-making, and in ways to manage the organization. Between 1977 and 1979 this crisis resulted in many professionals leaving the organization, and we had to look inward to see what strengths we had. Also at about this time, in 1975, Yogavalli left Tilonia, as she got married. Subsequently, in 1975-1976, Shukla Kanungo had to leave SWRC, as she wanted to work in Sri Niketan in West Bengal; in 1977, Manya got married and left Tilonia; in 1983 Aruna decided to leave SWRC because she wanted to get involved in non-party political processes. By 1978 we had antagonized the rural rich in the surrounding villages. Bypassing the rural hierarchy, we had gone directly to the rural poor to provide services, thus creating tensions between the marginalized and the local politicians. By tackling corruption, we exposed ourselves to many questions in the state assembly about our intentions and whether we were needed at all. Wanting to bring some change we had miscalculated on our timing and speed. It was too
human, and even financial resources within their own communities. They can even decide whether some knowledge would be useful if they could adapt it to serve their needs. What they need is the opportunity and space to develop themselves. When provided with that mental and physical space, the poor can achieve wonders without any outside professional interference or advice. The trouble is that, even though established approaches have failed to achieve sustainable improvements, people are reluctant to turn the top-down process on its head and start from the bottom up. Few operational models provide a contrast that demonstrates the alternatives. But outside the usual box are other more costeffective approaches that draw more on the grassroots. There are ways to build on local knowledge and skills. And these approaches can be replicated on a large scale 72 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves soon to take on such serious challenges. A severe political crisis exposed our vulnerability as an organization. We were far too dependent on the government. The place where we were working was an unused training center, which we had leased at 1 rupee a month. Our many questions to the state assembly had made the bureaucrats nervous; it was only a matter of time until they sent a letter informing us that we had to leave. In 1978 the government asked us to vacate the premises by January 1979 because they had decided they would like to put it to some other use. Fortunately, in September 1978, out of the blue, Robert McNamara (then president of the World Bank) and McGeorge Bundy (then president of the Ford Foundation and former National Security Adviser to President Kennedy) decided to visit Tilonia. They wanted to see how the poor lived. They spent two days living as we did: sitting, eating, and sleeping on the floor, under the stars, and using kerosene lamps for lighting. The government was horrified when they heard, but Bob has said he remembers the visit fondly. Their visit made the government think twice. Tensions between Barefoot College and the politicians eased dramatically. Then, in January 1979, Mrs. Indira Gandhi came back to power and the order to vacate was cancelled. In hindsight, had the Barefoot College not gone through these crises it would never have come out as strong as it did. In the eyes of the rural poor we established a certain degree of credibility in taking on the local dominant political leadership and surviving. As local people started to be a part of the collective decision-making process, the thinking within Barefoot College changed fundamentally. The college recognized that its dependence on urban expertise and paper credentials did damage to the mindset of the rural poor, in effect preventing them from coming out of poverty on their own. We also decided to take on the local political structure by persuading the local staff to run in the panchayat (village) elections as “independents.” The people called us the Green Party because we used a tree as our symbol. Our presence in the political process shook the political environment when several of our candidates won.
by taking the poor into our confidence and reducing their dependency on inappropriate knowledge, skills, and expertise from “outside.” Since 1971, the Barefoot College has been pioneering such an approach. By giving the responsibility to choose and apply and adapt technology to rural communities, by handing over total control to barefoot educators, health workers, water and solar engineers with roots in the community, and by showing respect in the faith and competence of ordinary people to provide tangible benefits to their own people, we have shown there is a better way. Barefoot College has demonstrated the enduring value of a process and system that is totally owned by the actual beneficiaries.
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Bunker Roy with Jesse Hartigan The ideas have helped lift the marginalized communities out of poverty and given them tremendous hope. By bringing the value of community knowledge and skills into mainstream thinking in modern technology, engineering, and architecture, Barefoot College has revealed the relevance of development that is community owned and community managed. We have demonstrated what we mean by sustainability. We have shown that, as the late president of Tanzania, Julius Nyerere put it, “People cannot be developed. They develop themselves.” ORIGINS OF THE BAREFOOT IDEA In 1967, I went to live and work in the rural village of Tilonia in Rajasthan, India, after receiving the most elitist, expensive, snobbish private education that any Indian could possibly receive. When I arrived, I remember being shaken by the questions the elders asked me: Are you running from the police? Did you fail in your examinations? You did not manage to get a government job? Is there something wrong with you? Why are you here? Why have you come from the city to this village? There is no one here but the very old, the women, and the very young. The youth have left. The youth had left to look for jobs—any job that would take them away from the village—because the predominant value system denigrated rural life, skills, and traditions and offered little hope of improved incomes or quality of life. They had certificates in their hands from uninspiring mediocre technical institutes and colleges located in small towns producing “graduates” by the thousands with high expectations. These youths thought they were going to get well-paid, secure jobs in the cities. Instead, they swelled the ranks of the educated unemployables living in the slums in India. Why unemployable? Because their paper degrees had no value. The certified doctors, teachers, and engineers produced by the thousands every year are paper experts without any practical experience. They are caught up in a system that is not accountable to the people it is supposed to serve and produces insufficient jobs to absorb the number of job seekers. Civil engineers build roads that do not last; water engineers build tanks that collapse or crack or deplete the water resources and cannot be used; doctors focus on curative approaches and know little or nothing about preventive health. So in the absence of jobs but still hoping for any job, they live an inhuman existence in appalling urban slums. The humiliation and scorn they would face on returning to the village prevent them from going back. Anyone going back to the village is considered a failure and the shame is shared by the whole family. When the youth fled, they took with them the dying hopes of their parents— weavers, blacksmiths, potters, builders, carpenters, farmers—to pass on the traditional skills to the next generation. They left behind not only their families but also the knowledge their elders had collected over the generations to adapt to local con-
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Empowering the Rural Poor to Develop Themselves Box 2. The Mission of Barefoot College Barefoot College has committed itself to the following work in poor rural communities: •Raise the standard of living. •Improve the quality of life. •Upgrade people’s existing traditional skills and knowledge through training. •Guide the community in taking responsibility for providing some of these basic services. •Struggle and campaign for justice and the rule of law. •Be transparent and publicly accountable to the community in whose name we receive funds.
ditions. This was knowledge that no formal educational system valued, but it was critical for developing a community with dignity and self-respect. The formal educational system had made them look down on their own roots. For me, living and working in the villages for five years as an unskilled laborer digging and blasting wells and meeting with very ordinary poor people was an extraordinary experience. Between 1967 and 1971, I went through an “unlearning” process that provided the seeds for the humble beginning of the Barefoot College (see Box 1). Over the last 35 years, what we have “unlearned” is our gross underestimation of people’s infinite capacity to identify and solve their own problems with their own creativity and skills, and to depend on each other in tackling problems. What I learned is that empowerment is about developing that capacity to solve problems, to make choices, and to have the confidence to act on them. By 1974, the idea of Barefoot College began to take a more concrete form. Aruna, my wife, resigned from the Indian Administrative Service (IAS) and became part of the Tilonia team. We were joined by Manya Jayaram and Yogavalli Rao, who both came from the Tata Institute of Social Sciences (TISS) in Mumbai, and together started a basic preventive health program. Shukla Kanungo, also from TISS, helped start the Informal Education Program, which ran schools for children who had dropped out of school. The night schools, aimed at children who are obliged to miss school in the daytime because they are performing essential tasks for the family, were started in 1975. On a different front, the college understood the specific real needs of the rural poor (see Box 2). These people needed to assert their identity and demonstrate that their knowledge and skills were not outdated, second-rate, or irrelevant. They needed a college dedicated to their specific and special circumstances, and one located in a remote rural area. They needed a place where they could feel a sense of ownership, where their self-respect and self-esteem could be developed gradually over the years. The Barefoot College acts as a counterpoint both to the incredible ignorance and arrogance the formal system displays and to its belief that it
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Bunker Roy with Jesse Hartigan makes an indispensable contribution to tackling poverty; in reality that approach is counterproductive, even dangerous. WHAT IS BAREFOOT COLLEGE? As an organization, Barefoot College is the only college in India that follows the lifestyle and work style of Gandhi. It is the only college built by the poor, for the poor, and for the last 35 years, managed, controlled, and owned by the poor. Underlying the Barefoot approach is a firm belief in the knowledge, creativity, practical wisdom, and survival skills of the rural poor—possibly the only answer to making communities selfreliant and sustainable. For an unemployed and unemployable semi-literate rural youth to be providing vital services in a village, replacing an urban, paper-qualified doctor, teacher, or water engineer is a totally revolutionary idea. And yet, this is what happens at the Barefoot College every day. It is the only college where paper degrees, diplomas, and doctorates are a disqualification because people are judged not according to their degree of literacy or academic distinction, but by their attributes: honesty, integrity, compassion, practical skills, creativity, adaptability, willingness to listen and learn, and ability to work with all sorts of people without discriminating. The term “barefoot” is both symbolic and literal. Those who work, teach, learn, and “unlearn” and provide a technical skill without a paper degree issued by the Barefoot College go barefoot and remain so after they return to their own villages. Their goal is not to change their lifestyle but to gain the basic skills they need to provide to their own communities a vital service, one that urban professionals are currently trying to provide, most often unsuccessfully. Meanwhile they are maintaining a healthy and sustainable lifestyle for themselves and their community. The Barefoot College is a radical departure from the traditional concept of a “college” because it encourages a hands-on learning-by-doing process of gaining practical knowledge and skills rather than written tests and paper-based qualifications. It promotes and strengthens the kind of education one absorbs from family, community, and personal experience. It deliberately confers no degrees, with a 76 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves view to reversing migration. If one can improve the quality of life in one’s community by providing a vital service, why would anyone in their right mind want to live an unspeakably miserable existence in the urban slums? In any case, because barefoot professionals do not have paper certificates, no one in the urban areas, sadly, will seriously value their skills. The ideology of the Barefoot College four key components: Alternative Education, Valuing Traditional Knowledge and Skills, Learning for Self-Reliance, and Dissemination. Alternative Education First, the Barefoot College demystifies education, taking Mark Twain to heart: “Never let School interfere with your Education.” Mahatma Gandhi believed that giving more importance, value, and relevance to practical skills and applying traditional knowledge to solving day-to-day problems was essential for the development of rural India. Gandhi’s thoughts live on in the Barefoot College. Living conditions for everyone are simple and down to earth (literally!). Everyone sits, eats, and works on the floor. No one can receive a salary of over $150 a month. Valuing Traditional Knowledge and Skills Second, the Barefoot College gives priority to the ideas, thoughts, and wishes of the rural poor. The college respects and emphasizes the importance of traditional knowledge, skills, and practical wisdom. It values keeping the oral tradition alive from father to son. This type of education is deeply rooted in long experience facing the challenges of living in particular circumstances and can never be replaced. The focus of the college is to make the young men, women, and children living in the village aware of this precious resource so that eventually they will stay in their villages and not migrate to the cities to end up living in a slum. This is a major reason why the college places no importance on urban experts with paper degrees and qualifications who want to participate in it. In fact, people may be disqualified if they have too many paper qualifications. Sadly, thirty years of exposure and experience in rural India has taught us that most people with high-level paper qualifications are unfit (and misfits) when it comes to living and working in remote rural areas. They do not have the patience, humility, listening skills, open minds, tolerance, or capacity to show respect for traditional knowledge and skills. Learning for Self-Reliance Third, Barefoot College enhances the self-confidence and competence of the poorest of the poor by providing them access to learning that enhances their ability to serve their own community, thus making them more confidently self-reliant. Over the last 35 years, thousands of unemployed and unemployable rural poor have been selected and trained as barefoot educators and technologists. The criteria for selection are simple. We select only those village youth—both
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Bunker Roy with Jesse Hartigan men and women—who are illiterate, semiliterate, or barely literate and who have no hope of getting the lowest government job. They have been trained as “barefoot” educators, doctors, teachers, engineers, architects, designers, communicators, hand pump mechanics, and accountants. They have demonstrated that “experts” from the urban areas with paper qualifications are not really required to make villages self-sufficient and sustainable because these trained “barefoot” experts can do the work themselves. Two important parts of the emphasis on self-reliance are decentralization and transparency. The very structure of the college in Tilonia is decentralized: a fulltime director is assisted by a team of people in charge of different sections, each looking after their work independently while consulting with colleagues when needed. Each person has their own budget and controls their own bank account. Once a month, the director meets with all the people in charge of the field centers as well as the sections to review the work done in the previous month and see what needs to be done next. At this meeting, they address problems of coordination between the sections. All the decisions are recorded in minutes that are circulated to everyone present. Field Centers (FC) are situated in villages in all four directions from Tilonia in Silora Block Ajmer, a cluster of villages in Rajasthan where the organization is working. Each field center has a campus and is based in a village. There a team, consisting of field workers and their coordinator, plan and implement community-managed initiatives at the village level. Each FC has a work radius of 15 to 25 villages, where initiatives are taken up by village-level committees. At the regular monthly meetings of their village-level committees, they endorse the collective decisions made to implement those initiatives. The FC coordinators are collectively involved with the committees in organizing those monthly meetings. The four most common types of committees are village water committees, village education committees, children’s parliaments, and women’s groups. In principle, the members of all the committees are the poorest of the poo,r and they include equal numbers of women and men. The committees have financial powers, and three members, including a woman, jointly operate the bank accounts. The affiliated Barefoot Colleges have integrated this process of decentralized decision-making as they collectively plan and implement their community-managed initiatives. Barefoot College also stresses transparency and accountability. It is the only grassroots organization in India that holds public hearings and shares usually confidential financial information with the community of all those associated with its work. This information includes the sources of funding, the amounts received, and the ways funds are spent. Staff bank accounts are also published. The organizations associated with the Barefoot College family believe we are accountable to funding agencies and to the community in whose name the funds are received. All audit statements are open to the public.
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Empowering the Rural Poor to Develop Themselves Dissemination Last but not least, the college is being asked to replicate its approach all over India and the world. So far, 20 colleges have been established in 13 states of India. In keeping with the Barefoot philosophy, each operates independently, defining its own curriculum but keeping a few non-negotiable tenets at the core of their operations: Equality. All people in the college are equal regardless of gender, caste, ethnicity, age, and schooling. In practical terms, this means the college has no hierarchy. The founder and director of a college have the same say and status as the new barefoot accountant who has just joined it and the physically challenged barefoot operator who answers the phone. Austerity. Everyone in the college receives a living wage, not a market wage. The maximum wage anyone can earn is U.S. $150/month; the minimum is about half that at 73 Indian rupees per day. Living conditions focus on basic needs and are designed to minimize waste. Collective Decision-Making. Decisions are made collectively, not by individuals in isolation. For example, the salary each person receives is decided on by everyone in the organization; the process is based on a points system in which each person evaluates himself and everyone else according to several criteria. BAREFOOT BUILDS ITSELF For several reasons, the timing was right to build a college with a difference. There was a general agreement that we should never allow the government to politically blackmail the college and apply pressure as it did in the late 1970s. We needed a place of our own to give us the freedom to take up any cause, fight any battle, support any community, defend any right, and carry out any campaign that would bring power and courage and hope to the rural poor. The second reason was to demonstrate the value, importance, and relevance of traditional knowledge, village skills and the practical wisdom of the poor. We needed to have a place where people around the world could come and see it for themselves. Well before the college came into existence, the poor rural communities had been able to preserve, encourage, and promote skill-building for barefoot architects, both male and female. Now these architects undertook the building of the Barefoot College campus itself. Work on the new Barefoot College campus began in 1986 and concluded in 1989. Remarkably, it was designed and built by the very same poor, rural, often semiliterate villagers it trains. At Barefoot, a group of twelve barefoot architects learned to apply their traditional skills to modern challenges while still maintaining their rural sensibilities about resources, tools, and technology. They designed the main campus under the guidance of Bhanwar Jat, an illiterate farmer in Tilonia (see Box 3). Twenty village masons assisted. The campus, including 2,800 square
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Bunker Roy with Jesse Hartigan Box 3. Bhanwar Jat’s Story “Nobody in our family knows how to read and write. We are three brothers, all farmers. We have 15 acres of agricultural land. Now all our children go to school. This is the first time such a step has been taken and I am glad. I joined Barefoot College twenty years ago in 1977. I used to take water to the houses with Kanaram and his donkey. Because I was a farmer I was asked to work on the fields to grow food for the Center. At that time I was working on the poultry farm, looking after chicks for one year with Vasu. It was also my job to take people from the Center on a tractor to the night schools. “In 1986 I was asked to build the New Center. I was—and still am—illiterate. But that did not worry me. I had already done so many jobs at the Center. This was just one more. It took one year to dig the foundation. I was asked to supervise the work of about 50 rural masons and over 100 day laborers. It took two years to build everything. An architect tried to draft blueprints but they were changed so often that they were useless in the end. The project was a joint effort. Everyone who was going to live there was consulted. Everyone’s views had to be respected. So the location of doors, windows, and roads changed every day. Rafiq, the Muslim blacksmith, made the doors and windows in his rural workshop in Tilonia.” meters occupied by buildings and 35,000 square meters of land, cost $21,000 to complete. The architectural team believed, like Gandhi, that there is a difference between literacy and education. This is the philosophy that guided every step of the campus’s construction and later all of the activities that would take place within it. The team’s own life education—the skills and techniques they learned from living and working in their communities—had outfitted them with valuable knowledge and had prepared them to work on the design and construction effort. In this work, an ability to read and write simply was not required. For instance, the team refined and redrew plans and rough sketches on the ground and collectively approved the idea of accommodating traditional building techniques and specific site issues. They measured the depth of wells and floor spaces using their arms and hands and a traditional measure called the hath. A hath is about 18 inches, or the length of the arm from the elbow to the end of the middle finger. The college community included male and female engineers, hand-pump mechanics, traditional puppeteers, village masons, midwives, and night school teachers. They all sat down and contributed to the ideas that went into the concept as well as the building of the actual college. They felt strongly that if they had to live and work in the college, they had every right to design, shape, and build it together. The buildings are located around traditional highly decorative courtyards. The Barefoot architects insisted that the buildings face the wind, so that the natural cir80 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves culation within the courtyards would keep them cool. The women wanted a place to cook in the open courtyards, so one was provided. Local materials like stone were used throughout the building process, with lime mortar for load-bearing walls and stone slabs for the roof. Women drew on their traditional knowledge and materials for waterproofing the campus in a process that they insisted on carrying out in secret. To this day, except for unusually heavy rains, it has not leaked! The Barefoot architects demonstrated that it was possible to use traditional knowledge, local materials, and village skills. In the process, they showed how relevant and important their practical wisdom was for preserving and conserving the architectural skills that had been disappearing from most traditional communities. With great foresight, the Barefoot architects connected the roofs of all the buildings to collect rainwater in a 400,000-liter underground tank. This was quite remarkable in the late 1980s, when many professional architects were still ignorant about the importance of collecting rainwater as part of their basic designs. Seating for 2,000 people was constructed over the tank; it overlooks a stage where performances (puppet shows, street theatre, musical evenings) are held regularly. In this same project, village blacksmiths fabricated more than 70 geodesic domes. The celebrated American architect Buckminister Fuller designed the geodesic dome, but semiliterate architects and blacksmiths fabricated them on the Barefoot College campus, giving it a sustainable makeover. Deforestation is a major threat in the area as traditional housing has made wood a scarce resource. Rafeek Mohammed and seven Barefoot architects developed and built domes fabricated from discarded agricultural implements, including bullock carts and pump sections. The domes were covered with thatch, giving a traditional look to a new idea. Geodesic dome structures are currently being used for a pathology lab, meeting halls, a dispensary, a milk booth, and an Internet café; they have also been used in the desert for a variety of purposes that have benefited thousands of people. In fact, some of these domes are collecting 200,000 liters of rain water in the Himalayas. Barefoot College is also the only fully solar-electrified college based in a village in India. Starting in 1989, barefoot solar engineers installed a total of 40 kilowatts of solar panels and 5 battery banks, each containing 136 deep-cycle batteries. The solar components (inverters, charge controllers, battery boxes, stands) were all fabricated in the college itself. STRUCTURE AND FUNCTION OF THE COLLEGE The process used to build Barefoot College reveals how involved the community is in running it. Members of village committees are responsible for planning how to implement and monitor all the college’s initiatives. Once plans are decided on at the village level, they must be endorsed by members of the rural communities, especially the poorest of the poor, and all decisions are made collectively. The village committees are responsible for the day-to-day administration and innovations / Davos 2009 81
Bunker Roy with Jesse Hartigan have the financial power to purchase materials and disburse honorariums. For example, village water committees plan and implement the construction of rainwater harvesting structures in rural schools. They are involved in deciding on the location and site and in selecting the poorest of the poor to work as wage laborers on the construction. In places where a piped water supply system has been installed, village piped water committees manage and control the systems, collecting monthly contributions from end-users with tap connections. They are responsible for purchasing all the materials and disbursing wages to those involved in construction and maintenance. Village environment and energy committees are involved in selecting semiliterate and literate men and women to be trained as barefoot solar engineers (BSEs). They are responsible for the day-to-day functioning of solar lighting units, collecting monthly contributions from end-users and disbursing honorariums to the BSEs who repair and maintain the solar lighting units. BAREFOOT FOCUS AREAS Barefoot focuses inward on building itself, but it is primarily focused outward, to help rural communities thrive with dignity and self-respect. This involves community input based on assessment of their priority needs. Currently, Barefoot is focusing on six areas: education, drinking water, alternative energy, the environment, empowering rural women, and traditional communication. Education One focus area is education, especially training barefoot teachers, who are selected by members of the rural communities where the night schools are situated. Most often, unemployed rural youth are selected to teach at the pre-primary and night schools. Once they are selected they participate in an initial 30-day residential training camp; then they start their involvement with children by teaching at the night schools. They participate fully in deciding on the curriculum, which is directed at practical learning that fits local circumstances and builds on local knowledge. Barefoot College coordinates these night schools, which have been established in six states in India: Assam, Orissa, Uttranchal, Madhya Pradesh, and Bihar, as well as Rajasthan. They form a network of more than 450 barefoot teachers, including 100 women; their innovative educational process provides access to nearly 8,000 children, including 6,000 girls. Nearly 3,000 boys and girls attend the more than 150 night schools; most are shepherds who must attend to their families’ livestock during the daytime, and who are coming to school for the first time. Rural youth with disabilities fabricate all the teaching and learning materials for these schools out of waste; the list includes chalk, blackboards, seating mats, and even science teaching materials. The college collectively coordinates these night schools through its affiliations with community-based voluntary organizations in the six states. In Rajasthan, the night schools are coordinated by the Barefoot College in Tilonia. 82 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves In addition, a children’s parliament, consisting of representatives elected by the students, elects its own cabinet. It helps to supervise, monitor, and administer the night schools. It meets monthly to discuss emerging problems and decide on action. This gives the children very practical experience in governance. Drinking Water Another primary focus is on drinking water. Despite the popular belief that technology is required to solve pressing water shortages, our experience is that villagers can apply their own knowledge and know-how and succeed. For instance, many engineers believe that problems of water shortage and potability can be solved only by building big, expensive, deep-well drilling rigs to tap groundwater or, alternatively, through piped water supply systems drawing on a permanent water source many kilometers away. Instead, Barefoot turns to the simple but effective system of rooftop rain water harvesting (RRWH). This involves catching rainwater where it falls, using the rooftops of schools and other buildings, and channeling it into underground leakproof tanks made of locally available, low-cost materials. RRWH is a viable, lowcost way of providing drinking water and sanitation to remote rural communities. It has proven possible to collect and store 100,000 liters of rainwater at a cost of 10 cents a liter. While rural people have been harvesting rain water for centuries, the college pioneered the widespread use of this practice to meet the drinking water and sanitation needs of hundreds of rural poor communities throughout India. The college supports people in two types of rainwater harvesting. Most of the rainwater is harvested for drinking and sanitation, mostly from rooftops. In addition, smaller amounts are harvested to recharge the supplies of groundwater. The benefits to communities adopting this scheme go far beyond water management. Globally, many schools in rural communities lack water for drinking and sanitation. These schools typically do not have simple hand-flush toilets. This fact has educational implications: the lack of toilets keeps girls from coming to school, because they need the privacy a toilet can provide. But girls who do not attend school are more likely to become mothers whose children who do not attend school. In addition, for both boys and girls, the lack of water at school means they must spend time fetching water instead of learning. Solutions based on local groundwater or other water sources are often too costly and foster dependency on external resources, knowledge, and skills. A practical solution is for community members to come together and contribute labor and materials to construct their own RRWH structures. All the night schools run by the Barefoot College have underground tanks collecting rainwater so that children have access to safe water and need not walk for miles to fetch water during school hours. The college’s night schools are housed mostly in buildings that house government primary schools during the day, as well as community centers and geodesic domes the college constructed using commu-
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Bunker Roy with Jesse Hartigan nity contributions in cash, kind, and voluntary labor. Rainwater harvesting has also had a considerable impact on women and children. Over the years, many rural women have showed their leadership potential at the panchayat (local self-government) level. They have been elected to the panchayats as chieftains and ward members during the elections in 1995 and 2000. In addition, now that safe drinking water is available at schools, many more girls attend, often double the previous numbers. Also, the daily attendance of both boys and girls throughout the year has increased by about 50 percent. While these results have received recognition and acclaim in many quarters, the college’s work in RRWH has certainly met resistance from water planners and engineers across India. These water “experts” often advocate large and expensive solutions based on the installation of hand pumps, raised water tanks, and piped water supply schemes. They tend to ignore or dismiss the much simpler, community-based method of rooftop rainwater harvesting. For example, in the mountainous and drought-prone state of Sikkim, water management used to involve allowing rainwater to flow down to rivers in the valleys and then using heavy-duty pumps to propel the water back up the mountain through a series of pipes to provide drinking water to remote rural communities. Barefoot water engineers and community members of the village water committee suggested to the chief minister of Sikkim that school children could be provided with safe drinking water by using the school buildings themselves to harvest rainwater, but the state’s chief water engineer said the proposal was technically impossible. Using locally available building materials and the traditional knowledge and skills of the villagers in Sikkim, Barefoot architects constructed the first rooftop rainwater harvesting tank in the village of Sadam, located on a mountain peak in south Sikkim. The tank, which has a capacity of 160,000 liters, was constructed in six months. When they were done, the Barefoot College staff went back to the chief minister of Sikkim and asked him to come inaugurate the system. He was surprised and delighted, and agreed to bring his chief engineer along to show him this system that the engineer had declared technically impossible. As a result of the visit, the chief minister changed the state government’s entire policy. He immediately sanctioned the construction of 40 more rooftop rainwater harvesting tanks and approved funds for rainwater harvesting in three schools. Barefoot water engineers have built over 1,000 rooftop rainwater harvesting structures in 17 states across India with a combined capacity of nearly 50 million liters. This construction has provided gainful employment to more than 20,000 villagers. If and when it rains each year, these systems meet the drinking water and sanitation needs of some 220,000 children in those communities. If the rain is insufficient, the underground tanks can be refilled by water trucks for a part of the year. This simple, cost-effective, centuries-old solution facilitates self-reliance. Local materials and labor can be used, and a village water committee can be empowered to control and distribute the water without depending on the outside
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Empowering the Rural Poor to Develop Themselves
Table 1. Solar Electricity Systems, and Components, Installed in India by Barefoot College, Tilonia. world for technical, human, or financial resources. It can bring together people from various communities and castes, both rich and poor. Alternative Energy The two previous focus areas rely largely on reviving and enhancing the practical traditional skills and knowledge of barefoot builders, hand pump mechanics, architects, and masons. In contrast, Barefoot College has recently drawn on its experience of providing solar electricity on its own campus, in order to embark on another area. It is demystifying modern technology by bringing alternative energy to remote rural villages through solar electrification. Since 1986, the Barefoot College has been promoting the use of solar photovoltaics on a colossal scale all over the country. Rural poor literate or semiliterate men and women from across India and beyond, with little or no educational qualifications, are learning to be barefoot solar engineers (BSEs), installing decentralized solar units at the household level. Taken in total, to date these BSEs have completed energy systems that generate as much electricity as the largest centralized solar power plant in India, the 500 kilowatt plant in Maharashtra. In addition, the Barefoot systems benefit over 90,000 of the poorest households all over India (See Table 1). In remote mountain villages, electricity is a scarce resource. People survive six months of severe winter with temperatures reaching –40ºF, using only dim kerosene lamps and candles, huddled close to the community stove and sharing the same room with their cattle. In villages in the Himalayas where communities decided to install these systems, they selected 209 people, including 19 women, as innovations / Davos 2009 85
Bunker Roy with Jesse Hartigan trainees. The trainees went to Barefoot College and trained to become BSEs. These BSEs have now electrified a total of 140 villages. They have installed solar units in 10,000 households covering almost 574 villages across 16 Indian states. Monthly contributions from each family for repair and maintenance, now totaling nearly $40,000, are being deposited in banks. Members of 139 village energy and environment committees (VEECs) have been trained to monitor the work of the BSEs and make sure the monthly contributions come in regularly. It is impossible to describe the incredible change in the lives of over 15,000 people who are now using fixed solar units and solar lanterns. To get a 20-liter jerry can of kerosene they sometimes had to walk for two days; that kerosene also had to last them a month. In a remote village in Ladakh, an old woman was asked how solar electrification had benefited her. She replied with a shy smile, “For the first time I can see my husband’s face clearly in the winter.” While improved lighting and heating is a great benefit, another priority is generating employment through the use of solar energy. The BSEs have been trained to fabricate solar water heaters and to use solar energy to dry vegetables. Solarpowered spinning wheels have given employment to over 200 women. Ten solar power plants of 2.5 KW each, installed at the rural electronic workshops, have provided power to fabricate charge controllers and inverters. Solar water pumps lift water from the rivers to regenerate wastelands. The BSEs have constructed solar passive houses that retain the heat of the sun when temperatures dip below freezing. In the mountains, these houses serve as schools so that children can go to school even in freezing weather. Environment and Climate Change Mitigation Each focus area has multiple benefits. For example, the college’s work in water, alternative energy, and education also results in protecting and conserving fragile biodiversity in the deserts of Rajasthan and all along the Himalayas. Barefoot College workers conserve water resources and mitigate climate change. They also make every effort to reduce emissions of CO2 and related greenhouse gases. The basic work of the college has other positive impacts on the environment. Solar electricity provides an alternative so people need not use trees and shrubs as fuel for cooking, heating, and lighting. Barefoot workers set an example of living simply and with austerity without abusing and exploiting the available water and land. Thus they promote these ideas among the people they meet. They also control and minimize pollution by sharply reducing the consumption and use of diesel and kerosene for basic needs. Finally, they are implementing a massive environmental education program in the 150 night schools that are lighted with solar lanterns. The college has concentrated its work with solar photovoltaics in the hot deserts of Rajasthan and in the four Indian states nearest the Himalayas. Several thousand houses, schools, and community centers have been provided with solar electricity in one of the world’s most inaccessible and inhospitable regions. They
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Empowering the Rural Poor to Develop Themselves
Figure 1. Locations of Trained Women Barefoot Solar Engineers in India. have prevented several hundred thousand liters of diesel and kerosene from being burned. They have preserved forests and even controlled environmental pollution to some extent. As a result, since 1989, they have kept 1.2 million tons of carbon emissions from entering the atmosphere (See Table 2). These calculations are based on the use of kerosene for domestic lighting, diesel for generators, and diesel and gasoline to transport fossil fuels. Now, solar electricity makes this use of fossil fuels unnecessary. Empowering Rural Women Barefoot College also focuses on empowering rural women in all of its programs. Some programs cover areas such as water and education, where women have traditionally been very active, but their role in spreading solar technology is totally new for them, although it does build on their traditional responsibility to maintain the supplies of kerosene for lighting and fuel for cooking. What is remarkable is that for the first time sophisticated solar technology has been demystified, and simple village women have demonstrated how effectively they can manage and control it to improve their quality of life. They now have the opportunity to develop their competence and confidence to handle technology, providing services to their own community that give them a new level of acceptance and the respect they deserve. What is innovative is involving the whole community in selecting semi-literate innovations / Davos 2009 87
Bunker Roy with Jesse Hartigan
Table 2. Reductions in Carbon Emissions since 1989 women as engineers to provide a vital and non-traditional technical service in an area not generally associated with rural women. It also requires them to develop systematic leadership skills, persuading the community to pay a monthly contribution for the repair and maintenance of the solar systems they have installed in each house in their own village. Where this system was first adopted, the household contributions have been coming in regularly for the last four years. Building on this success, the college recently expanded this same approach to empower a growing number of female BSEs from both inside India and abroad. Older rural women are preferred to men for two reasons. First, they are rooted in their villages and will not migrate to the cities even if their skills could earn them higher incomes there. Second, once they have been trained as BSEs, they are willing to train other women, thus passing on their know-how and skills and leveraging the energy of many women in the community. Solar technology has also expanded into cooking. Solar stoves can be used for frying, boiling, or steaming—or most anything else one can do on a gas stove. A small solar cooker can match the cooking speed and capacity of any modern gas stove; the more powerful large model, which produces about 2.5 kilowatts of heat, can bring 20 liters of water to a boil within an hour. This makes it ideal for largescale catering, for example, in schools. A Society of Barefoot Solar Cooker Women Engineers has been established, with an office and workshop at Tilonia. It is the first registered association in 88 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves Box 4. Empowered Barefoot Women around the World Fatuma Abubker Ibrahim, one of the Barefoot Solar Engineers of Ethiopia, lives in the remote village of Beyahile, in Afar state. Fatu is 20 years old, single, attended primary school, and lives with her parents. She and her family tend to their three cows, 30 goats, and three camels on two hectares of land. Since July 2006, Fatuma has also been looking after 90 fixed solar units, 90 solar lanterns, and one rural electronic workshop in Beyahile and nearby villages. Awatif Abduraheman lives in the remote village of Benishangul in Ethiopia. Semiliterate, she is 25, married, and has three sons. She and her family make their living farming their four hectares. Awatif also does domestic work, and since July 2006 has been installing, maintaining, and repairing 80 solar units in her village and others nearby. Aminata Woulet is 40 and lives in Tinjambane village in Timbuktu in Mali. A widow since 1994, she has never been to school, but can read and write. She has other skills: dyeing cloth with indigo, making leather crafts, and looking after goats. Haja Woulet is 32, a widow with one 10-year-old daughter. She is illiterate and lives with her parents, also in Tinjambane. Together Aminata and Haja solar electrified their own village of 92 houses in 10 days; it was the first village in Mali where rural women installed solar electricity. Aji Kamera lives in the village of Kafenkeng in The Gambia. She is over 30, married with four children, and a Muslim. She attended school up to class 7 but then dropped out. She owns a small plot, on which she keeps three goats, a cow and four chickens. She installed solar electric units in 40 houses in one week; they have been functioning for nearly a year now. Nancy Kanu, a Muslim, lives in KontaLine in Sierra Leone. She is 40 years old, has six children, and is semi-literate. She owns one sheep and one goat. Single-handedly, she solar electrified her village of 35 houses and was the first women solar engineer in Sierra Leone. Rajasthan of semi-literate and literate women. The society currently has six members who have completed training in fabricating and producing the parabolic solar cookers in two sizes, 2.5 and 8 square meters. These solar cookers have been installed in nine villages and are meeting the eating needs of more than 400 people daily. Small models can be found in several villages in Kadampura, Tikawda, Singla, Jawaja, Solavta, Kallian, Nalu, and Tilonia; the larger ones have been installed at Tilonia and Kishangarh, all in Rajasthan. The women engineers regularly visit sites where solar cookers are installed in order to repair and maintain them. They are training others, including some young men, as barefoot engineers; they have even suggested some ways to improve the cookers by altering in the design. People who purchase a cooker receive one free innovations / Davos 2009 89
Bunker Roy with Jesse Hartigan
day of training in its use, installation and basic maintenance at the workshop in Tilonia. Women like Sita Devi, who learned to read and write in Hindi at Barefoot College and who now coordinates the solar cooker workshop, are serving as examples that can change the role and status of women in rural villages in India and more widely in the developing world. Sita built her solar cooker expertise on her previous successful involvement in training people to repair hand pumps at Tilonia some thirteen years ago. In fact, she is currently the only person who can do that work in any of the six villages spread out across 500 square kilometers of Tilonia. Sita lives in Tyod village, and currently repairs and maintains 100 hand pumps in six villages, as a service for the government. At the time, government engineers were surprised when a woman wanted to do the job, but, with support 90 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves from Barefoot College, she prevailed. She tells us that before a hand pump was installed in her village, she and all the other women would have to walk two miles, with two pots on their heads, to get water. Now, with a hand pump nearby, sometimes even the men will get the water—but only in a bucket, as pots are considered too feminine. Also, the water pulled up through the new hand pumps is safer than that in the open wells, which could spread disease. That same kind of empowerment has now spread to women beyond India into other parts of Asia and Africa. For the past 11 years, the Barefoot College has been training semi-literate and illiterate rural women to assemble, install, repair, and maintain solar photovoltaic systems. Once selected by their village to undergo solar training for six months at the Barefoot College, the women come to Tilonia and acquire the competence and confidence to fabricate, install, repair, and maintain sophisticated solar units. They then return to their communities to install solar systems in each house in the village, thus establishing their credibility in the eyes of each family that pays a monthly contribution for them to repair and maintain the units (See Box 4). Never in the history of Afghanistan has an illiterate woman left her house, her village, and her country for six months to train as a solar engineer in India, but that is exactly what 26-year-old Gul Zaman, from the village of Katasang in Daikundi province, did in 2005. She and her 30-year-old husband Mohammed Jan came to Tilonia for six months. They have a small plot of land to feed 10 people, and work as day laborers for over 200 days each year. Together the couple gently created history by solar electrifying their own village of some 50 houses, and the units have continued functioning since September 2005. Electrifying houses provides additional income and a new level of confidence and leadership to the women who train in Tilonia as solar engineers and then serve as role models for young women in their villages. It also opens up other incomegenerating opportunities for all women, who can then use their evening hours to manufacture handicrafts and other goods for sale. Only in the late 1980s did Barefoot College begin to recognize the potential of illiterate and semi-literate women to succeed in these non-traditional areas. As we have implemented this approach over the last 25 years, the women we have worked with have shown an awesome capacity and confidence to provide a service to their communities and to destroy stereotyped images and roles in the process. Today many women in non-traditional roles are serving their own communities. “Barefoot” women are working as night school teachers, hand-pump mechanics, solar engineers, water engineers, architects, masons, and fabricators of solar cookers. Illiteracy has never been considered a barrier to women developing themselves as barefoot professionals. Illiterate women are handling computers and training unemployed youth in feeding technical, health, and literacy data to our organization. Since 1984, semiliterate and literate rural women have formed rural women’s groups in 68 villages; the total membership is about 4,000 women. They meet every month to take up innovations / Davos 2009 91
Bunker Roy with Jesse Hartigan gender-specific issues such as rape and atrocities towards women at the village level; they also discuss health, education, and non-payment of minimum wages. These rural women discuss these gender-specific issues at the village level. If they cannot solve them there, they take them up again at the block and district level. When they need to elicit collective strength and solidarity to tackle such issues, they take them to the state and national level. They have also elicited the support of the men in their villages on issues like the minimum wage, the public distribution system, the right to information, and the National Rural Employment Guarantee Act. Since 1972, when Barefoot College started working with the poorest of the poor, rural women have been actively involved in rallies, demonstrations, and sit-ins to fight for gender-specific issues as well as larger issues of development. Traditional Communication In 1981, the Barefoot College launched its communication section, using puppets to spread awareness and mobilize action on several key problems that emerged as concerns during community discussions. Traditional communicators such as puppeteers and street theater performers have proved to be very powerful in communicating social messages, particularly when an audience is not highly literate. Barefoot College uses live and interactive media more familiar to the poor than television or newspapers. While puppetry is a tradition in Rajasthan, the Barefoot College pioneered its use for this specific purpose. Its puppet team has influenced and changed the attitudes of many traditional and conservative communities on issues such as child marriage, bride burning, the legal rights of women, equal wages for women, and reasons why children should learn how to read and write. Barefoot communicators perform shows at night in the villages. The glove puppets, made from recycled paper such as World Bank reports, are used to act out stories that bring up a range of issues: children’s education, being untouchable, women’s empowerment, the right to information, exploitation of the poor, and the importance of the minimum wage. Adults and children alike attend the shows, which are largely improvised. Barefoot Communicators do not use written scripts, as many are illiterate or semi-literate. Each year, Barefoot Communicators perform 100 to 150 puppet shows, reaching nearly 100,000 people in 110 villages of Rajasthan. In 1985, our communication team went to Chota Narena in Rajasthan to stage a puppet show. That particular day we performed “Roti” (Bread), a play about a man whose habit of drinking liquor completely destroyed his wife and children. As soon as the show was over, one man got up, looked at the audience, and shouted, “Did you listen carefully to the play? That happened to me. You all know how liquor totally destroyed me and my family.” We were stunned. Before we could blink the man came on stage and said with great humility, “You have opened my eyes. Where were you all this time? I have a request to make. From now on, whenever you perform this play, please tell people that this is the real story of a man in
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Solar electrified village at night. the village of Chota Narena.” The work of the Barefoot communicators has also been showcased outside of India. In December 2005, a team of Barefoot Communicators went to The Eden Project in Cornwall, England for two months. They performed puppet shows, taught their English counterparts to make glove puppets from recycled paper, and learned how to make puppets larger than the 3- to 4-meter ones found in the villages of Rajasthan. Today, these larger puppets can be found in festivals and parades in Tilonia and neighboring villages. GLOBAL REPLICATION OF THE BAREFOOT APPROACH The Barefoot approach is a breakthrough: we have demonstrated that it can be replicated anywhere in the world. Ten years ago, three sheep farmers from the village of Agrisewal near Marrakech in Morocco were selected to come to the Barefoot College in Tilonia. They had never been outside their village. They only knew Berber and French—no English and no Indian language. In six months, using only sign language, they became barefoot solar engineers, installed 100 solar units in the Himalayas in India, and then went back home. This demonstrated that language, religion, food habits, climate, caste and creed are not barriers to learning. At this time, more than 340 ordinary village men and women from eight countries in Asia, Africa, and South America have been trained as BSEs. They have solar-
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Bunker Roy with Jesse Hartigan electrified some 550 schools and 13,000 households in more than 600 villages across the globe. They have assembled and installed over 10,000 solar home lighting systems and 4,400 solar lanterns, for a total installed capacity of 646 kilowatts. Those in Ethiopia constructed six rooftop rainwater harvesting structures last year, with a total capacity of 600,000 liters. In Africa the rooftop rainwater harvesting tanks have benefited some 2,100 children in Sierra Leone, Senegal, and Ethiopia. Based on these successes, the Barefoot College is scaling up its efforts to train rural African women in solar electrification so they can bring light and income to villages in Mali, Sierra Leone, Cameroon and the Gambia. The Barefoot College has trained 97 rural women across the globe as BSEs, including 11 women from Mali, Sierra Leone, and Cameroon in 2007. These women have shown that language, climate, culture, and schooling are no barriers to the practical mastery of solar systems. As the college ramps up its solar electrification projects across Africa, these women are leading by example: showing how the skills of the rural poor, de-linked from literacy, can drive their own development. The Barefoot approach remains distinct, but is gradually becoming a part of the official “system.” The college is now moving into using non-traditional communications channels, including the Internet. To get out the message about its success it is producing videos and photography, and participating in international networks and meetings. Its initiative included training both men and women as barefoot doctors, hand pump mechanics. • Between 1984 and 2005, the College received $ 7.6 million to install 13,300 fixed solar units. This included the installation of 800 fixed units in Ladakh in Kashmir, supported financially by $450,000 from the Ministry of NonConventional Energy. • Between 1996 and 2003, the Ministry of Non-Conventional Energy provided $775,556 to install 4,000 solar units and 7 power plants of 2.5 kws each in the backward, tribal hill states all over India. • In 2000, the European Union provided $500,000 to install 1,250 fixed solar units and 5 solar power plants in 3 states: Uttranchal, Jammu, and Kashmir, and Sikkim. • In 2003, UNDP India provided $1 million to install 1,400 fixed solar units, fabricate 2,000 solar lanterns, and establish 7 Rural Electronic Workshops in 100 villages in 7 states of India. • In 2005, UNDP Ethiopia provided $1.4 million to install solar electric units in 600 houses in 30 villages. CHALLENGES AND LESSONS LEARNED What is pioneering and innovative about the Barefoot approach is the emphasis and respect it gives to applying the knowledge, skills, and practical wisdom of the rural poor—which may be the only way to make communities self-reliant and sus-
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Empowering the Rural Poor to Develop Themselves tainable. With roots in the village community and a deep-rooted respect for the proper and wise use of water, air, earth, and the sun, Barefoot Educators have set an example of how NOT to waste or overexploit nature resources. They are a living testimony to Mahatma Gandhi’s famous saying, “The world has enough for every man’s need but not for one man’s greed.” The approach has had a considerable impact in changing the mindset of urban “experts” and influencing their attitudes toward the idea of having the poor identify and solve their own problems. Development with dignity means development with less dependence on urban skills and more self-respect. The Barefoot approach has worked. The results are there for everyone to see and feel. In driving its innovations, the Barefoot College has come up against several major challenges. Promoting a Different Vision of Development The first challenge has been to convince people that a different vision of development is possible. Throughout its brief lifetime, the college has worked hard to convince urban people that semi-literate men and women from any village in India— indeed, any remote village in the world—can competently provide professional services to their own communities. While the results of the college’s work speak for themselves, this task continues to be a daunting one since it involves changing long-held stereotypes, mindsets, and attitudes towards the poor. Still, a great many people, including many who hold important positions, have learned about its activities and have traveled to Tilonia to witness its work first-hand. We make progress with each new person who comes to the campus, as they absorb the spirit of the approach and are inspired to help disseminate and expand it within their own spheres of influence. Dealing with Success The second challenge has been dealing with success. The college has demonstrated that semi-literate rural women can solar-electrify remote villages and look after solar units more competently than paper-qualified solar engineers. In so doing, it has turned established perceptions upside down, and debunked the basic assumption that formal education is required for development work. Unfortunately, in challenging established thinking on development, the college has generated hostility and jealousy, and has made many enemies. Those most hostile to the Barefoot approach are people who have invested a great deal in acquiring an education through the official system and then applying that misguided “expertise.” The very idea of semi-literate women being able to manage and control initiatives at the village level undermines those hard-earned credentials and credibility and even threatens the existence of their jobs. Indeed, one result of the Barefoot approach in India, where it is most widely replicated, has been the replacement of cost-intensive initiatives and jobs by low-cost and labor-
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Bunker Roy with Jesse Hartigan intensive initiatives, providing gainful employment within the villages. Learning from Failure The third major challenge has been to learn from successful failures. Taking risks, trying new ideas, failing and trying again is a process that is respected in the Barefoot College because we recognize that we should learn as much from failure as from success. But the formal education system has no room for failure. In that system, failure is considered a matter for shame and regret. Barefoot College gives everyone involved the opportunity to make mistakes and learn from them. Any organization worth its salt has to go through crises. The crises can either break the organization into little splinters or eventually make it stronger. In the early 1980s, as decision-making power within the college gradually shifted from the urban professionals to the rural youth, many of the former left to join other organizations or opted back into the system. That was a crisis that led to uncertainty and insecurity. But the college learned two important lessons that have since guided and influenced future decisions. 1. Do not depend on urban professionals because they will not stay there all their lives. In a world dominated by materialism, they may be tempted to use the college as a stepping-stone to secure better-paying jobs. The answer has been to develop the capacity, confidence, and competence of the rural poor to provide their own services. After all, they have the knowledge and the skills that have stood the test of generations before the urban-trained doctor, teacher, and engineer turned up on the scene. Why not, as a policy, move in that direction? That is what we have done and it has been a key to our success. 2. You do your best work when you are insecure. When your back is against a wall and you have nowhere to run and no one to turn to, you have no choice but to face the consequences. When a crisis arises and could possibly lead to violence, urban professionals normally do not have the staying power. Because they have somewhere to run to, they are not prepared to see the crisis through. In many ways, the Barefoot College is a microcosm of a more just and creative world. Special emphasis is placed on giving the physically and mentally impaired the same opportunities to work and belong to society as the physically and mentally able. People who need medication but cannot afford to pay the market price are charged 10 percent of that price by the health center; if they are really struggling, they are given the medication free of charge. Waste paper from offices is recycled to make bags, pencil holders, origami, and teaching tools—which are in turn supplied to local night schools. Office equipment, fans, and lights are powered by solar panels on the roofs of office buildings; living quarters are similarly supplied with solar energy. Drinking water and sanitation needs are met by a combination of rooftop rainwater harvesting and local hand pumps; and the local environment is strengthened by a network of troughs that harvest rainwater and feed it into a large open well used to recharge the water table. Discarded intravenous drip bottles and tubes are disinfected and used to irrigate plants on the campus in 96 innovations / World Economic Forum special edition
Empowering the Rural Poor to Develop Themselves this semi-desert area. The Barefoot College has been putting into practice an idea first espoused by Mahatma Gandhi: that the resources required to develop poor communities lie within the bounds of those communities. Human, technical, and financial resources need not come from outside in order for a community to bring about fundamental change and improve its quality of life. Too often, community resources are neglected, looked down upon, and considered inferior just because they have not conformed to the formal requirements of the education system. However, just as important, the college has demonstrated to the villagers themselves that any one of them, man or woman, with little or no educational qualifications, can learn to provide basic services to their own community. To be able to change the mindset of poor rural people who have been made to feel that they cannot do it themselves is an enormous contribution. Less developed countries would benefit immensely from adopting this Barefoot approach. It can eventually transform the outlook not only of development officials, but, most importantly, of the rural poor themselves, instilling in them a “can do” attitude to improving their own lives, and replacing the apathy and hopelessness they may feel after so many years of coming up against an irresponsive system that does not respect their abilities. First they ignore you, then they laugh at you, then they fight you, and then you win. —Mahatma Gandhi
1. Julius Nyerere was President of Tanzania from 1964 to 1985. The full quote is as follows:
Development brings freedom, provided it is development of people. But people cannot be developed; they can only develop themselves. For while it is possible for an outsider to build a person's house, an outsider cannot give the person pride and self-confidence in themselves as human beings. Those things people have to create in themselves by their own actions. They develop themselves by what they do; they develop themselves by making their own decisions, by increasing their own knowledge and ability and by their own full participation as equals in the life of the community they live in. People develop themselves by joining in free discussion of a new venture and participating in the subsequent decision; they are not being developed if they are herded like animals into the new ventures. Development of people can, in fact, only be effected by the people. Nyerere, Julius. Freedom and Development. Uhuru na Maendeleo. A Selection from Writings and Speeches 1968–1973. Dar es Salaam; London; New York: Oxford University press, 1974; p. 58.
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Standing the Poor World on its Head
Innovations Case Discussion: Barefoot College of Tilonia
When someone like Bunker Roy has helped pioneer and define a global movement, inspiring successive generations of wildly innovative social entrepreneurs, it is tempting to heap further laurels upon his head. Others, less generous in spirit, might be tempted to seek out his Achilles Heel. But with the world headed towards a population of nine billion-plus sometime mid-century, perhaps there is a higher task. Perhaps we should try to dig a little deeper into the question: For all its wonders, does Barefoot College provide a model that is sustainable, replicable and scalable? Roy and his co-author Jesse Hartigan have done us all a great service with their presentation of the Barefoot approach, but our aim in what follows is to reframe the achievements of what the more brand-savvy might call “The Barefoot Way.”1 For, much as we may love the Barefoot Way and community, the reptilian part of the brain keeps nagging away, asking whether there is not something about all of this that is more like a set of locally reported modern miracles, together with an accompanying spray of parables, rather than a global revolution in the making. And why is this important? Well, given the sheer scale and intransigence of global poverty, it seems inevitable that there will be a growing number of calls to turn the current development system on its head, to let the poor find their own way. Handing over responsibility for the future to the poor would provide a very useful alibi for some to do nothing—or, worse, to continue with forms of businessas-usual that undermine the world of the grindingly poor. In this scenario, the Barefoot parables could be used to reinforce strategies that were about as remote from the Barefoot principles as could be imagined—rather like what happened with the crusading Christian Church in the Middle Ages. Not that we are looking for revolution. History shows that such social convulsions rarely produce the sort of sustained changes their instigators hoped they would. Indeed, many of these people end up under the guillotine or with their backs to pock-marked walls. Instead, accelerated evolution should be our goal. And here is a public health warning: while we aim to be analytical about the processes of—and trends in—social entrepreneurship, we often find ourselves John Elkington is a founding partner of Volans Ventures (http://www.volans.com), a cofounder and non-executive director of SustainAbility, and co-author with Pamela Hartigan of The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World (Harvard Business Press, 2008). © 2008 John Elkington
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Standing the Poor World on its Head completely wrapped up in the alternative realities that the world’s top social and environmental entrepreneurs so readily conjure. As consummate marketers, these people typically confront us with stark contrasts. They do it willfully, to catch our attention—and very often it works. So, the Roy/Hartigan case argues, the work of big donors and Western-conditioned experts has been patronizing, top down, insensitive and expensive, disempowering the marginalized, the exploited, and the very poor. All true, up to a point, though very often the failures of development have had at least as much to do with the endemic While we aim to be analytical corruption and inefficiency that is the hallmark of many less about the processes of—and developed nations and regions. trends in—social At first glance, at least as viewed through the Bunker Roy entrepreneurship, we often kaleidoscope, the world seems to find ourselves completely be a place of intense whites and profound blacks. Big (as in Big wrapped up in the alternative Business or Big Government) is realities that the world’s top bad, small—in all its infinite variety—is beautiful. Fritz social and environmental Schumacher lives. And, certainly, there are deep, uncomfortable entrepreneurs so readily truths here. But the world is a conjure. very much more complex place than most propagandists would have us believe. Western aid and development efforts may have been deeply flawed, but they are neither uniformly bad nor beyond remedy, given sufficient political will on the part of both donor and beneficiary countries. Think of the story of Robert McNamara, then of the World Bank, coming and sleeping on the floors of Tilonia in his quest for understanding. These are not Nazis; they are often intelligent, committed, worried people desperately trying to work out how to drive political, economic, and social change. Equally, big corporations may operate from sets of values that can seem completely alien to ordinary people, but many have played a central role in the development of what are now better-organized, better-governed parts of the world. Interestingly, when we did our first survey of social entrepreneurs as part of our three-year research program funded by the Skoll Foundation (refer to the Reasons to be Hopeful text box), we found that the world’s leading social and environmental entrepreneurs are hugely interested in finding ways to work with mainstream companies. Some, like Muhammad Yunus of Grameen, are already developing fascinating partnerships with companies like Danone, but most are not—and are only too ready to declare that they don’t yet know how. innovations /Davos-Klosters 2009 99
John Elkington Reasons to be Hopeful The early findings of SustainAbility’s Skoll Foundation funded work on social entrepreneurship are encouraging, to a degree. First, it is clear that there has been an extraordinary proliferation—and growth—of networks devoted to the replication and scaling of entrepreneurial models, among them: Acumen, Ashoka, Echoing Green, Endeavor, The Schwab Foundation for Social Entrepreneurship, and The Skoll Foundation for Social Entrepreneurship. When we did our first survey as part of this program of work, we quizzed over 100 leading social and environmental entrepreneurs around the world. The key findings of the resulting report, “Growing Opportunity”, included the fact that these entrepreneurs—unlike many NGOs—have an overwhelming appetite to work with mainstream business. The main problem is that they say they do not know how to select appropriate partners, nor do they know how to negotiate appropriate relationships. But such challenges are fairly readily addressed. In our second survey, we set out to address a problem that surfaced when we circulated SustainAbility’s corporate clients to say that we were extending our work into the field of social entrepreneurship. A handful—but we pay attention to weak signals—said, in so many words, that they were sorry to be losing us as we headed off into the outer darkness. For them, it seemed, working with NGOs was now part of business-as-semi-usual (fitting neatly into the corporate citizenship and risk management boxes), whereas working with entrepreneurs exploring new markets and developing new business models somehow didn’t fit. This blind spot was our target in our second survey, which produced a final Ultimately, whatever individual social entrepreneurs may insist to their donors or other stakeholders, there is no single entrepreneurial solution to the world’s social and environmental challenges. Instead, we urgently need much more entrepreneurial thinking and approaches right across the spectrum of human activity, from bottom to top, small to big, citizen sector to public and private sectors. We are tempted to quote Mao Tse-Tung’s line that it’s time to let a thousand flowers bloom. But while Mao would then hack down the tallest blooms, the citizen, public and private sectors alike all need to develop the skills of entrepreneurial incubation, replication, and scaling. Perhaps Barefoot College’s biggest contribution to the global debate will be in the form of a demonstration project. Every so often, someone does something extraordinary, like the people who achieved heavier-than-air flight, broke the fourminute-mile barrier or the sound barrier, sailed solo around the world, or landed on the moon—and suddenly the impossible seems entirely possible to the wider world. There is in the Barefoot Way something deeply significant for the twentyfirst century, something that could be like a crucial new gene in a population under stress, something that could help some parts of our collective future to take on rather unexpected forms. A provocative conversation with Paul Hawken as we
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Standing the Poor World on its Head report entitled The Social Intrapreneur. If Growing Opportunity focused on the world of social entrepreneurs like Muhammad Yunus of Grameen Bank or Bunker Roy of Barefoot College, this latest report focuses on what we might call the “Yunus Inside” phenomenon of social and environmental entrepreneurs (or intrapreneurs) working inside mainstream companies. The degree to which the social intrapreneurs surveyed welcomed the process was quite extraordinary: many, it turned out, feel quite isolated in terms of the challenges they face inside their companies or organizations. The best—or most effective—of these people are adept at fighting and surviving cynicism, caution and the status quo inside their host organizations. They have found that they cannot turn their backs on the savage global inequities and environmental degradation that characterize the modern world. They believe in market solutions and are creating new business models. They are compelling their organizations to look outside their comfort zones—to see both the strategic risks and profound opportunities that exist beyond current business unit time horizons. They are not satisfied with suboptimal equilibriums, where markets work well for some, but not at all for others. They flourish where they are provided with—or can assemble—an effective base from which to leverage innovative societal solutions. And many of them are quick to note that their personal vision and work owes much to the extraordinary achievements of people like Bunker Roy, Muhammad Yunus, and the other leading edge pioneers we profile in The Power of Unreasonable People.
developed this commentary helped spur a line of thought in this direction, one which we will return to towards the end of the piece. LEVERAGED NONPROFIT So much for the teaser. More fundamentally, what sort of organizational life-form are we talking about here? And where do Bunker Roy and Barefoot College fit into the entrepreneurial spectrum? In our ongoing work on social entrepreneurship, we have focused on three main forms of social enterprise: Leveraged Nonprofit Ventures (Model 1), Hybrid Nonprofit Ventures (Model 2), and Social Business Ventures (Model 3)2. With Model 1 enterprises, a public good is delivered to the most economically vulnerable, who do not have access to, or are unable to afford, the services rendered; there tends to be a high degree of dependence on various forms of philanthropy; there is often a central goal of enabling direct beneficiaries to assume ownership of the initiative; and frequently the founding entrepreneur morphs into a figurehead, in some cases for the wider movement, as the processes of succession work through. innovations / Davos-Klosters 2009 101
John Elkington Model 2 enterprises also serve the under- or un-served, but the notion of making (and reinvesting) a profit is not totally out of the question. The enterprise is able to recover a portion of its costs through the sale of goods and services, in the process often identifying (and in some cases helping to develop) new markets. The entrepreneurs here mobilize funds from public, private and/or philanthropic organizations in the form of grants, loans, or, in rarer cases, quasi-equity investments. As mainstream investors and businesses enter the picture, even when they are not seeking mainstream financial returns, they tend to push hybrid nonprofit ventures to become Model 3 social business ventures, to ensure access to new sources of funding, particularly capital markets. Here the entrepreneur sets up the venture as a business with the specific mission to drive transformational social and/or environmental change. He or she seeks out investors interested in combining financial and social returns. We urgently need much The enterprise’s financing—and scalmore entrepreneurial ing—opportunities can be significantly greater because social business can thinking and approaches more easily take on debt or equity. All three pursue social or environright across the spectrum mental ends that markets have largely of human activity, from or totally failed to address, and they use different means to do so. In the bottom to top, small to process, they may adopt unique leadbig, citizen sector to public ership, management, and fund-raising styles, each with its own implications and private sectors. and lessons for people working in mainstream organisations in the citizen, public, and private sectors. Using this taxonomy, Barefoot College is a Model 1 venture. Ask most Model 1 entrepreneurs why they are now working on a for-profit basis, and they will look at you as if you are from another planet—which you just as well could be. These people aim to meet needs that are ignored by current market mechanisms and businesses. Maybe this blinds them to the occasional opportunity to operate on a for-profit basis, but generally they operate where the market air is too thin for mainstream businesses to even think of venturing. The following characteristics tend to be typical of Model 1 enterprises: • A public good is being delivered to the most economically vulnerable, who do not have access to, or are unable to afford, the service rendered. • Both the entrepreneur and the organisation are change catalysts, with a central goal of enabling direct beneficiaries to assume ownership of the initiative, enhancing its long-term sustainability. • Multiple external partners are actively involved in supporting (or are being
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Standing the Poor World on its Head recruited to support) the venture financially, politically, and in kind. • The founding entrepreneur morphs into a figurehead, in some cases for a wider movement, as others assume responsibilities and leadership. You could argue that entrepreneurs applying leveraged non-profit approaches are modern-day alchemists who, with minimal financing, leverage the power of communities to transform an otherwise grim daily existence. While they learn a lot from failures, as Roy and Hartigan note, the best of them are proving more successful than most alchemists, whose fumbling experiments heralded the dawn of the industrial era. In like manner, leading social entrepreneurs signal where some of tomorrow’s largest market opportunities will be found—and, at least in outline, the sort of business models that will help turn those opportunities into social and market realities. That said, companies—and other potential mainstream partners—should not be fooled into thinking that these entrepreneurs’ dependence on external funds and in-kind support will make them easy partners. Quite the contrary. Many carry an understandable rage born from years of watching their communities being shortchanged, ignored, or destroyed by greed. Still, mainstream businesses that create successful partnerships with these enterprises will likely find their thinking challenged, their horizons stretched, and their own employees reinvigorated. SEXY, BUT WILL IT SCALE? Successful entrepreneurs—whatever their field—tend to spin a good story. Bunker Roy is no exception. One that we have long liked relates to the home-made puppets the Barefoot community has used to change the attitudes of many communities on issues such as child marriage, the rights of women, equal wages for women, and legal literacy. Roy loses few opportunities when speaking overseas to tell audiences that puppets were made from papier-mâché produced by recycling World Bank reports. True or not, the story sticks in the audience’s memory—and with it the fundamental principle of people taking their destinies into their own hands. The Barefoot USP is clear. Billed as the only college in India that follows the lifestyle and work style of Gandhi, it is also the only college built by the poor, for the poor, and managed, controlled, and owned by the poor. All very exciting, but that every lack of “competition” should give us pause—you know an organization is truly successful when you see competitors trying to emulate it. Given the role of competition in opening out markets, Barefoot College’s very uniqueness signals deep-seated structural barriers in the “market.” Again, while it is certainly fair to claim that Barefoot College is “a microcosm of a more just and creative world,” its survival and success has been very much due to the vision, energy, and stamina of one man, Bunker Roy. Without his enormous capacity to raise external resources, it would have been virtually impossible to fund some of Barefoot’s current projects, including the process of hosting solar-engineers-in-training from other countries. This is particularly important because the College’s efforts have catalyzed generation upon generation of trainees who return innovations / Davos-Klosters 2009 103
John Elkington to their rural communities in developing countries with the knowledge and skills needed to construct rainwater-harvesting tanks from local materials or to solarelectrify their villages. But how scalable is all of this? The case underscores the fact that, to date, 20 colleges in the Barefoot mould have been established in 13 Indian states, all adhering to the same non-negotiable tenets. Later on in the story, we learn that more than 340 ordinary village women from eight countries have trained as Barefoot solar engineers—and that they have gone on to solar-electrify some 550 schools and 13,000 households in more than 600 villages around the world. There have also been significant parallel achievements in the area of rainwater harvesting in countries like Ethiopia. Again, the temptation is to applaud, to stamp the ground, and call for the beatification of such extraordinary people. But it is as if we are watching the Wright Brothers wrestling their ungainly machines into the air at Kittyhawk, knowing that what they are doing is of mythic proportions and significance, but knowing too that between those epic small steps and the great leaps that took the aviation and aerospace industries to their current scales lie a huge amount of history, of technological and financial evolution, and of extraordinary adventures that help the small become Big. What is missing from the case—and we admit that this is not the authors’ purpose—is any assessment of the shifts in thinking and behaviors in the citizen, public and private sectors that will turn the Barefoot Way into a basic tenet of twenty-first century politics, business, and financing. UNLEARNING There is no doubt that Bunker Roy qualifies for our highest label of praise: he is a wildly unreasonable man. The title of the book—The Power of Unreasonable People—that summarizes our own thinking and work to date references something that playwright George Bernard Shaw once said. “The reasonable man adapts himself to the world,” he noted, whereas “the unreasonable one persists in trying to adapt the world to himself.” Therefore, Shaw concluded, “all progress depends on the unreasonable man.” And one of the most strikingly unreasonable features of the Barefoot Way, at least as articulated by Roy, is the notion of unlearning. It may sound uncomfortably reminiscent of the “re-education” camps that so often followed in the wake of twentieth century revolutions, but the notion that much of what we took for granted—and that development professionals preached—in the last century is sufficiently flawed to require intense re-examination strikes us as eminently reasonable, indeed very much overdue. But there is a danger in all of this that acolytes end up so celebrating the practical wisdom of the poor that we cascade all the responsibility for their state—and for the arduous task of finding relevant solutions—to those at the bottom of the pyramid of wealth and power. It is interesting that part of the role Bunker Roy has played is almost akin to that of Old-World prophets, channelling angels down from the heavens. So we 104 innovations / World Economic Forum special edition
Standing the Poor World on its Head learn not only about McNamara making a flying visit, but also that Tilonia has seen an endless flow of international dignitaries—among them Prince Charles— who have helped put and keep Barefoot College on the political radar screen. And then there are the throw-away lines about people like architect-designer Buckminster Fuller, whose geodesic principles inform some of the most interesting Barefoot buildings. Clearly, this isn’t a black-or-white world, but a chequered world, a world of intensely shaded greys, of combinations, of hybrid outcomes. And the ability to survive and thrive in such zones of complexity, we have found, is a key characteristic of successful social entrepreneurs. When we tried to distill down some of the most crucial characteristics for the book, the following leaped out at us. Among other things, these entrepreneurs: • Try to shrug off the constraints of ideology or discipline. • Identify and apply practical solutions to social problems, combining innovation, resourcefulness, and opportunity. • Focus—first and foremost—on social value creation and, in that spirit, are willing to share their innovations and insights for others to replicate. • Jump in before they are fully resourced. • Have an unwavering belief in everyone’s innate capacity, often regardless of education, to contribute meaningfully to economic and social development. • Show a dogged determination to take risks that others wouldn’t dare assume. • Balance their passion for change with a zeal to measure and monitor their impact. • Display a healthy impatience (e.g. they don’t do well in bureaucracies, which can raise succession issues as their organisations grow—and almost inevitably become more bureaucratic). • Have a great deal to teach change-makers in other sectors. THE TRANSPARENCY GENE Standing back from the Barefoot case, we are left with the question of whether all this can—and will—replicate and scale in a globally significant way. The answer has to be, up to a point. The fact is that even a 100-fold or 1,000-fold scaling of the current Barefoot College operations would only scratch the surface of India’s challenges, let alone those of the rest of the world. But, mercifully, replication and scaling can happen in multiple ways. In our first set of bulleted points above, outlining some of the characteristics of Model 1 social entrepreneurship, we noted that often the founding entrepreneur “morphs into a figurehead, in some cases for a wider movement.” That is precisely what Bunker Roy has done—and there are ways in which this process can catalyze change at very different levels. So, for us at least, this is all a bit like gene transfers. There is a set of Barefoot genes that could be adopted to good effect by a wide range of citizen, public, and private sector organizations, if only they knew the whys and hows.
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John Elkington The “Unlearning Gene” would certainly be one of these, as long as it is accompanied by assorted learning genes and related promoters, but maybe the most important element of the Barefoot Way—and one that even Bunker Roy would probably admit Barefoot has been singularly unsuccessful in spreading to the rest of India, at least as yet—is the “Transparency and Accountability Gene.” Given the way in which the lack of transparency and accountability promotes and protects corruption and inefficiency, finding mechanisms that let the sun shine in, that develop appropriate governance and stakeholder engagement mechanisms—built on but expanded from the basic Barefoot approach—could rival the “Stand-thePoor-World-on-its-Head Gene” as the single greatest contribution that the Barefoot community could make to the wider world. Like the early versions of major religions, the austerity element of the Barefoot Way may limit its spread, but just as new growth can spring through the forest floor after a fire sweeps through, so new genes, new social and market perspectives, and new business models can erupt into the market landscape after major discontinuities. And that is where the conversation with Paul Hawken, author of many fine books, most recently Blessed Unrest,3 comes in. He and John Elkington were talking about the prospects for a global economic meltdown, as the sort of natural-resource and environmental limits predicted by the Limits to Growth team in the early 1970s arrive on an accelerated time-scale, driven by a Perfect Storm of population growth, spreading consumerist lifestyles, and the onset of Peak Oil, Peak Water, Peak just-about-everything. Hawken countered Elkington’s pessimism about the capacity of solar and other relevant energy and environmental technologies to deploy fast enough to meet the emerging challenges by noting what had happened in the United States when it finally swung into World War II and ramped up its mighty engine of production. As Liberty Ships, aircraft carriers, cruisers, tanks and Jeeps poured off the production lines, he recalled, much of the work was done by people who had no previous experience of engineering or manufacturing: remember the inspirational ad campaigns around “Rosie the Riveter”4. Perhaps as the pressures on our economies and societies intensify, with climate change helping turn up the heat in so many different senses, elements of the Barefoot model could be hybridised with elements of the cleantech revolution now sweeping the world.5 The work of Bunker Roy and his colleagues at least allows us to live in hope.
1. Jesse Hartigan worked at the Barefoot College, Tilonia, from April to August 2007; he is the son of Pamela Hartigan, who is both co-author of The Power of Unreasonable People with John Elkington and also a co-founder of Volans Ventures. 2. See John Elkington and Pamela Hartigan, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World, Harvard Business Press, 2008 3. Paul Hawken, Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw It Coming, Viking Press, 2007; see also http://www.blessedunrest.com/ 4. See <http://en.wikipedia.org/wiki/Rosie_the_Riveter>. 5. See <http://en.wikipedia.org/wiki/Cleantech and http://www.cleantech.com/>.
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MAARDEC Takes a Multi-Dimensional Approach to Rehabilitation of Disabled Nigerians
Innovations Case Narrative: MAARDEC
As a Nigerian with disability, I consider myself an exception rather than the rule, because I was fortunate enough to get a good education and the rehabilitation and equipment I needed. As a primary school pupil in the 1970s, I had to crawl on all fours; no mobility aids were available. My older siblings got me to and from school on a bicycle. During my holidays as a secondary school student, I was dismayed to discover how dependent I was on my brother to drive me everywhere in our father’s car. I was petrified at the thought that he might not have time to drive me or would refuse if we were to quarrel. And what if I worked hard enough in the future and bought a car of my own? Would I have to depend on a driver? Determined never to be dependent on anyone for transport, and eager to assert my independence, I secretly developed a device that let me drive using only my hands. I researched it extensively, sneaking into my father’s car to test prototypes. My first attempts failed woefully, but I eventually developed a model that worked. When my test-drive ended in a minor crash, my father was furious. But when I graduated from university, my family helped me acquire a car, which I drove using the device. Called the Cosokoli Hand-Control Mobilizer, it allows people with lower limb paralysis and amputations to drive conventional cars using only their hands. [See Text Box 1 on following page.] The mobilizer was my second innovation. As a secondary school student in the late 1970s, I struggled with my leg braces, which constantly fell apart. Moreover, by their very nature, the braces kept me from wearing other types of shoes. So I made sketches of a better and more durable brace that would allow me to wear any type of shoes. A roadside welder and technician brought my sketches to life. After several refinements and some testing, I began to use the braces that I dubbed the Cosy Easy-fit-in Calipers. A quarter century later, our organization has fabricated thousands of these versatile, electroplated leg braces for clients who marvel that they can wear them with conventional shoes. Cosmas Okoli is the founder and CEO of MAARDEC. He is an Ashoka Fellow, and has been recognized as an Outstanding Social Entrepreneur by the Schwab Foundation for Social Entrepreneurship. © 2008 Cosmas Okoli innovations / Davos-Klosters 2009
Cosmas Okoli By 1991, after many hours tinkering in workshops, I had developed several other inventions. Noticing how little support was available for persons with disabilities in Nigeria, I established MAARDEC, the Mobility Aid and Appliances Research and Development Center. With the award-winning mobilizer as its crown jewel, MAARDEC has since enabled thousands of disabled Nigerians to live independentMy main reason for ly. establishing MAARDEC was to My main reason for establishing MAARDEC was to share my personally developed share my personally developed innovations with fellow innovations with fellow Nigerians with disabilities; I Nigerians with disabilities; I also wanted to start a movement to address the many also wanted to start a problems militating against movement to address the many their empowerment. Today MAARDEC is a radical, holisproblems militating against tic, and multi-dimensional their empowerment. approach to rehabilitating, empowering, and developing persons with disabilities and helping them reintegrate into mainstream society. Made up of over a dozen components, it draws strength from the synergy between them. In the rest of this paper, I will describe those components, after a short bit of history. REHABILITATION, LIKE CHARITY, BEGINS AT HOME Fate dealt me a cruel hand in 1966; at age four, I lost the use of my legs to poliomyelitis. Soon after, my mother died, and then we faced the traumatic threeyear-long Nigerian Civil War, much of it happening in our part of the country. Because my future seemed bleak, my father, a pioneer educator, prepared me for a life as a village cobbler/shoemaker, behind my back and without my consent. But I had other ideas. When my older brother was enrolled in elementary school, I demanded that my father enroll me too. I got my wish.
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The Hand-Control Mobilizer The Hand-Controlled Mobilizer is a simple push-and-pull device. It uses a system of mechanical linkages attached to clamps on the brake and accelerator pedals of an automatic transmission vehicle to allow a person to drive without using their legs. A 12mm-thick rod, 460mm long, is housed inside a single pipe 390 mm long with two different sectional diameters: 15mm and 20mm. The tolerance between the rod and pipe allows the user to push and pull the rod inside the pipe. When the user pushes the L-shaped arm down, the rod presses down directly onto the brake pedal to slow the vehicle. When the user pulls the arm up, the device uses a series of linkages to activate the accelerator pedal and speed up the vehicle. The transmission must be in drive position for any movement to be possible.
Note: The original mobilizer was designed for manual-shift vehicles. It had two extensions that were operated with the same hand that engages the shift-stick gear. We have discontinued this old model, which some clients found cumbersome. We now advise clients to buy automatic transmission vehicles. The device requires minimal maintenance, just occasional tightening of loose parts. It can be removed from one vehicle and installed in another. We know of one device that has been in use for 12 years.
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Cosmas Okoli At school, classmates called me names because, without access to a wheelchair, I crawled on all fours. In our native Igbo language, the word “cripple” literally means “a helpless human vegetable.” Determined not to be traumatized by the name calling, I studied diligently and consistently scored at the top of the class, to the utter chagrin of my classmates. Over time I became quite popular, especially with those who wanted help with their schoolwork. But before I gave them any help, I made them apologize and promise never to call me names again. When they refused to let me play soccer—which I loved but could only play with my hands— I got my father to buy me a ball of my own. As a ball owner, I made the rules and decided who played with me and who didn’t. In the early 1980s, I was an At home, I was undergraduate at the University of treated like every other member of the family. Lagos. Late one night I woke up to Like the rest of my sibfind my roommates fighting. They lings, I took turns sweeping the house, were using my crutches as washing clothes, and weapons—and soon damaged washing dishes. My sibthem. Over the next few days I tried lings helped me only by fetching water and making sure I was well to purchase replacement crutches, settled on a low stool checking everywhere I could in whenever I did the washing. I was also Lagos, then Nigeria’s capital city. spanked just like them. Desperate, I contacted my father in At home, I gained my hometown, some 600 kilometres ample self-confidence and developed a canaway; after a two-week search, he do mentality that made me see disability for sent me a pair of crutches. what it is—a challenge that can be overcome by dint of hard work and creative imagination. I resolved quite early in life not to let disability stand in the way of living a full and productive life. In 1973, my father enrolled me at the Salvation Army Home for Physically Handicapped Children at Oji River in Enugu state. After surgery and physiotherapy, I was fitted with leg braces and given a pair of crutches. For the first time in my life, I could move about independently and with more dignity. It was liberating, and reassuring to be among peers with disabilities for the first time. Having mastered the use of braces and crutches after two years, I returned home to complete primary school. I also attended a conventional secondary school. 110 innovations / World Economic Forum special edition
Figure 1. Source of Funding In the early 1980s, I was an undergraduate at the University of Lagos. Late one night I woke up to find my roommates fighting. They were using my crutches as weapons—and soon damaged them. Over the next few days I tried to purchase replacement crutches, checking everywhere I could in Lagos, then Nigeria’s capital city. Desperate, I contacted my father in my hometown, some 600 kilometers away; after a two-week search, he sent me a pair of crutches. Meanwhile, I sat in my room and missed lectures. It dawned on me that Nigeria greatly needed a local establishment to fabricate mobility aids. In 1987, I was in the first contingent of athletes with disabilities to represent Nigeria at the World Stoke Mandeville Wheelchair Games in the UK. When we returned, we immediately had to give up the five wheelchairs the government had loaned us—even though some of us did not have our own wheelchairs. I was shocked. Were wheelchairs that scarce? In 1990, having won a national youth service award, I was appointed a staff and social development officer of the federal ministry responsible for social welfare. There I discovered that the department provided not a single wheelchair, despite countless requests and recommendations from our department. I soon resigned my appointment and in 1991 set up MAARDEC to remedy this sorry state of affairs. Before MAARDEC was formally established in 1992, I had long been using mobility aids I had developed. My friends with disabilities were fascinated to see innovations / Davos-Klosters 2009 111
Cosmas Okoli that I wore conventional shoes with my leg braces. Others marvelled that I could drive myself around town, or were curious about the sturdy, electroplated, iron elbow crutches I used from year to year. I established a workshop to mass produce these mobility aids and appliances to benefit my friends and others. This workshop was the foundation for MAARDEC. In our workshop, we use conventional tools, like machines to drill, grind, bend, and weld materials. We are now developing a lift that will enable a wheelchair user to get into his car by himself and then drive or be driven. SUSTAINING THE ORGANIZATION FINANCIALLY In 1991, when I quit my job in the Nigerian civil service, I invested my life savings to set up MAARDEC. Based on my personal experiences and the problems facing Nigerians with disabilities, I was determined to make MAARDEC work. Indeed, I became a one-man crusade. At this point, Ashoka, Innovators for the Public, played a pivotal role; it sought me out and made me a fellow, with a very welcome four-year stipend. At one point, I used some of my Ashoka stipend to run the center. Today, with its envisioned hearing aid project (described below), MAARDEC hopes to generate more than half of its $1.5 million budget from sales, the rest through donations. Over the years, we have devised a combination of ways to fund the center. Figure 2 shows our sources of funding in an average year, though the proportions vary from one year to another. [See Figure 1: “Source of Funding”] Our primary source of income is the products and services we sell. We are about the only establishment in Nigeria that has the expertise to fabricate, assemble, repair, adapt, and maintain an assortment of mobility aids and appliances. We also stock various spare parts and accessories for them, along with equipment for those with visual and hearing impairments. As a result, we work with many customers—individuals, hospitals, rehabilitation centers, retirement homes, and government contractors. For a fee, we fabricate hospital beds, trolleys, commodes, and drip stands. We also repair wheelchairs and can adapt conventional cars with our HandControl Mobilizer so that persons with disabilities can drive. We can also fabricate customized versions of our sturdy crutches and leg braces. In addition, we repair bicycles, fabricate gates and barbeque grills, build ramps for clients’ SUVs, refurbish metallic office furniture, and offer spray-painting services. Moreover, for a fee, our in-house physiotherapist will attend to the needs of recuperating accident victims and the aged and infirm in our clinic or in their homes. Overall, sales from products and services provide 42% of our budget. We also get funding from many other sources, including governments and agencies, and many people donate goods, time, and expertise. At our formal opening in 1992, the federal government gave us 500,000 naira (then equivalent to U.S. $50,000). In 1996, the Ministry of Women’s Affairs and Social Development donated workshop equipment. In 1994, at the Lagos Motor Fair, we met individuals from 112 innovations / World Economic Forum special edition
Ending Dependency the Royal Netherlands embassy in Nigeria, which later donated 800,000 naira (U.S. $40,000) worth of products, and became a major sponsor of our 1995 Reach-out Program. As I will describe later , the agencies that have paid us to conduct research include the National Agency for Food and Drugs Administration and Control (NAFDAC) and the World Bank. MAARDEC also obtains financial support from two private companies I own and run: Cosokoli Ventures Nigeria, Ltd., a transportation company, and Omokas Nigeria Ltd., a registered customs clearing and forwarding agent. They are more financially viable than MAARDEC, with which they share office space and a symbiotic relationship. I spend about 15% of my time on these businesses. A final, very important source of support is partners and supporters who offer donations of goods and time. Companies donate sweets, juices, and non-alcoholic beverages, along with wheelchairs and spare parts for prostheses. They also provide couriers and decorators to support our programs. These donations save us having to pay for products or services ourselves, especially for our annual Reach-out Program. In addition, MAARDEC has 75 volunteers whose support in the form of time and expertise has been invaluable in all our programs and activities, especially Reach-outs. Over the years, many of the masters of ceremony for our programs have been popular television personalities and actors who are eager to give their services. We recently entered into a partnership with a motivational speaker and human performance coach who donates his services during our motivational summits and staff retreats. OUR WORK: PROVIDING EQUIPMENT AND SERVICES In combination, our income from various sources and the work of our volunteers allows us to provide a wide range of mobility aids and services. We began our work with the aids themselves, and they are still our primary focus, because mobility aids provide independence. While a few orthopedic hospitals and rehabilitation homes provide a few such aids, MAARDEC caters to the entire range of needs of Nigerians with disabilities. We have designed MAARDEC as a one-stop center, devoted exclusively to fabricating, assembling, repairing, maintaining, and selling (at affordable rates) an assortment of mobility aids and appliances. For example, some overweight clients ask us to fabricate wheelchairs and commodes to fit them. We also convert conventional motorcycles into tricycles by making all the controls hand-operated. We also stock prosthetic supplies, specialty wheelchairs, crutches, incontinence supplies for paraplegics and quadriplegics, and products for those who have visual or hearing impairments. If we cannot fabricate products, we import and stock them. Before MAARDEC was established, Nigerians with disabilities depended mostly on medical supply dealers. But these dealers stocked few mobility devices because users could rarely afford to buy what they needed. Nor could the dealers supply the wide variety of needed products, fabricate products from scratch, or innovations / Davos-Klosters 2009 113
Cosmas Okoli adapt them to suit users’ specific needs. From the beginning, then, MAARDEC aimed to make a range of products and services available, at all times, at affordable rates, under one roof. But our work providing mobility aids is merely the basis for a multi-faceted organization, whose initiatives reach throughout the Nigerian society and government. We offer many of our services and programs free or at very low cost to participants. Among them are the following: Physiotherapy services. MAARDEC employs a physiotherapist, who assesses people with disabilities and determines what equipment will allow them to move about independently. After our technicians finish with the fabrication and fitting, we train our clients to use the equipment appropriately. Guidance and counseling services. MAARDEC offers free guidance and counseling services to these individuals and their family members. We counsel them on many aspects of life. First, we focus on discovering and developing their innate abilities to earn a living, return to school, or start a business. We also help them participate in sports events. We counsel them in ways to become more independent and to manage their understandable anger. We offer information and advice on reproductive health and AIDS, on relationships and sexual harassment, and on being professional in the workplace; we cannot let disability become an excuse for incompetence. But most of all, we encourage them to shun begging in any guise. Working with their family members, we disabuse them of the many illfounded notions associated with disability in our society, and we implore them to encourage and support family members with disabilities to lead full and productive lives. Motivational summits. As an extension of our guidance and counseling services, we organize motivational summits. Professional motivational speakers and successful individuals with disabilities serve as role models, teaching participants survival strategies and ways to tap their innate abilities. Since 1991, through this service, we have touched the lives of 1.57 million Nigerians with disabilities directly and indirectly. Mentoring programs. Role models with disabilities are still in short supply in Nigeria. I mentor young persons to excel in spite of their disabilities. I also encourage my friends with disabilities who have become professionals to mentor others. Four people I have mentored have gone on to win state and national awards and gain automatic employment in the civil service, as I did 19 years ago. One of them was a former secretary of MAARDEC, who had been a victim of polio. She was also nominated to the national political reform conference, where she held her own against politicians and other influential leaders as she made a case for Nigerians with disabilities. Vocational training and employment assistance. One of my cardinal goals while designing MAARDEC was to provide employment opportunities for Nigerians with disabilities. To this end, I have ensured that at least 50% of our staff are indi-
innovations / World Economic Forum special edition
Ending Dependency viduals with disabilities. Since few of them have formal education and stand little chance of gainful employment elsewhere, we train them in-house in specific technical skills applicable to our work. Others are employed after being trained elsewhere. Over the years, many have become master technicians, skilled at fabricating, assembling, repairing, and maintaining our entire range of products. We also support qualified persons with disabilities in their job searches, sometimes offering letters of recommendation. Support for artists with disabilities. Between 1999 and 2002, we managed the career of Nigeria’s foremost mouth-artist, Late Idowu Akinrolabu, a quadriplegic who paints with his month. We supplied him with a hand-controlled electric wheelchair and adapted it with mouth-controls, and also sought out sponsors for his first major exhibition in 2001, introducing his works to art lovers and establishing him as a full-time artist. Based on this success story, we are currently training another quadriplegic to become a mouth-artist. We have also collaborated with Creative Connections, a U.S.-based organization, on an art-exchange event involving 48 hearing-impaired Nigerian youths. They produced art work based on various themes from their culture and environment and sent them to children in U.S schools, who responded by sending their own art to Nigeria. Outreach to the poor. I was dismayed to discover in 1993 that no matter how many rebates or discounts we put on our products, the vast majority of Nigerians with disabilities still could not afford them. The reality is that they are the poorest members of society. In 1994, with great fanfare we introduced our Reach-out Program, in partnership with local and international philanthropic individuals, corporate bodies, religious groups, embassies, etc. This was long before corporate social responsibility became part of corporate culture in Nigeria. The Christmasseason program has now become the high point of our annual calendar. To date, we have distributed 56,200 assorted mobility aids and appliances, valued at 77.265 million naira (or U.S. $643,875), to Nigerians with disabilities. Roughly 45 volunteers assist us with the logistics of organizing this annual event. Direct financial assistance. In addition to the Reach-out Program, we give direct financial assistance and donate our products and services to the indigent disabled. People come to our center to have their wheelchairs repaired, but they cannot pay for the repairs or for the transportation home. Countless others cannot afford to come pick up their donated wheelchairs. When this happens, MAARDEC foots the bills. We also pay for rehabilitation with our physiotherapist and doctor. When we discover clients cannot pay, we offer the services at no cost. In other cases, we contact hospitals and philanthropic individuals we know and ask for support in the form of money or donated services. We have also obtained scholarships and paid school fees for people with disabilities whose families cannot manage the financial burden of caring for them. Developing microfinance and small enterprises. Because MAARDEC cannot employ every person with a disability, we have found other ways to empower innovations / Davos-Klosters 2009 115
Cosmas Okoli them to go into business for themselves. Some are trained in crafts like shoemaking, carpentry, tailoring, hairdressing, electronics repair, photography, and producing confectionery and furniture. Others can provide business or telephone services. But they usually lack the financial wherewithal to expand or scale up these businesses. In response, we have partnered with philanthropic individuals and corporations to obtain interest-free loans or donate equipment to small business owners. So far, over 200 people with disabilities have benefited from this intervention. The loans range from 50,000 to 100,000 naira (U.S. $417 to $833). Machinery and equipment are donated and need not be paid for. Promoting participation in sports. When I attended a school for the physically disabled, we played soccer on our crutches and had tug-of-war competitions. I was one of the first Nigerians with a disability to compete in, organize, and administer sports for other people with disabilities. I represented Nigeria in wheelchair table tennis at international championships. Passionate about sports, I was elected president of the Special Sports Federation of Nigeria (SSFN). The first person with a disability to head the federation, I held office from 1995 to 2001. The highlight of my tenure was successfully lobbying the authorities in Nigeria to establish sports for persons with disabilities as events that earned scores at national sports festivals. This paved the way for athletes with disabilities to become sports professionals, rather than merely offering demonstrations. In 2000, I led a delegation of Nigerian athletes with disabilities to the Sydney Paralympics. We won seven gold, one silver, and five bronze medals—in stark contrast, our able-bodied Olympic contingent won not a single gold medal. Some of these athletes are still the world record holders in their events. Others have worked on our staff. Over the years, I and other athletes with disabilities, have introduced others to sports and have seen them win four out of Nigeria’s five gold medals at the 2006 Commonwealth Games in Brisbane, Australia. A career in professional sports is now open to millions of young Nigerians with disabilities who can represent Nigeria’s states and the country at national and international sporting events. Participating in mainstream sports events is one important avenue for reintegrating people with disabilities into mainstream society. Sports can bring people out of the depression that can result from the psychological effects of disability and help them become well-adjusted citizens with a means of livelihood. Research and Development. A major part of our operations involves research and development of mobility aids and appliances and mechanisms to address disability issues. We do not see the nation making any appreciable headway in empowering people with disabilities to become productive and independent. So, through research, we hope to do so. Let me provide just three examples. First, in 2005 MAARDEC conducted a nationwide study on the ways that fake and adulterated food and drugs can cause disabilities; we found that such substances were responsible for 5 percent of disabilities in Nigeria. Second, we provided consultancy services to Adekunle Ajasin 116 innovations / World Economic Forum special edition
Ending Dependency University on ways to make the campus accessible to students with disabilities. A first phase in the project, an accessible hostel, is now in use. Third, in March 2007 the World Bank asked us to develop a mechanism to address issues of child/youth disability in Nigeria. We also conduct research to improve our products. In 2006, we developed a lightweight manual tricycle that reduces both production time and cost; in 2007 we built 75 of them. With sponsorship from the First Bank of Nigeria, we distributed 60 of them during our Reach-out Program. We also improved our leg braces with a streamlined design—instead of leather kneepads, strategically placed Velcro straps now stop the user’s knee from buckling. We have also developed and test driven a racing version of our manual tricycle, which we intend to mass produce for use in races and for recreation. ACTIVISM: DEVELOPING LEGISLATION AND ORGANIZATIONS OF THE DISABLED In addition to our other work, we are very committed to activism and organizing for the disabled. In Nigeria, people with disabilities have virtually no legal protection. Public buildings, roads, and transportation systems are inaccessible. Given Nigeria’s culture of atrocious driving habits, plus its open drainage system, people with disabilities face dangers every time they go out in public. They also experience overt discrimination in the workplace. Nigerians must redress these unfortunate situations and develop a more inclusive country—as I stress every time we have an opportunity in the media or at MAARDEC events. As a start, we took action when we learned of an obscure government directive from 1986 directing all employers of up to 100 workers to reserve 2 percent of their positions for qualified Nigerians with disabilities. Though few employers have complied, we spread the word about this directive, and some people with disabilities have gotten jobs by pointing it out to prospective employers. We focus on two areas of activism: legislation and organizations. At MAARDEC, we stay abreast of legislation in the National Assembly pertaining to people with disabilities. In 2005, along with Senator Bode Olajumoke, who chairs our board of directors, I visited the Senate president; we implored him to have President Obasanjo sign the Handicapped Persons (Public Buildings) Special Facilities Bill, 2004 (HB. 31), which had been passed by both houses. In 2005 we also joined otheres to advocate for a bill establishing the National Trust Fund for the Disabled. In 2007, through the Association for Comprehensive Empowerment of Nigerians with Disability (ASCEND), we sent a comprehensive bill to the National Assembly to protect the rights of Nigerians with disabilities, and we are now lobbying the 36 state assemblies to follow suit. We also visited the Lagos Metropolitan Area Transport Authority (LAMATA) to point out that the dedicated bus system, partly funded by the World Bank, is not accessible to people with disabilities. LAMATA is now starting to provide for passengers with disabilities. In addition, innovations / Davos-Klosters 2009 117
Cosmas Okoli five individuals with disabilities are now serving state governors as special advisers on disability matters, and two states have passed legislation granting automatic employment in the civil service to qualified individuals with disabilities. Nigerians with disabilities also need a cohesive body of advocacy organizations so we can pursue a comprehensive, common agenda. In the past, separate organizations have wasted tremendous amounts of energy by presenting different agendas on the same issues—and the authorities have not taken these groups seriously or funded them consistently. Meanwhile, petty internal bickering within organIn Nigeria, people with izations distracts them from disabilities have virtually no legal their goals. After years of observing protection. Public buildings, this situation, in 1998 I started nurturing an organroads, and transportation ization of Nigerians with systems are inaccessible. Given disabilities. In 2002, I brought on board colNigeria’s culture of atrocious leagues with disabilities driving habits, plus its open from different backgrounds. In 2006, the drainage system, people with Association for Co m p re h e n s ive disabilities face dangers every Empowerment of Nigerians time they go out in public. They with Disability (ASCEND) was fully registered and also experience overt started in earnest. So far we discrimination in the workplace. have chapters in 12 of Nigeria’s 36 states, with 100,000 members nationwide. We aim to use that numerical strength to become a formidable political group. Currently operating from the MAARDEC office, we work with affiliated organizations and political parties to get better deals for all of us. For example, in December 2006, before the 2007 Nigerian general elections, we visited the Independent National Electoral Commission to find out about its provisions for persons with disabilities. During the election, five ASCEND members worked with independent electoral observers to monitor the election. Last dry season we conducted a successful road show across seven states, culminating in a national rally in Abuja on December 3, 2007, to commemorate the International Day for the Disabled. In the process, we visited state governors to inform them about our activities and implore them to empower their citizens with disabilities.
innovations / World Economic Forum special edition
Ending Dependency FUTURE PROJECTS AND CHALLENGES We have many hopes and plans for the future, after we relocate to a larger, permanent site that can accommodate the many projects I just described. With the help of my two private companies, we have taken out a bank loan to purchase a property in Lagos. Franchise the MAARDEC model. We are looking for funds to establish 37 outlets, one in each state plus Abuja, through a franchise. These franchises will be managed by trained people with disabilities to bring our services closer to the doorsteps of Nigerians with disabilities. We currently have an impact on the lives of only 6.3 percent of the 24.8 million Nigerians living with disabilities, but this project will let us reach out to more of them. If all goes well with the 36 franchises, we intend to reach out farther to the 774 local government areas around the country. Our ultimate goal is to Localize and regionalize our annual Reach-out Program. In the past year, we empower as many have reached out to philanthropic indipeople with disabilities viduals, corporations, and state governments to partner with us and organize our as possible, so as to annual Reach-out Program in their localities. This is a follow-up to the 2007 reduce poverty and Reach-out, which we held in five locations dependency. across the country. We want to bring our program closer to Nigerians with disabilities to save them having to travel. Provide ICT training to Nigerians with disabilities. The Internet has opened up an information superhighway, but in Nigeria relatively few people, even in urban centers, have good Internet services. And relatively few of Nigeria’s 142 million people are computer literate, especially in rural areas. But Nigerians with disabilities can support themselves and help others by opening cybercafés. We plan to collaborate with our sponsors and supporters, as well as Rodrigo Baggio, a Brazilian social entrepreneur who provides similar training to poor children in Rio de Janeiro’s slums. We intend to seek donations of gently used desktop computers and appropriate equipment for connecting to the Internet. Expand the microfinance facet of our activities. A majority of Nigerians with disabilities are involved in small-scale businesses, so MAARDEC intends to expand its intervention, bringing in more partners and sponsors. We intend to provide small loans to 100 Nigerians with disabilities every year, so they can start or develop businesses. This would also require that we create effective structures for monitoring and evaluation. Produce and market affordable hearing aids locally. We are currently developing an agreement with a U.S.-based social entrepreneur to produce and market stateof-the-art hearing aids in Nigeria. We intend to train persons with disabilities to innovations / Davos-Klosters 2009 119
Cosmas Okoli administer a hearing test and provide a patient with the right hearing aid as quickly as possible. This will be an important source of income for the organization. We intend to give discounts—or free aids—to people who cannot afford them, but we will sell them for profit to individuals or organizations that can afford them. In the past, we lacked the expertise to cater fully to this group; but now, with this venture, we can. Organize art competitions and exhibitions for Nigerians with disabilities. As in every other sphere of national life, Nigerians with disabilities are under-represented in the arts. With our growing list of sponsors, donors, and supporters, we intend to start a program to discover talented Nigerian artists with disabilities and organize competitions and exhibitions for them. Then they can make names for themselves and earn income as well. Our search will extend to schools at all levels and to practicing artists. Establish an Empowerment Village by 2015. Our proposed village will house all our activities under one roof. We envision putting many facilities in place. A factory will produce mobility aids and appliances, which will be finished in the electroplating plant. Individuals will seek services at the physiotherapy clinic, and the vocational training and employment bureau, and will engage in a range of sports at the indoor sports hall and outdoor sports facilities. People in other offices will be engaged in research and development and in microfinance and enterprise development. Finally, a farm will provide both food and facilities where people can train in fish and snail farming. We already have set land aside for this project; with enough funding, we can have it running well by 2015. We also plan to train 1,000 Nigerians with disabilities annually, at various vocations. When they finish their studies, we will help them start their own small- and medium-scale industries by accessing the many microfinance opportunities available. Replicate the MAARDEC Model. Our model can be replicated in other African countries and indeed in developed countries. In Nigeria, some organizations have copied aspects of our model, but none have replicated it wholesale. In Ondo state, the Handicapped Development Foundation is loosely based on our model; its founder may partner with us to integrate more components of our model. Abuja also has some rehabilitation centers based on our model. Our ultimate goal is to empower as many people with disabilities as possible, so as to reduce poverty and dependency.
innovations / World Economic Forum special edition
Amos G. Winter and Amy Smith
A Comparison with Other Assistive Device Workshop and Disability Organization Models
Innovations Case Discussion: MAARDEC
The workshop and disability organization model for the Mobility Aid and Appliances Research and Development Center (MAARDEC) features a multifaceted approach to serving the disabled community in Nigeria. In this issue of Innovations, Cosmas Okoli describes the system model he employs that goes beyond just providing mobility aids, including the mechanisms through which he is able to offer products and services that holistically improve the lives of people with disabilities. Although this model is not new and is practiced in similar forms by many other workshops in the developing world, it is insightful because it encompasses the range of disabled needs. Cosmas Okoli should be commended for working to provide opportunities, advocating for peoples’ rights, and running a sustainable organization that has multiple profit streams. Two major challenges face providers of mobility aids in developing countries: making and providing products that are appropriate for the environment in which they will be used, and finding financial mechanisms through which the products can be produced and purchased. Many of the products Okoli mentions in his article are innovative and were designed specifically for the Nigerian disabled. This is key, as 70 percent of disabled people in developing countries live in rural areas that
Amos G. Winter is a Ph.D. candidate in Mechanical Engineering at MIT. He has conducted multiple projects aimed at generating improved wheelchair technology in the developing world, including assessing the state of wheelchair technology in Tanzania. He is the director of the MIT Mobility Lab (M-Lab) and teaches the MIT class “Wheelchair Design in Developing Countries”. Amy Smith is a Senior Lecturer in the Department of Mechanical Engineering at the Massachusetts Institute of Technology, where she specializes in engineering design and appropriate technology for developing countries. She founded the D-Lab program at MIT, which introduces students to technological, social, and economic problems of the Third World. She teaches the courses “D-Lab Development”, “D-Lab Design”, and “Wheelchair Design in Developing Countries”. Smith won the Lemelson-MIT student prize in 2000, and was recipient of a MacArthur Fellowship (2004-2009). She served four years as a Peace Corps volunteer in Botswana.
© 2008 Amos G. Winter and Amy Smith innovations / Davos-Klosters 2009
Amy Smith and Amos G. Winter require robust wheelchairs. Donated wheelchairs are often not built for the harsh conditions encountered in the developing world and spare parts can be difficult to find. Rural-appropriate wheelchairs can be made locally, as are MARDEEC’s, and those at the Wheelchair Technologist Training Course at the Kilimanjaro Christian Medical Center in Moshi, Tanzania. Alternatively, chairs that are specifically made for rough terrain, like the Worldmade wheelchair designed by Motivation, UK, can be imported. MAARDEC provides a variety of financial assistance programs to its customers, as well as counseling, physiotherapy, education, and microfinance opportunities, all of which are important to the provision of appropriate mobility aids. By finding ways to help a person purchase a device instead of receiving a donation, MAARDEC creates value for the product and a greater sense of ownership for the client. Microfinance programs help people with disabilities create business ventures and become financially self-reliant. In the future, MAARDEC might also look to provide mobility aid accessories to facilitate running small businesses. At MIT, we have been working to design a number of small business attachments that can be used to turn mobility aids into financial assets. The MAARDEC model Cosmas Okoli describes, along with his plan to expand in coming years, most closely resembles the organizational structure currently used by the Association for the Physically Disabled of Kenya (APDK). APDK has numerous programs focused on building, fitting, distributing, and servicing mobility aids. They offer business attachments for their hand-powered tricycles, as well as microfinance opportunities for entrepreneurs. Their network, which is composed of eight branches, two manufacturing centers, and 290 outreach clinics around Kenya, is structured such that they can serve the disabled population in the entire country. To reach rural populations, APDK runs many community-based rehabilitation programs. Okoli is savvy for having started two for-profit businesses to help subsidize MAARDEC. Turning a profit selling mobility aids can be tricky; many of the workshops with which we work have difficulty sustaining themselves solely off the sale of wheelchairs. This is most apparent in Africa, where they try to sell wheelchairs for around $300 in a market with a per-capita income of only a few hundred dollars per year. Although their chairs are more appropriate for the local environment than donated products, it is difficult to compete with the free imported chairs distributed by donation organizations. Most well-established organizations have income-generating activities beyond the sale of mobility aids. For example, the family that owns the Kien Tuong workshop in Ho Chi Minh City, Vietnam, runs two profitable gas stations. Having such businesses decreases the pressure to produce profits from the wheelchair workshop, and thus keeps prices low and increases the organization’s capacity to provide financial assistance to its clients. The Tahanang Walang Hagdanan workshop outside Manila, Philippines, offers a number of employment opportunities within their facility for people with disabilities, including needlework, pharmaceutical packaging, and woodworking. In Dar es Salaam, Tanzania, Disabled Aids and 122 innovations / World Economic Forum special edition
Assessing MAARDEC General Engineering builds custom metal products when they do not have tricycle orders to fill. In his article, Cosmas Okoli touched on the important work of advocating for the rights of disabled people. Although policies for disability rights and accessibility are often difficult to implement and enforce, especially in the developing world, advocacy is an important facet of helping people with disabilities integrate into society. MAARDEC is not alone in fighting for its clients’ rights while producing mobility products. The Freedom Technology wheelchair workshop in Mindanao, Philippines, was started by the French NGO, Handicap International (HI). This shop was established as a component of HI’s mission to increase the self-reliance of people with disabilities around the world. Through Freedom Technology, HI can provide devices to promote independence while pushing for social change. Other examples of workshops and advocacy groups that work in tandem are the Thai Wheel wheelchair workshop and the Thai with Disability organization, located outside Bangkok, Thailand, as well as the Zanzibar Association of the Disabled (UWZ) and the UWZ wheelchair workshop in Stone Town, Zanzibar. In the coming years, Okoli’s progressive vision of MAARDEC will enable him to serve a much larger number of Nigeria’s people with disabilities. Through the expansion of MAARDEC, he will hopefully be able to reach more of both the rural and urban disabled population and tune the designs of his products to the unique needs of each demographic. Incorporating many of the best elements of his colleagues’ workshops in other countries, Okoli’s multi-dimensional approach to providing technical, financial, and social services through MAARDEC will offer solutions to many of the obstacles that currently limit the freedom of people with disabilities.
innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
Garden in the Desert
Sekem Makes Comprehensive Sustainable Development a Reality in Egypt
Innovations Case Narrative: Sekem
I have decided to leave Austria to start a farm in the desert in Egypt based on a holistic developmental impulse for country and people… For my soul Austria was like a spiritual childhood garden. Now I hope that the souls of Egyptian people can be revitalized by a garden in the desert. After establishing a farm as a healthy physical basis for soul and spiritual development, I will set up a kindergarten, a school, a hospital, and various cultural institutions. My goal is the development of humans in a comprehensive sense—educating children and adults, teachers, doctors and farmers. —Excerpts from Letters by Ibrahim Abouleish to friends, 1977 During the 1920s and 1930s, Egypt was wealthy. The Egyptian pound was as strong as the British pound. While a divide existed between rich and poor, the rich felt bound by an obligation to assist those less fortunate. Consideration for others, courageousness, and a deeply moral attitude were characteristics of the Egyptian people. In part because its population was only 18,000,000 people, Egypt was a beautiful country, and Cairo a thriving city. Circumstances changed dramatically, for the worse, during the first quarter century of Egypt’s independence. Under the rule of President Gamal Abd ElNasser, all businesses were nationalized—even restaurants. Once-thriving ventures were soon indebted. Few people enjoyed their jobs; they worked without Ibrahim Abouleish is the founder of the Sekem Group. Helmy Abouleish, Ibrahim’s son, is the Managing Director of Sekem. In 2004, the Schwab Foundation for Social Entrepreneurship recognized Ibrahim and Helmy Abouleish as Outstanding Social Entrepreneurs. This case narrative originally appeared in a special edition of Innovations produced for the World Economic Forum on the Middle East, 2008, in partnership with the Schwab Foundation and ARAMEX. © 2008 Sekem innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
inner motivation. Many took on extra side jobs. The whole social structure was increasingly falling apart. In no domain of economic and social life was disarray more apparent than in agriculture—for centuries, if not millennia, the source of Egypt’s wealth and a focal point of its culture. Farmers were forced to use a certain In 1977, Abouleish purchased 70 amount of artificial fertilizer for each hectare hectares of desert land a quarter of of land. This excessive a mile from the banks of the Nile. and uncontrolled use of In 1979, he founded Sekem. Over a fertilizer led to oversalting and compresperiod of 30 years, his initial sion of the earth, and ventures in organic agriculture were farmers became financially dependent on followed by a sequence of successful chemical companies. The country’s inhericommercial business ventures, tance laws assigned schools, and medical centers equal amounts of land to each inheritor, leaddistributed throughout Egypt.... ing to each generation inheriting smaller and Sekem has demonstrated the smaller plots. The viability in Egypt of new, holistic farmers could hardly produce enough to surapproaches to development. vive. Added to that was the appalling practice of spraying pesticides onto the cotton fields. The Aswan Dam, completed in 1961 with the Soviet Union’s support, also had disastrous results for agriculture. Since that time the Nile, which had previously flooded its banks every summer and spread fertile mud over the fields, had ceased to be the pulsating heart of Egypt. A year-round irrigation system led to standing water in canals becoming a breeding ground for dangerous diseases. The hope of gaining more fertile land through this irrigation system was not fulfilled. Naturally, the dam made it possible to produce electricity. But this electricity was mainly used to manufacture the costly artificial fertilizers. In 1975, Egyptian-born Ibrahim Abouleish travelled through Egypt with his family after spending many years as a student and scientist in Austria. The changes he observed shocked and disturbed him. On his return from that trip, he became determined to fulfill a pledge he had made to his father when he left Egypt to study
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Garden in the Desert
in Europe: he would return to his country with skills acquired abroad to create enterprises, build schools, and seed cultural institutions. In 1977, Abouleish purchased 70 hectares of desert land a quarter of a mile from the banks of the Nile. In 1979, he founded Sekem. Over a period of 30 years, his initial ventures in organic agriculture were followed by a sequence of successful commercial business ventures, schools, and medical centers distributed throughout Egypt. With annual revenues of 200 million Egyptian pounds, Sekem is among the top producers of organic products worldwide, and the leading producer in the Middle East. More importantly, Sekem has demonstrated the viability in Egypt of new, holistic approaches to development. Sekem’s initiative in demonstrating the effectiveness of organic methods in agriculture led, in 1993, to the government’s banning of pesticide spraying of cotton crops. Previously every field was sprayed 20 times each growing season, for a total of 35,000 tons nationwide. This case narrative describes the founding and evolution of Sekem. In the first part, Ibrahim Abouleish describes the origins of Sekem and the multiple challenges that faced the venture in its first decade and a half of existence.1 In the second part, Helmy Abouleish, son of the founder, describes Sekem today and the initiatives it hasplanned for the future.2 The conclusion to the narrative is written by Ibrahim. IBRAHIM ABOULEISH: THE FOUNDING OF SEKEM A Family Trip “Wouldn’t you like to join me on a trip to Egypt?” my friend Martha Werth asked me one day. I had been back to Egypt many times during the 19 years I had lived in Austria, first as a student at the University of Graz, and then as director of a medical research institute. However, those visits had been focused almost entirely on my family. Martha’s invitation provided me with an opportunity to renew my relationship with my homeland. I accepted at once, along with my wife Gudrun, son Helmy, and daughter Mona. We started our journey in 1975, dedicating much of our voyage to the many famous ancient Egyptian sites in Aswan, Luxor, Karnak, and the Valley of the Kings. But it was the experience of modern Egypt that most affected me. Through visiting friends, relatives, and in particular a journalistic acquaintance, I gained a new understanding of my country. I became aware of the changes that had befallen the country during my time in Austria, and saddened by the stark contrast
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between the depressed state of modern Egypt and the greatness, wisdom, and leadership the pharoahs showed thousands of years ago. I kept comparing what I saw with my memory of the country during my childhood and adolescence. The new should have been better than the old, but it was not. On my return journey to Austria I sat in the plane and thanked Allah that I did not live in Egypt, but rather in beautiful and prosperous Austria, with my wife and two children, and a successful career. And yet I found myself unable to escape the images and recollections of our visit. I set myself to the task of further researching the state of the country. The hard facts I confronted upon my return were, if anything, more alarming than the impressions I had gleaned during my visit. Over time, with the guidance and support of my friend Georg Merckens, I began to craft a plan, rooted in my affinity with the philosophy of anthroposophy:3 I would move to Egypt, establish a self-sustaining farm, and then over time add additional projects focused on education, health, and culture. The farm would be based on the principles of biodynamic agriculture, which uses compost and natural preparations to strengthen plants so that they are able to fend for themselves. The outcome would be a community dedicated to the holistic development of its workers and all of its stakeholders—a model that could transform Egyptian agriculture and act as a force for positive change in Egyptian society. How did my family react to my decision? My wife Gudrun, an Austrian, loved Egypt. This strong inner motivation led her to want to join me. I told our children the story of a man who decided to move to the desert with his family and who created a big garden there. Once I had painted the picture in great detail, I suddenly asked, “And what would happen if we were that family?” Spontaneous shouts of joy followed. Helmy was 16 at the time; my mother had already told him of the many things I had done at his age in Egypt that were not possible in Austria—like driving a motorbike in the desert. And my daughter Mona, then 14, was in love with horses. In the desert, she would be able to ride as long as she wanted. In this way everyone was inspired to undertake the journey. Founding a Desert Community On arriving in Egypt I first went to visit the minister of agriculture. I explained to him that I was looking for a patch of desert, which I wanted to cultivate using organic methods. It was a sign of his friendliness that this busy man listened to me for half an hour. After our conversation he asked a ministry employee to show me some areas of desert I could buy from the state. After all, there was enough desert in Egypt. “It will be easy to find desert!” said Kamel Zahran, an old, honorable, high-ranking engineer. First we drove west toward Alexandria. From the asphalt road he pointed out areas of land for sale which had good access to water. The minister said he could put in a good word for me if I wanted to buy the land. I looked at everything, asked about the people living there, about possible energy sources, and whether roads could be built. But inside I remained untouched. This happened on the first day, and again on the second.
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Garden in the Desert
On the morning of the third day Mr. Zahran said he had to visit someone before we continued our trip, as he was also an agricultural advisor. He needed to visit a farm northeast of Cairo, at the Ismailia Canal, and asked me to drive him there. We left the car at the canal, took the ferry across the water, and arrived at the farm, a large orange plantation. My companion introduced me and explained my intent. The farmer replied, smiling and spreading his arms to indicate the landscape: “You will be sure to find something here!” After Zahran had finished his visit, we walked across the plot of land, a strip that reached about four kilometers into the desert, as far as the canal’s water could reach. It was a hot day, and the old man was suffering and walked with difficulty through the rows of trees. Sweat poured [O]vernight I reached a down his face. At the edge of decision—and by the next the estate we stood and looked out over the stony wasteland. morning I knew I wanted to He said, “It is impossible here. buy this piece of land. If We are four kilometers away from the canal and the desert is biodynamic farming and still going uphill. We are probeverything else I envisaged ably already 30 meters up. You will never get the water to reach could thrive in this wasteland this far.” and under such extremely While he waited in the shade of a tree, I walked on by adverse conditions, then it myself. The country, which stretched out barren and empty would be possible to transfer toward the horizon, was gently this model to easier hilly. I liked the fact that it was not as flat as the delta. After a environments and we would few more steps in the shimmerdevelop immense energy by ing heat a vision appeared before my inner eye: wells, overcoming such difficulties! trees, green plants and fragrant flowers, animals, compost heaps, houses and working people. I would have to expend a lot of energy to cultivate such an impassable, difficult environment and to transform this wasteland into a garden. But many jobs could be created in the process, and people would have the chance to educate themselves while creating something healing for the landscape. I walked back to Kamel Zahran deep in thought, and was immediately greeted with the words, “It’s too steep, you could never cultivate here.” But I felt I had been touched by this land; something had spoken to me. When I look back I have
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to admit my immense naivete; I had not the faintest idea what it meant to cultivate and irrigate land in the desert. On the return journey I spoke to Kamel Zahran. “You know,” he said, “Let’s not rush anything! We’ll come back later with specialists who can advise us.” So we returned. But the specialist quickly delivered his discouraging verdict: the quality of the soil was very poor and the water supply difficult; there was no direct road to Cairo and all products would have to be transported via the ferry on the Ismailia Canal. The general opinion was that the land was not suitable. But overnight I reached a decision—and by the next morning I knew I wanted to buy this piece of land. If biodynamic farming and everything else I envisaged could thrive in this wasteland and under such extremely adverse conditions, then it would be possible to transfer this model to easier environments and we would develop immense energy by overcoming such difficulties. As soon as I had signed the bill of sale the problems began. When I tried to get the plans to mark out the boundaries of my 70 hectares of land, I was told that although the state administered the land, it could not find out about it that easily. There were no surveying points. I soon noticed that the Egyptian land surveyors responsible for this area had trouble dealing with plans and committing themselves. In those days it took three hours to drive to the Ismailia Canal from Cairo, and I had to regard it as a favor if the surveyors even managed to arrive at my plot of wasteland, though they were paid to do so. When I asked Kamel Zahran for advice, he only said with Schadenfreude, “Didn’t I tell you it wouldn’t work?” But I was not put off by all this. Quite the opposite: it made it all the more attractive and strengthened my resolve. After buying the land I began a period of intense planning. I tried to survey the 700 x 1000 metres myself by borrowing the necessary equipment. I struck iron poles into the sand at specific spots, and carefully drew everything on paper. For 10 years, I only had a vague idea of the boundaries, although later corrections were surprisingly minor. First I marked out the roads: I wanted a main road to go right through the middle of the plot, lengthways from northwest to southeast. I then planned further roads branching off at right angles to the right and left of that one, dividing the land into about three-hectare plots for fields. In my mind’s eye the roads were lined with shade-giving trees. I wanted a 30 meter-wide band of trees to encircle the entire grounds, to protect the developing life of the plants, animals, and humans. I used the image of a cell for inspiration, as it is surrounded by a membrane. What the clear blue sky and warmth-giving sun means for a European is a shade-giving tree for the desert people. They like to spend time in the cool shade and at the same time protect themselves from too much sun. Water is crucial for life to flourish in the desert. I decided to bore wells, one in the northwest near where I wanted to build the stables, and the second one in the southeast near the planned houses and living quarters. I left a long strip of land in the west for a school, a medical center and an institution for movement, art, and
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social activities. Right in the middle of the grounds I left a space for the businesses. I intended for them to earn profits that could finance the establishment and development of the cultural institutions. I drew round flowerbeds on the distinctive right-angled road crossings to add some artistry to the desert from the outset. This first plan still exists. When I look at it today, I can see myself striding alone over the bleak stony ground, sketching and planning, unprotected from the sun and wind. Economic beginnings The biggest question was how to finance the whole venture. Even if we had managed to finance everything up to this point, the grounds were basically still a desert. Where would we get a new source of income for houses, plants, and animals? I realized we needed businesses, where people could earn money to finance the cultural institutions I had planned for the distant future. I tried to find out how I could use my pharmacological knowledge to produce things for the people of Egypt and for the export market. It was time to get off my tractor, don a suit and tie, and drive into Cairo to talk to people. I went to visit Ahmed Shauky, my father’s tax consultant, and asked him to take over this task for Sekem. I explained my vision in the desert to this elderly, distinguished man. He turned out to be delighted and very interested. His son had been following our discussion attentively and said, “I have heard that an American business is looking for an extract of the plant Ammi majus from Egypt. Maybe you could do that!” I immediately ordered a report from the company and invited the Americans to meet me in Egypt. Until then I had never heard about this plant, a medicinal herb for healing disturbances in skin pigmentation. Nor did I know how to get the extract. The company only wanted the crystallized active ingredient, ammoidin, which is present in the seeds. I needed to start learning again. I spent hours in the library until I had found out all I needed. Ammi majus, known in English as Bishop’s Flower or Laceflower, is a wild medicinal plant that grows in both the desert and the delta. A member of the umbellifera family, it grows about as high as fennel or aniseed and is a weed in alfalfa fields. I observed the Ammi majus seeds exactly so that once people were sifting them, I could explain how they were different from other seeds. I spent many nights planning the buildings for the extraction plant. As part of this process I became acquainted with Hassan Fathy, who was awarded the first Alternative Nobel prize and is known for his traditional clay buildings. I deliberated about the machines, calculated the cost of the project, and realized it could become a lucrative business. So I started building the workshop, bought stainless steel, and constructed machines for the venture. After we finalized the contract with the American Elder company in Ohio, we had camels and trucks with sackloads of Ammi majus seeds coming to the farm for years. I wanted to enter into a partnership with a bank for this huge project that I could not finance myself. I chose an Islamic bank recommended by a friend as a innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
co-investor, as I assumed it worked according to Islamic principles. In Islam, Allah says that the earth and the ground are only given to us to care for. He alone owns the ground. It is the same with money: we can manage it for the good of the people, but should not call it our own. Allah says that whoever enters into trade works together with Allah and, following his principles, should give the proceeds to the poor and needy by giving up his own possessions. In light of this Islamic esotericism I perceive modern joint-stock companies as inappropriate: they act as if God’s legacy were their own. The interest and the resulting riches they receive are not their own achievement, because even intelligence and individual abilities are One day my lawyer came the gifts of Allah, even if modern humans think their success is solely due to me and said, “Listen, to their own efforts. These Islamic ideas appealed to me, if you give the bank’s particularly the idea that money is not a lawyer 10,000 pounds commodity that can be bought and sold again with interest. Thus I was happy to then he will accept the have found an Islamic bank where I could work together in a like-minded estimated value...” partnership—or so I hoped. But it turned out the practices of this so-called Islamic bank were the same as any other financial institution. The Sekem Company was established as an investment company right at its start. Because I needed at least three people to start a company according to Egyptian law, I included Helmy and Mona in the business, even though they were still under age. The bank wanted to inspect everything and I had to open my books for them. The negotiations were tough, and we only succeeded once the bank director had become sympathetic to the idea of Sekem. We agreed on the bank having a 40% share of the business. Because Sekem was seen as a foreign company, the state had the right to some control. The company itself was protected, but the state had to give its permission for the bank to invest in us. The bank agreed, got a provisional authorization for the Ammi majus project, and signalled that we could go ahead with the project. I ordered the first extraction machines from Denmark and the bank paid for them. After some time, the state investment authority asked to look at our account books. It did not want the book value, but the estimated value. So an estimation committee worked on the farm for several days, reexamined everything, and found that the estimated value was far higher than the book value. This meant the bank had to pay more for its involvement in the project. But the bank was reluctant to accept this finding, and began to doubt everything and try to get out of the contract. It demanded back the 150,000 pounds it had already paid out for the Danish machines, but I needed this money to develop the farm and could not spare that
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amount. Thus we began a protracted struggle. An arbitrator was employed and it took months for our two lawyers to decide on a third party to mediate. During this process a small event shed light on the way the negotiations were held. One day my lawyer came to me and said, “Listen, if you give the bank’s lawyer 10,000 pounds then he will accept the estimated value.” “My friend,” I said to him, “you know me. I will not pay bribes. That does not correspond to Islam!” Once you have a dispute with one bank, all the other banks and the central bank know about it. This meant I was always rejected when I attempted to find a new investment partner for my project. The banks always told me to settle my disagreement with the Islamic bank before further negotiations with them would be possible. Then one day a relative visited me and introduced me to an Egyptian who had just come from Saudi Arabia and had a lot of money. He thought he would be the ideal partner for me. The man, called Mohammed, became inspired very quickly and invested 100,000 pounds. But after only two months he came back to me with the excuse that his wife wanted to go back to Saudi Arabia and he needed his money back immediately. I had already spent his 100,000 pounds on an important machine and could not give it back to him immediately. The debts and conflicts grew! I had met another “friend” during my search for suitable partners, but they were all people who did not understand my vision and only wanted to make a quick buck. It now looked like the Ammi majus project might fail, and the farm’s survival was threatened. I decided to put all my eggs in one basket and went to visit the director of the Egyptian National Bank. I explained everything to him, and ended with the words, “If you do not help me and lend me money against the security of the land and houses on it, the project will die!” The director of the bank could immediately see that his money was covered by our contract with the American company. There was hardly any risk involved for him, and he decided to finance the project. “Don’t worry about anything else, it’s all settled,” he said. At long last we could start the contract with the American company. The dispute with the Islamic bank was only resolved years later. Its pullout created great setbacks, as it stopped us from entering a new partnership, and forced us to get a loan. In the end we paid them back three times the original amount to finally have peace. We had to give a piece of land to Mohammed from Saudi Arabia, who was demanding his money back with threats. This seemed like a great loss to me in those days. By now we have bought back most of the land and the dispute has been resolved. With the money from the National Bank I started building a laboratory and the processing rooms to extract the active ingredient, ammoidin. The American company sent me instructions on how to deliver the substance and my earlier training in technical chemistry turned out to be very useful. I did nearly all the experiments necessary for the production process myself. For the extraction we needed a steam generator, which was very expensive. Then I discovered an old innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
German wood-powered steam locomotive at a scrap dealer. I had it disassembled and brought it to Sekem. It still stands at the back of the farm as a kind of museum piece. The extraction building also needed a chimney, 30 thirty meters high and 40 centimeters around. To build it, we placed single pipes, each four meters long, on top of each other. I planned this undertaking carefully: we built wooden scaffolding so that the workers could pull the pipes up with ropes and place them on top of each other. But after only 10 metres the scaffolding started to sway and everyone ran away. Helmy bravely continued helping me with the building. He stood right at the top and had the pipes handed to him, and encouraged the others to follow his example. I supervised the building process continually. The accidents happened when people were left to work by themselves, which was sometimes necessary. For example we bought a tank for the diesel oil needed to power the steam engine. To save money we purchased an old tank, had it cleaned it inside and out, and painted like new. The man who sold us the tank wanted the work to be carried out on-site. A young man went into the tank to clean it from the inside using gasoline, and then lit up a cigarette during his break—with tragic results. Such tragedies happened repeatedly when I was not present. For years we worked well together with the Americans, until one day I received a phone call from the Elder Company in Ohio asking me to come visit them. Once in America they offered me the chance to buy the company. They told me the director had died and his children were not interested in continuing his business. They were asking a reasonable price, but unfortunately I did not have the money, particularly as they had failed to pay regularly towards the end. So our mutual business ended. Despite initial difficulties it had helped me establish the farm, and I now had to find a new line of business. Meeting Resistance Administration in Egypt was extremely complicated and tedious in those days when I was trying to start the initiative, as indeed it still is now. One time, for example, I was supposed to explain biodynamic agriculture and composting to the Egyptian agricultural ministry. When they read my explanations, they decided to ban the project on the spot. What had I done wrong? After I questioned them persistently they revealed that according to my description bacteria multiply in the compost, and they were worried that we would infest the whole country. They could not permit something so irresponsible. It took weeks to correct this disastrous mistake, even to get the professors and administrators back together to negotiate. Then I was told I did not know anything about agriculture as I was not a farmer. So I had to argue, provide literature, and explain the process of composting exactly. I started studying throughout the night so I could offer them answers. By the morning I had all the answers ready and gradually I was able to persuade more and more people to trust me on the topic of composting. But I had to work on
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each person separately! I learned a lot during this process. But the decision was still postponed. Meanwhile, I continued working on my project in the desert, until one day the police arrived, saying, “You are not allowed to continue working!” They declared it was not clear yet whether permission would be granted at all. Despite all the resistance, my For nearly 12 months I had to struggle with huge vision of an oasis in the desert difficulties, until it all suddenly changed. The minfrom which I could draw water istry let me know they for plants, animals, and humans, would send inspectors to the farm to see how the slowly began to take shape... soil evolved after treating But one morning, when I drove to it with compost. A scientist came and took a samthe farm from Cairo as usual, I ple of soil to analyze. This could not believe the sight I saw: process was repeated regularly over ten years. In the bulldozers were pulling down end that was the best thing that could have happened, thousands of trees. I was met by as the ministry could see soldiers with machine guns and our methods improving the soil a bit at a time. I suspicious expressions. I found won many friends at the out that a general had ordered our ministry and never tired of talking to them about my grounds to be made into a ideas and vision for the military area. country. Despite all the resistance, my vision of an oasis in the desert from which I could draw water for plants, animals, and humans, slowly began to take shape. Gradually all the tasks were working well together. The trees we had planted were three years old and had grown to a good height; the greedy goats could no longer reach them. But one morning, when I drove to the farm from Cairo as usual, I could not believe the sight I saw: bulldozers were pulling down thousands of trees. I was met by soldiers with machine guns and suspicious expressions. I found out that a general had ordered our grounds to be made into a military area, even though it was only through our efforts that there was even a water supply on our land. They wanted me to leave without further negotiations. This felt like a declaration of war! My violent temper emerged, and for the moment I managed to stop further innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
destruction by protesting loudly and standing fast. But I had to go to Cairo to start diplomatic and political negotiations to obtain a more long-term solution. I had already had to spend days in Cairo setting up the administration office. Now I had to abandon my direct work in the desert for a time and fight to continue my project. Anwar Sadat, the president of Egypt, was a good friend I had gotten to know during our adolescence, so I went to see him. In the government palace I also met the minister Shabaan, who headed the office of then Deputy President Hosni Mubarak. I explained everything that had happened, and he promised to help me. I was so angry and upset that I made everyone’s life miserable and repeatedly visited or phoned the minister to hurry up on the resolution. Still, it took weeks before all the military machinery was removed. The concept of compensation does not exist in Egypt; the best one can hope for after a mistake has been made is an apology. The responsible general apologized for his behavior and took sole responsibility for it. I accepted his apology. Later he was transferred to another area. His successor, General Ali Siku, immediately became my friend. We visited each other and became acquainted. Together we established a cooperative with single plots of land for officers on three thousand hectares of desert. I had discovered that this had been the original plan of the transferred general, and he had wanted me out so he could implement his idea on my land. Now I followed up this idea and discussed it with Ali Siku. I explained that it was not necessary to start this venture on the same land I occupied and had made fertile. Eventually we agreed on this point and became good neighbors. I helped him establish the cooperative materially and conceptually. The land surrounding Sekem was divided into small plots of five to ten hectares for each officer. The green cultivated countryside visible today around Sekem belongs to this cooperative. Despite the opposition, I also experienced moments that gave me courage and spurred me on. Since adolescence I have done regular spiritual work, which gave me great spiritual energy. I always had a deep inner desire to observe the times of prayer and to meditate on the verses of the Koran, particularly the 99 names of Allah. After I encountered anthroposophy, I started studying it along with continuing my meditations and prayers. I read that for some people, everyday life constitutes a more or less unconscious “initiation,” and that suffering, disappointment, and failure can be seen as a chance to strengthen our courage and inner steadfastness. Then I felt that the obstacles I encountered were not sent to destroy me but to steel my resolve. Such resistance must be met with greatness of soul and continual energy. The presence of nature also gave me strength. The dark green leaves of the trees were gradually starting to enliven the desert grounds around the farm. I could always find beauty to admire: sunrises and sunsets, sparkling stars in the night sky, or glittering dew drops on the leaves. I observed that we had more insects and birds on the farm, attracted by the trees and our good treatment of the earth. I felt Allah’s creative omnipresence through bird calls and animal sounds,
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smells and the wind, and in the blossoming and flourishing around me. The Koran relates how Adam and Eve lived in paradise before satanic whispers led them to the forbidden tree and they were expelled. But the Koran promised to return the Garden of Eden to believers as a most beautiful reward for their devoutness—the god-fearing will live forever in gardens. “Gardens, in which rivers flow” are mentioned more than 30 times in the Koran. The greatest source of joy for people living in arid surroundings is green gardens, with shady oases and flowers and trees. It also gave me the greatest fulfilment to watch Sekem flourish. Export-Led Growth I was sitting in my office when a lively, active businessman from the Greek part of Cyprus introduced himself to my secretary. Soon he told me about a project that he had set up in my birthplace, Mashtul, in Egypt: “I have transformed vast areas of land into a vegetable producing venture, built a packing house, and bought refrigerated vehicles that deliver the fresh produce to the airport. From there they are flown to England.” “Very good, Mr. Takis. And is there a problem?” “All the Egyptian banks have advised me to enter into a partnership with Sekem.” “Why?” “Because we people from Cyprus do not know how to deal with the way Egyptians work, and have suffered financial losses for years because of it!” Up to that point he had tried to run his business exclusively with workers from Cyprus. I thought about it: So far Sekem had only produced fresh foods for its own use. Should we start trading in fresh produce? Listening to him, I realized that he had been doing something I had always wanted to do: sell fresh produce. Finally, I asked him, “How do you cultivate the vegetables?” “With artificial fertilizers and pesticides, of course.” “Where do you get your seeds from?” “They are hybrid seeds from England.” Now two souls were struggling within me. On the one hand, this man had experience in marketing fresh produce. On the other, I objected to the chemical methods he used. I made a quick decision to go with the project. His experience was the decisive factor. Everything else could be tackled later. Helmy travelled to Mashtul to look around Mr. Takis’s business. He was horrified when he came back. “It’s not a food business!” he exclaimed. “It’s just artificial fertilizers and pesticides.” I replied, “Then we’ll have to transform it into an organic farm.” Together we founded the Libra Company, in which Sekem had a 50% share. We gained much valuable information about logistics and customer care from our partner. Mr. Takis often came to visit Sekem, and we showed him the biodynamic way of farming and its effects on the health of humans and the earth. He also saw the damage conventional farming did to the earth and the plants—but the innovations / Davos-Klosters 2009
Ibrahim and Helmy Abouleish
businessman in him saw profits. In his opinion, organic farming made the products prohibitively expensive. I asked Mr. Takis to travel to England to find out about the market for organic produce there. At first he refused, but eventually he was persuaded, although he returned without much enthusiasm. In the meantime I met with Volkert Engelsmann, our Dutch business partner, and asked him, “What would you think if we started producing fresh organic vegetables?” He answered, “That would be great!” So I asked George Merckens, an expert in biodynamic farming, to come visit us; we discussed how to establish a business with fresh organic vegetables. Then we started cultivating vegetables on the other farms belonging to Sekem. Despite all our previous learning and observing, this enterprise became costly. First, it was hard to get seeds for the kinds of vegetables customers wanted. Then the yield was about one half of what we calculated because of adjustments we had to make. We also had to inspect for insects frequently. And a sandstorm raged over the farm for a few days, tearing the greenhouse apart and destroying all our work. During this time Helmy travelled all over the county providing advice to farmers. Our deficits grew, just because we had decided to do business with fresh organic vegetables without sufficient farming experience. But we wanted to set an example for Egypt, to prove it was possible to produce organic food here. Every time something went wrong, or we looked at the figures, we clapped our hands together in a friendly way and chanted, “We will manage! We can continue and we will not give up!” Sometimes we would joke, “If only we had a factory making screws. We could be millionaires by now with the amount of time and energy we’ve invested in this project!” We remained certain throughout. With that amount of commitment, our good spirits would not abandon us. We founded a new company for the fresh food enterprise: Hator. This branch of our venture, we realized from previous experience, would need a logistics genius to manage it, someone who could also assert himself. This person would have to make sure that the produce was delivered from the fields at a certain time so it could be cleaned and packed in time to be shipped. At the same time, the necessary customs documents had to be presented to ensure that the produce would get to the ships and airplanes to Europe as planned—or, alternatively, be delivered daily to Egyptian grocers. The coordination had to be performed with military precision to avoid the great financial losses caused by spoiled food. Finally, my wife Gudrun started managing Hator, as she had experience with novel and challenging tasks. She taught the employees, about 70 young girls, with untiring commitment and dedication. Her training courses were held in Mahad, our center for adult education founded in 1987. There she taught the hygienic measures necessary for dealing with food, starting with washing hands, wearing gloves, and using special protective clothing and hats. She checked the quality of the vegetables the farmers delivered, and made sure they were cooled correctly. She also ensured that all the necessary processes were performed in swift sequence. Eventually we ended our partnership with Mr. Takis by mutual agreement, as
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he wanted to follow his own business. We were grateful to have learned about the requirements of marketing fresh produce from him, and we still remain in friendly contact. A Successful Demonstration One day pesticide tests performed on our medicinal plants showed traces of residues. We were rightly outraged. Where did these pesticides come from? We were certainly not using them. After excluding a whole range of possibilities we finally realized that they had been sprayed onto our fields by the dusting planes that were applying pesticides to neighboring cotton fields up to 20 times a season. Once I realized this, I complained to the Minister of Agriculture. “We want to cultivate organic produce on our farms without using poisons,” I said, “and you are destroying our efforts. We are powerless against crop dusting!” He looked at me with astonishment: “What do you want me to do? Is there an alternative?” “Stop spraying the pesticides!” I said. “Do you know what will happen if we do that?” he asked. Only then did I realize that this man was in a difficult position with the chemical companies. I discussed the problem with Helmy and Georg Merckens and asked Georg whether he knew of an organic method to protect the cotton plants. He advised us to study the insects that harmed the plants and to learn their way of life. We asked an entomologist to explain the behavior of the insects in question and to find studies of their developmental stages. Then we asked several scientists how we could stop these insects from multiplying, using organic methods. Two Egyptian scientists, Dr. El Araby and Dr. Abdel Saher, helped us by starting to examine the test fields we had prepared for this purpose. They soon corrected the problem, and in a short time the insects were doing less damage than on conventionally cultivated fields being sprayed with chemicals. Once we had weighed our first harvest, we found we had a 10% higher yield of raw cotton than the average in the area. This was a result to be proud of, and we attributed it to our methods of biodynamic farming that enlivened the earth and enhanced plant growth. Once we thought we had solved the problem, and thought that dusting pesticides over the fields was superfluous, we sent out invitations to the world’s first international organic cotton conference, held in Cairo. About 120 specialists attended. As part of the conference they were able to visit the nearest of the 19 biodynamically farmed cotton fields during the harvesting process. Egyptian television also attended and broadcasted a very positive report. People greatly admired our success. The agricultural minister had followed our progress with interest and arrived at the conference with his staff. In his speech he said something to this effect: “You have my great admiration for your efforts. But who knows if you can achieve such success again. First you will need to prove your results more than once!” So, we had to continue testing our methods of controlling pests. Every year innovations / Davos-Klosters 2009
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the minister chose some of the most polluted areas on a map and said if our methods succeeded there, he could make his decision. I thought he was acting as a responsible person. The testing fields were spread out across all of Egypt; Helmy spent all his time travelling. The fields had to be supervised day and night, and he had to be on site if quick action became necessary. Helmy’s efforts alone would not have sufficed without the support of his wife, Konstanze, whom I greatThe minister kept his word and ly valued. Because of her upbringing she saw leisure reacted with courage, ordering time as important. But here she had to live with the oppothe planes to stop applying site. She and their four chilpesticides to the fields. First an dren had to get along without Helmy for long periods of area of 200,000 hectares was time; often he would only come home late at night, cultivated completely without exhausted. pesticides. Then, one year later, After three years we had finished testing and were able this area was expanded to to present the results. The 400,000 hectares, which minister kept his word and reacted with courage, ordering incorporated the entire extent the planes to stop applying pesticides to the fields. First an of cotton cultivation in Egypt. area of 200,000 hectares was cultivated completely without pesticides. Then, one year later, this area was expanded to 400,000 hectares, which incorporated the entire extent of cotton cultivation in Egypt. Organic methods of controlling the cotton plant pests were employed in the entire country. It is hardly possible to describe the repercussions of this decision. The chemical industry could no longer deposit 35,000 tons of pesticides on the fields each growing season. The people involved had opposed organic cultivation and had gotten the press involved. We took it with equanimity, reacting calmly to any bad news. I believe the attacks we had to withstand could have destroyed our community. I will describe one particularly harsh attack later. We had succeeded in several ways. First, one of the most poisonous chemicals had been banned. Dr. El Beltagy of the state agricultural research institution said in a speech that even if the United Nations had decided that Egypt should practice pesticide-free cultivation, they would not have succeeded in implementing it. Moreover, the scientists in all the universities of the country would never have
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come to an agreement on the matter. It was solely the effort and willpower of the Sekem community that achieved this healing act for the country. The “Sun Worshippers” Before the government banned the practice of crop-dusting planes applying pesticides over the cotton fields, it had established contracts with the crop-dusting companies and the chemical industry. These contracts prevented the Minister of Agriculture from agreeing to our demands to stop the spraying after the first year. But after three years, once we had demonstrated a viable organic alternative on our test fields, he cancelled the contracts. This was a courageous step. Some people in the ministry were still saying that we were destroying the country. Naturally we tried to counteract this view by explaining our work. But during this time I often prayed silently that everything would turn out well! A few weeks later, articles started appearing in the large daily papers in Cairo that declared that only the rich profited from organic farming, as they were the only ones who could afford the expensive prices. This was all highly exaggerated. Other articles stated that not even the people of rich industrial countries could afford organic produce—and if even they could not, then poor countries certainly could not. How could hundreds of millions of people in the world be fed if the crops were not improved by artificial fertilizer? Organic farming was declared to be a loser’s method. We were even accused of wanting to let people starve. Sekem was mentioned by name in many articles and I received anonymous threatening phone calls. But there were also encouraging voices that said, “Don’t give up! You are doing good work!”
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There was a general atmosphere of conflict across the country, and the subject became widely discussed, which could only be good in the long run. We noticed that the attacks did not influence the sales of our companies’ products, even though they were supposed to damage our reputation. We were called an “elitist company,” supposedly only catering to Germans. We were able to cope with all the attacks until one day an extensive article appeared in the local paper with the title “The Sun-Worshippers.” A journalist had visited Sekem without our knowledge and had photographed us standing in a [T]he prayer leaders in the circle on a Thursday afternoon, at our end-of-week mosques around Sekem started assembly. He asked what we to stir up animosity toward us, were doing, and then answered it himself: we were spreading the word that we did worshipping the sun! He had not worship Allah, but the sun... photographed the Round and mentioned I began to fear that the chemical House,shapes in and in other round front companies had won after all. of the company buildings. According to him they were all symbols of the sun! Finally, he cited a man from the education authority: Dr. Abouleish stood in front of the class and asked the children, “‘Who is your God?” The children truthfully answered, “Allah!” Then he told them, “No, not Allah. I am your Allah!” I experienced this myself... These were all lies from the supposed education inspector. For Muslims, worshipping the sun is like worshipping Satan for Europeans. People were indignant, in turmoil. Something like that in their country! Sekem workers were harassed: “Is it true? Are you sun worshippers?” Stones were thrown at us. The article circulated throughout Egypt. Then I got a telephone call from the head of the secret state security police, who invited me in for a visit. When I entered his office I saw the article lying on his desk. He pointed to it, and asked, laughing: “What do you say to that stuff?” Because I did not know his view I waited in silence. He continued: “We here know that not a word of the accusations against you is true. But I advise you to defend yourself and take legal action against these people. You cannot let them get away with these accusations!” Now I had proof of what I had always assumed: like all large companies, Sekem also had spies from the state secret services placed among its workers, because the state feared fundamentalists. I followed his advice and started a court case against the paper, knowing well it would take years.
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Based on this article, the prayer leaders in the mosques around Sekem started to stir up animosity toward us, spreading the word that we did not worship Allah, but the sun. Among their worshippers were Sekem workers, who knew this was not true. But nobody would be allowed to stand up in front of all the people and say something against the imam! I began to fear that the chemical companies had won after all. Should we fight against the animosity, or choose another way, one that was peaceful and took the wind out of the enemy’s sails? I decided on the latter course. I entrusted 10 of my staff members with the task of inviting to Sekem all of the people mentioned in the article, as well as the mayor and influential sheiks of the area. We fixed a date and I stressed that everyone was responsible for ensuring that the people assigned to them actually came. On the chosen Thursday I met up with them in the Mahad. They entered, a large group of men in long flowing gowns. I welcomed them, offering my hand to shake, which they did unwillingly. But I stayed calm. Once everyone was seated, I asked a sheik to read a verse from the Koran, which he did with his beautiful voice. Once he had finished, I beckoned Sekem musicians into the room to play a Mozart serenade. Suddenly a man jumped up furiously, banged his fist on the back of the chair, and shouted, “We will not listen to this work of the devil!” While the musicians bravely continued playing, I walked up to him and said, “Calm down and listen.” After that episode all the visitors let these “terrible” sounds wash over them. Once the musicians had left the room I invited the men to express themselves. One stood up and shouted, “Music and art are forbidden in Islam. The Prophet said so!” I calmly asked, “Does it say so in the Koran?” “No,” he replied, “the Prophet said it!” I answered, “I believe every word in the Koran, and also those of the Prophet. I only need to see it first!” He said, I’ll bring it to you.” I replied, “Good, I’ll wait until you bring it!” This is how the meeting started. The atmosphere was terribly strained and threatened to escalate out of control at any moment. Because of the questions, I started telling them that Allah had chosen human beings out of all of his creations to be his successor. Some of them nodded, because I verified everything I said with verses from the Koran, quoting them by heart. Allah says, “We are responsible for the earth, the plants, and the animals.” Allah had initially given responsibility to the heavens and the mountains, but they had refused. It was too much for them. Only the humans took it upon themselves. Now I continued talking about the dead and living Earth. As is written in the Koran, “Allah is the divider of the seed kernel and the fruit kernel. He can pull the living out of the dead and the dead out of the living.” (6.95). Now I experienced the difficulty I had already frequently met when training the farmers. These people were used to understanding the words from the Koran in an abstract sense and tended not to think of concrete examples when listening to them. I now showed them, using appropriate examples, what these verses full of images could mean for their practical life. I explained about the millions of microinnovations / Davos-Klosters 2009
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organisms and their work in the earth and told them that the living earth was connected to the heavens. Then I quoted the Koran again: “The sun and the moon pursue their ordered course. Then plants and the trees bow down in adoration. He raised the heaven on high and set the balance of all things, that you might not transgress it. Do not disrupt the equilibrium and keep the right measure and do not lose it.” (55.5-9). Then I asked: “How can we assist in this connection to the heavens? What is the essence of a plant? Is it just a seed we place in the earth, or does this seed receive life from Allah, so that out of it all the different types of plants can grow? Because Allah says, It is not you who cultivates, but Allah who cultivates. He lets the plants grow!” As I talked, I paused briefly to allow time for questions. Then I spoke about biodynamic farming, about the composting process and preparations for it. I described exactly how this process enlivens the soil. I explained how we wait for specific starting constellations before we plant; thus we are inspired by Allah to act correctly. Then I led the discussion toward the arrogance of science, which states that it is only physical substances that allow plants to grow, and not Allah. Because of this people use artificial fertilizers and chemical poisons, ignoring their effects on people’s health and the consequences of insect infestation. Suddenly one of the men stood up, came to me and hugged and kissed me. I noticed that another one had tears in his eyes. What had touched these conventional men? Many were shaken by the concreteness by which one could understand the verses of the Koran. They obviously felt that my explanations had deeply acknowledged their religion. Over the course of the day, the grim bearded men who had arrived in the morning became my guests. They said their farewells heartily and with deep feeling. I knew they would meet again on Friday in the mosques and would spread the word about the mistake they had made. I let them go with words from the Koran, “If someone comes to you and tells a rumor, then do not believe them, but verify it yourself.” They passed this message on exactly. They explained that Islam lives deeply in Sekem, as nowhere else in the country. And to commemorate their visit they gave us a plaque, written in beautiful calligraphy in golden letters: “That the community of sheiks verifies that Sekem is an Islamic initiative. The plaque now hangs in the entrance area of the school. Creating Institutions: “New ways of working together” Shortly before my 49th birthday I became seriously ill for the first time in my life. This development seems quite obvious to me in retrospect, after seven years of establishing a venture and rarely getting enough sleep. All the years I had worked out of a feeling that I needed to give the Sekem initiative enough of my excessive energy. Now I realized I had limits. On the night of March 21, I awoke with a stabbing pain somewhere near my heart and had difficulty breathing. I was taken to hospital immediately; the presi144
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dent of the General Medical Council, a cardiologist, was my friend. He was called, but the examination revealed no acute danger. Still, I could hardly breathe and had to depend on oxygen. After three weeks I could take my first steps. Every day I managed to walk one step further. Gradually I was able to forget all the difficulties that had placed such terrible pressure on my soul. Between late March and June I recovered. I spent a week in the Black Forest and learned to live and breathe again. Then I received a phone call from Graz. An old friend involved in medicinal research asked urgently for help and advice. I called my friends Elfriede and Hans: “See, I can dance again, let me fly!” Eventually they agreed. So I flew from Stuttgart to Graz via Vienna. But during the first flight I suffered another heart attack and on arrival was immediately taken to the intensive care ward of the nearest hospital in Vienna. I could hardly speak when I awoke, but I let a doctor I knew in Vienna know about my condition and he came to look after me at once. Nobody else knew where I was. The tests showed a heart thrombosis; the doctors said I needed surgery immediately, or at least a catheter examination. But I refused both of these options and only wanted to lie still and be looked after. Now I was seriously at the edge. My whole lifestyle would have to change if I wanted to remain alive. I would never be able to work again in the same way: I felt terribly weak. Internally, I started to take leave of Sekem, my family, my friends, everything. After three days my Viennese friends managed to get in touch with my friends Elfriede and Hans in Oschelbronn; they flew to Vienna immediately. They supported my decision to refuse the operation. Hans looked after me using special medicines. When I could travel again, I returned to the clinic in Oschelbronn in a specially reserved train compartment. My recovery began anew. After six months of recuperation, my friends took me back to Sekem. Helmy had taken over my duties, with close help from Gudrun and Mona, and had grown into the task. In a meeting with all the staff, I described my illness and the experiences involved. Afterwards an Egyptian employee jumped up and spontaneously hugged Hans, thanking him in the name of all the other workers for restoring “their doctor.” After my illness, we decided to reorganize the entire initiative and lay a new foundation stone. The stone-laying ceremony was accompanied by music and recitations from the Koran. Everyone present and involved in the project signed the foundation stone document and then the stone was lowered into the central room of the Round House. It was all very festive. Everyone was aware of the importance of this moment. Humans Cannot Work Alone I am often asked about the spiritual background of Sekem. Sekem developed out of my own vision. My spiritual inspiration came out of very different cultures: a synthesis between the Islamic world and European spirituality. I moved around freely in these different areas as if in a great garden, picking the fruits of the differinnovations / Davos-Klosters 2009
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ent trees. I would have felt restricted if I had to limit myself to one way of thinking. But I felt enough inner space for everything in myself. But I am also aware that I am limited. After my death, the practices we have established in Sekem will have to continue developing in an organic way. We need people who can guide Sekem according to the original vision, and who understand clearly why it was established. A circle of people are entrusted with the actual running of Sekem. They constitute the center of the venture and we call them the “Council of the Future.” One task of this council is to maintain a living connection to the well of spiritual inspiration. Another task is for them to experience the connection to others as enrichment and completion. Moreover, every individual must be aware of all the others, knowing their conditions and the tasks they are working on. Another task is to be willing Like others elsewhere, we at to continue learning. A definSekem have learned that in the ing factor of a functioning shared leadership is that the global economy, you must be people of the council have more knowledge of the venture globally competitive. Over 20 than the other employees. They years of working in the Sekem know the background behind decisions; they are aware of the initiative, I have learned that risks and sometimes also of the human development is a conditions that must be met. with these wonderful strategy for achieving The group can deal because of tasks courageously sustainability and impact. In the their trusting work together. the gradual long term, competitiveness is all During of Sekem, I development always encountered questionable situabout human beings and ations and great risks, which I individual capacity took upon myself because of my trust in Allah’s leadership. But we can meet problems with more objectivity if we look at them from different angles. Discussions with those inside and outside Sekem, and the attitude that every problem has a solution, let people can grow and work together. They become able to stand up consciously for the development of people and the world. Their dealings are led by the same trust that carried me alone at the beginning.
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TEXT BOX 1. Sekem Companies Isis In 1983, Isis launched Sekem Herbs, its first line of herbal remedies. Now it produces and packs organically certified herbal teas, dairy products, oils, spices, honey, dates, organic coffee, juices and conserves for consumers in Egypt and abroad. It employs 230 people in its factory alone. Hator Established in 1996, Hator produces and packs fresh fruit and vegetables. Every day employees pack about four tons of fresh tomatoes, beans, peppers, oranges, grapes, etc.; large volumes of potatoes, onions, and oranges go to European markets via container ships. Atos ATOS, established in 1986 as a joint venture with the German Development Bank and Dr. Schaette AG, brings physicians and pharmacists together to research and develop medicines from natural sources. Qualified employees visit Egyptian doctors to introduce those products and the concept of using safe and effective plant-based drugs to treat medical conditions ranging from the common flu to complex urological and cardiovascular problems. In 1992, ATOS secured a license agreement with the German firm Weleda to manufacture and market natural cosmetics in Egypt. In 1997, the Sekem group of companies received the ISO 9001 certification. Libra Established in 1988, Libra Egypt supplies the raw materials that the various Sekem companies process and produce, arranging favorable long-term agreements between cultivators and traders. In 1994, Libra started to grow 1,000 acres of cotton biodynamically, based on intensive cooperation between scientists, manufacturers, and farmers. Trained and experienced advisors help small-scale farmers, visiting different regions weekly to answer questions and solve urgent problems, such as insect development. Naturetex In collaboration with scientists and with Egyptian companies that spin, weave, dye, and finish fabrics, Sekem developed ways to produce cotton fabrics without using harmful chemicals. Daily, over 200 Naturetex workers use state-of-the-art machinery to produce up to 3000 pieces of high-quality clothing for babies and children, mostly for export to the U.S. and Germany. innovations / Davos-Klosters 2009
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TEXT BOX 2. The Sekem Development Foundation The Sekem Development Foundation (SDF) makes its services available to all local people so they can improve their lives in meaningful ways, moving the entire community towards development. In focuses on three development sectors: education, health, and economics. Educational Programs The Sekem School, founded in 1989, lies about 30 miles northeast of Cairo on the fringe of the desert. It serves 300 kindergarten, primary, and secondary students of all social levels, mostly local. It enrolls Muslim and Christian children alike, encouraging them to live in harmony and to respect one another’s religious practices. Approved by the Egyptian Ministry of Education, the school uses the Egyptian state curriculum but also promotes new forms of pedagogical and social interaction to nurture children socially, culturally, and intellectually. Thus it also offers courses in crafts, drama, dance, movement, and music. Though child labor is illegal in Egypt, it is widespread, involving about 1,600,000 children under age 14. In response, Sekem designed the Chamomile Children Project, where 80 children, aged 12 and up, work on the Sekem farm, but under excellent conditions. For about half the work day, specially trained teachers and social workers provide classes in reading, writing, singing, history, religion, and the arts. This gives children a genuine opportunity to pass the primary school exams, which they need in order to start formal vocational training. This education is also holistic, nourishing their minds, bodies, and souls. The children do well on the exams; many become regular employees, often working in agriculture or textiles. It shows that children who have had a poor start can still shine and contribute to society, if given a fair chance. HELMY ABOULEISH: A HOLISTIC MODEL Growing up with Sekem, I always saw principles in action, especially corporate responsibility. At Sekem, the philosophy is all about human development; nothing else matters. Profit was never an end in itself. Like others elsewhere, we at Sekem have learned that in the global economy, you must be globally competitive. Over 20 years of working in the Sekem initiative, I have learned that human development is a wonderful strategy for achieving sustainability and impact. In the long term, competitiveness is all about human beings and individual capacity. Workers whose skills are developed in a learningliving situation are self-motivated and eager to succeed. Right now, Sekem employs 2,000 people in its businesses and hundreds more on the social side, serving some 40,000 people in the community. We aim to develop our natural and human resources together in an organic way: our holistic approach is integrally
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The Handicapped Children Program supports children with all types of disabilities so they can exercise their full rights as independent human beings. Many individuals with disabilities have been successfully integrated into Sekem’s various workplaces. The Adult Education Center provides literacy training (reading and writing), English language classes (incorporating computer literacy), computer training, and courses on hygiene in the workplace, as well as arts, music, and sports. It also offers seminars and lectures. Health Care Activities SDF’s modern Medical Center, located on the Sekem farm, can offer comprehensive health care services to more than 120 patients per day, including local residents. Doctors skilled in a dozen specialties treat eye problems, skin diseases, internal ailments, infectious and endemic diseases, etc. A fully-equipped pharmacy is next door. The clinic also provides education on all aspects of public health, including environmental health, women’s health issues, family planning, and sanitation practices. Its outreach program, involving its mobile clinic and several social workers, provides modern health care and educational programs to 30,000 rural people. Economic Activities The Vocational Training Program provides young people with specific skills for self-employment in a labor market with few opportunities. Each year 50 trainees begin a two-to-three year program that guides them in every aspect of their chosen profession; when they graduate they are skilled enough to start their own business or find work. They can train in such areas as carpentry, electrical installation, textile production technology, and general administration. Short courses offer training to local adults who want to start or enlarge their own businesses. linked to our drive to be globally competitive and successful. I was always on the farm; it was always part of the adventure. My attachment to the farm grew by the day. When my father fell ill in 1984, I took over Sekem’s administration, marketing, and sales. Before that, I was a farmer, driving a tractor, but then I had to go to banks. That changed everything. When he came back a year later, we kept it as it was and he went to the farm. The Sekem Development Foundation Sekem today is comprised of two integrally linked elements. The business side is made up of a number of distinct ventures, described above and summarized in Text Box 1. Phytopharmaceuticals, organic health food and garments made from organic cotton are the most important products these companies develop, produce, and sell. Very strong growth on the business side has allowed Sekem to develop a cul-
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tural and social dimension to its activities, organized through the Sekem Development Foundation (SDF), a private nonprofit organization founded by my father in 1984 under the name “Egyptian Society for Cultural Development.” [See description in Text Box 2.] In addition to funds from the business side of Sekem, the SDF’s program activities are supported by a variety of organisations and donors, private, governmental and non-governmental, local and international. The mission of the SDF is “To elevate the total welfare of the Egyptian people by enabling them to determine and realize their own socially unique and culturally appropriate development path.” The foundation strives to create culturally and socially legitimate forms of development that contribute to local, national, regional, and international development. Thus it serves as both a local and a global model of sustainable development. Egypt’s problems are numerous and interrelated. Human development has many Overpopulation, environmental degradation, and lack of facets, including the social, adequate education, health cultural and economic spheres care or awareness all combine to constrain Egypt’s inherent of life. The activities of the dynamism and potential. Neither the health nor the eduSekem Development cation systems have been able Foundation are founded on the to keep pace with the present population growth rate of belief that society’s problems 2.2% (or one million more people every eight months). cannot be tackled in isolation. In particular, the educational facilities are severely overstrained. Schools are overcrowded and lack resources, often accommodating three shifts of children per day. The overall illiteracy rate of 26.6% for urban areas and 56.9% for rural areas continues to be one of the highest in the Middle East. Training and vocational programs are insufficient to meet the demand. Structural unemployment primarily afflicts those lacking appropriate education and skills. The official unemployment rate in Egypt is 9.8%, although World Bank estimates place this figure as high as 17.5%. Community health is another major challenge in Egypt, especially for the poor. Access to adequate health care, while ostensibly universal, does not exist in many marginal and rural communities. Exacerbating this situation are extremely low levels of health awareness. Consequently, many diseases and conditions that are easily curable or preventable with proper education and facilities are endemic. Agriculture still accounts for 40% of employment and yet remains the least developed sector within the economy. The use of non-organic agricultural methods has contributed to chronic environmental degradation, severely impairing the
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productivity of agricultural land. Consequently, the cost of production has increased while the resource base has shrunk. Meanwhile, Egypt has become one of the world’s largest importers of food. Human development has many facets, including the social, cultural, and economic spheres of life. The activities of the SDF are founded on the belief that society’s problems cannot be tackled in isolation. Accordingly, the SDF’s development methodology stresses integration. The process of community development must be viewed as a totality composed of a multitude of interrelated components such as literacy training, vocational training, and primary health care. Since communities act as holistic units, targeting any single activity runs counter to the conception of integrated development. Thus, any one component of the SDF’s activities is but one element of an all-embracing comprehensive strategy. Speaking from a National Platform In 2004 the position of executive director of Egypt’s Industrial Modernization Center (within the Ministry of Trade and Industry) became open. I had about a half hour to decide whether to take it on. Someone has to do it, and a public-private partnership as a model for strategy can function well. I accepted Egypt has 20 million young people in its workforce. In 2025, that figure will swell to 40 million. It’s starting from 800,000 new entrants to the job market each year now and going to 1.2 million a year. Studying the best-practice examples of Malaysia and Eastern Europe and studying job creation in Egypt, I see no sectors other than those related to industry that will absorb these workers. Industry must be the agent of growth. Right now, Egypt creates about 350,000 new jobs per year. The partial breakdown is about 75,000 in industry, 65,000 in agriculture, 60,000 in services, and 150,000 in to the public sector. Every job created in industry will create one job in services. This became clearer to me when I was on the board of the Industrial Modernization Center (IMC). I went back to Rachid Mohamed, the Minister of Trade and Industry, and said, “We have to do something. We must promote industrial development and therefore be able to grow faster.” The industry was slowing down because it was always lower than GDP growth. Through industrial growth, investment will increase. Through the IMC, I had to push industrial growth, through FDI and exports. It was clear what we were going to do. It’s easy to get industry to improve with a business community taking an active role in the IMC. We grant assistance to companies based on their ability to export. Out of 10,000, about 800 are able to export. As soon as the market opens, the other companies will leave the market because places like China and India will come in to it. This is a clear message that has never been delivered. Our capacity at the IMC has increased tenfold in the last eight months since I took office. If over the last year they secured 400 companies, we will serve 3,400 companies. They were acquiring 25 new companies per month; we are serving 250 innovations / Davos-Klosters 2009
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per month. The companies are only paying 15% of their development investment. We have pledged the other 85%. Our immediate challenge is to provide land and infrastructure. In just a few weeks, we had over 600 requests from international investors in places like Qatar, Japan, China, and Turkey. They wanted land where they could set up whole industrial parks. We must focus on the sectors that create the most jobs, including textiles, food, building, engineering, and furniture. Now, the IMC is exactly the idea these companies need. Invest in your people. The only competitive advantage we have is our people. The biggest challenge is not the capability. Egyptians own and run very successful companies that are competitive with anyone in the world. The perception I’m fighting is that changing the path of development is a task for someone else or for the government. The perception now is that it’s big brother’s responsibility to feed and educate, find the right girl for you, find you a flat, and in the end to bury you. When you think this way, you can’t take the future of your country into your own hands. I’m very happy with the level of commitment top government officials have shown, but this will need time to trickle down. The new cabinet is doing a lot to help. Of course, some had reservations about the IMC; some people are still not happy. I think this is natural; not everyone will agree, but we have more and more companies joining, and I’m very happy with the results of new investments in industry. The same is true on the political level: those in power were not happy. But these changes are the only hope, because the challenges are so great. CONCLUSION Sekem is a business. It is a community. It is a shared vision for Egypt and the world. These three elements are not mutually exclusive. They are interconnected. For us, the creation of a garden in the desert was a very tangible experience. It has taken 30 years to make a vision a reality: a place where we work, a place where we greet visitors, and a place where we share and reflect. But the garden, and the desert, are also metaphors. Wherever people are isolated from one another and disconnected from their physical environment, a desert exists. Wherever people do violence is to the land, or to other people, a desert exists. The enduring garden that we have created at Sekem is the internal garden that links each person in the Sekem community to each other, to our land, and to all with whom we work.
1. This part of the narrative draws from a memoir written by Sekem’s founder, Sekem: A Sustainable Community in the Egyptian Desert. Edinburgh, UK: Floris Books (2005). 2. This part of the narrative draws from a May 2006 interview of Helmy Abouleish published in Business Today-Egypt. 3. This philosophy is based upon the works of Rudolf Steiner.
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William J. Baumol
Sekem: A Remarkable Tale of Social Entrepreneurship with Critical Lessons for Policy
Innovations Case Discussion: Sekem
Publication of the remarkable article, “Garden in the Desert,” offers the reader a fascinating tale illustrating the difficult path that faces a social entrepreneur who undertakes a major project that points to a path for improvement of the state of society. It concerns a dedicated and idealistic entrepreneur, Ibrahim Abouleish, who undertook to transform a strikingly arid location in the Egyptian desert, with the determination to make it bloom and yield valuable crops. Moreover, it was intended from the beginning that the project would prove to be long lived and selfsustaining financially. The heroic undertaking and its eventual success is an exciting tale, superior to fiction both because it describes actual achievement and also because it offers insights of value to other agronomists seeking to bring productivity to deserts of the world elsewhere. But, implicitly, there are also important lessons in the Sekem story for those crafting economic policy aimed at amelioration of the universal problem of poverty that besets even the most affluent economies of the world and continues to pervade the developing societies. My purpose in this short paper is to draw further attention to, and elaborate upon, the lessons for policy designers embedded in the Sekem case. INSTITUTIONAL IMPEDIMENTS AND CONTRIBUTIONS TO LIVING STANDARDS Economic historians, notably such outstanding figures as Douglas North and David Landes, have drawn our attention to the critical role of institutions in determining the magnitude of entrepreneurial effort in an economy and the size of the contribution of such effort to innovation, per capita income and economic growth. The central point here is that the institutions determine the size and nature of the rewards, in terms of wealth, power and prestige, offered by entrepreWilliam J. Baumol is Professor of Economics and Academic Director of the Berkley Center for Entrepreneurial Studies, New York University and Academic Advisor to the Ewing Marion Kauffman Foundation of Kansas City. © 2008 William J. Baumol innovations / Davos-Klosters 2009
William J. Baumol neurial activity. If the rewards are generous, more persons are attracted to careers of innovative entrepreneurship, and the economy will prosper and grow. This, quite convincingly, is a critical part of the story underlying the industrial revolutions that began after the eighteenth century and provided for some areas of the world a degree of prosperity unprecedented in human history. But institutions can also work the other way. It is not that they will put a stop to all enterprise, but that they will attract enterprising individuals to unproductive or even destructive activities—even some, like piracy, drug dealing or the role of war lord, that undermine prosperity and spread poverty or even famine and death in their wake. In the wealthier economies the undesirable elements of the incentive structure generated by institutions generally are more moderate, but even in those societies they serve as effective handicaps to the general welfare. This observation is important and promising, because if it offers us a hint of the nature of the impediments to productive entrepreneurship, and indicates how these attributes can conceivably be changed, it does indeed suggest the routes to effective progress. Even in developing lands, where the obstacles to progress have proven most intractable in recent eras, this observation offers hope. Barriers to Progress in Developing Lands: Three Example from the Sekem Story The story of Sekem provides a number of striking examples of barriers to progress in a developing land such as Egypt—barriers that, fortunately, do not appear to be immutable. Let me call attention to three of them, each a special case that is arguably representative of problems of widespread significance. A. Bank Financing. Funding is one of the most difficult and widespread obstacles besetting the creation of enterprise, particularly in developing countries. The Sekem history illustrates this clearly: ….I was happy to have found an Islamic bank where I could work together in a like-minded partnership—or so I hoped….The negotiations were tough….We agreed on the bank having a 40% share in the business…[but then] the state investment authority…found that the estimated value was far higher than the book value. This meant the bank had to pay more for its involvement in the project. But the bank was reluctant to accept this finding, and began to doubt everything and try to get out of the contract. It demanded back the 150,000 pounds it had already paid out…An arbitrator was employed and it took months for our two lawyers to agree on a third party to mediate….One day my lawyer came to me and said, ‘listen, if you give the bank’s lawyer 10,000 pounds he will accept the estimated value.’ When our entrepreneur refused to pay a bribe the problems began in earnest. Other banks, having heard the story, all refused loan applications from Sekem, and the dispute went on for years.
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Sekem: A Remarkable Tale of Social Entrepreneurship B. Expropriation Vulnerability. In developing lands, as was often ubiquitously true in the more distant past, there was no guarantee that private property would be immune from expropriation, particularly if it had proved promising. In the Sekem case, too, this threatened to become the reality: …[O]ne morning, when I drove to the farm from Cairo as usual, I could not believe the sight I saw: bulldozers were pulling down thousands of trees. I was met by soldiers with machine guns and suspicious expressions. I found out that a general had ordered our grounds to be made into a military area, even though it was only through our efforts that there was even a water supply on our land. C. Superstition as Competitive Weapon. The Sekem enterprise was run on principles of organic farming, but this made it a financial threat to the pesticide manufacturers, as other growers seemed apt to follow the Sekem example: The chemical industry could no longer deposit 35,000 tons of pesticides on the fields each season. The people involved had opposed organic cultivation and had gotten the press involved….We were able to cope with all the attacks until one day an extensive article appeared in the local paper with the title “The Sun-Worshipers,” [a label created by a reporter who had visited the area]….For Muslims, worshiping the sun is like worshiping Satan for Europeans….Based on this article, the prayer leaders in the mosques around started to stir up animosity toward us, spreading the word that we did not worship Allah, but the sun [thereby threatening the entire enterprise]. Impediments to Productive Entrepreneurship in Prosperous Nations: Two Examples The three examples from the Sekem story surely illustrate the point: that institutional arrangements can constitute a major impediment to productive entrepreneurship and that institutional impediments can handicap and even prevent developments of the sort that promise to contain poverty. But it is important to emphasize that such counterproductive institutions are not present only in developing economies. We in the prosperous nations also have much room for institutional improvement. Indeed, the most promising institutional arrangements, if they are inappropriate, even if only in their details, are capable of impeding or even preventing entrepreneurial activities from delivering their potential benefits. A. Some Missteps in the Early British Patent System and Resulting Impediments to Invention. The history of the patent system in Great Britain provides one clear example of institutional impediments in prosperous countries. As we all know, Great Britain has been accorded by historians the distinction of having inaugurated the eighteenth century industrial revolution. It is an accomplishment so great that its magnitude is difficult to comprehend. In just one century the purchasing power of an average inhabitant of Great Britain grew five-fold;
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William J. Baumol in the United States, seven-fold. This is in contrast with how little was achieved in the West during the approximately fourteen-century period between the fall of Rome and the British industrial revolution, during which time the estimated rise in per capita income for inhabitants of Europe was approximately zero. Yet, strikingly, it turns out that even more could have been accomplished since the industrial revolution but for the obstacles created by the errors of those who designed the relevant institutions and the attendant rules— notably, the early British Britain may indeed have patent system. Britain may indeed have initiated of the institution of initiated of the institution of patents and been its earliest user patents and been its earliest user about four centuries about four centuries before the before the beginning of the beginning of the industrial industrial revolution. But those early grants of patents revolution. But those early by the English king were not grants of patents by the English given as a reward for the invention of new products or king were not given as a reward improved productive techniques. Rather, the first for the invention of new known patent was granted to products or improved a French workman who had migrated to England and had productive techniques. brought with him the French secrets about the manufacture of silk. This workman was given a monopoly on the production of silk in England as a reward for his theft—or rather his secondary theft; for as we know, France, too, had not acquired its knowledge of silk production by innocent means. It was fully three centuries later, that the English decreed that the temporary monopoly provided by a patent could only be granted to the contributor of an original invention But this amendment to the British patent system hardly marked an end to the era in which the system was characterized by a set of effective impediments to invention and associated entrepreneurial efforts. In her superb book The Democratization of Invention, Professor B. Zorina Khan provides a description of the early British practices in this field. The government charged a fee for the grant of a patent that was about four times as large as the average income of an Englishman: “…[P]atent applications in England alone had to pass through seven offices, from the Home Secretary to the Lord Chancellor, and twice required the signature of the sovereign[!]. If the patent were extended to Scotland and Ireland it was necessary to negotiate another five offices in each country.” (p. 32). The purpose of these arrangements seems clear. First, it was believed that only wealthy 156 innovations / World Economic Forum special edition
Sekem: A Remarkable Tale of Social Entrepreneurship aristocrats could be expected to have the knowledge, intelligence, and creativity to make an inventive contribution of any value to the King and country. To avoid cluttering the activities of government with the pointless intrusions of “the lower classes,” such obstacles were adopted for the purpose of their exclusion. Second, the system was designed to contribute to the wealth and comfort of government officials, and this it seems to have done effectively, so much so that when the rules were at last changed and improved after the middle of the nineteenth century, the affected government employees had to be offered financial compensation for the losses they would suffer as a result. In addition, the view of British law in the earlier period was that the grant of a patent was a gift from the king, so that when the monarch deemed it to be appropriate he could, in effect, re-appropriate a patented invention for his own use, without compensation to the inventor. This was rarely, if ever, done in nineteenth century England, so that it does not seem to have been a significant issue there, but it is reminiscent of the dangers of similar arrangements elsewhere, as in China when the Emperor’s Confucian oriented government is reported to have confiscated printing from its Buddhist inventors. The result of these British restrictions upon its patent system was, of course, an impediment to its invention process. For nearly three decades until 1855 the number of patented inventions per million persons in its population was about one third the level of patents in the United States, where none of the obstacles just described were present. The relative inventive performance of the Americans was demonstrated dramatically at the Crystal Palace Exhibit in London in 1853, and this frightened the British into reconsidering their patent rules, though the resulting changes were far from immediate. All this does tell us that there is much that is useful to be learned from our own past mistakes and those of others about effective and ineffective ways to encourage the productive contribution of the entrepreneur. Next, I will provide one more more recent example that deals with the United States. B. Distortions of Incentives Caused by Employee Stock Options. In the U.S. a particularly important role in the compensation of business executives is played by the employee stock options (ESOs) that are often a substantial proportion of the financial compensation of members of management in American business firms. If the rules under which they are provided are well designed, they can serve as a powerful incentive for innovative entrepreneurship and growth of the business firm, as success in these areas will drive up the price of the company’s securities and, thereby, the market value of the ESOs. However, in practice the current rules have invited abuse in ways that, if anything, inhibit productive entrepreneurial activity within the firm and hold back its overall performance. An employee stock option is a grant by a company to the members of its management or other employees of the right to purchase a specified quantity of the stock of the company at some future date of the recipient’s choosing, but paying
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William J. Baumol for those stocks only the market price that prevailed on the date that the options were granted. This would seem to provide a powerful incentive for management to work hard for the productivity and profits of its firm as a way to raise the value of those ESO grants. Recent events, however, have illustrated all too dramatically the [O]bstacles imposed by nature possibilities for abuse—and are not all that success in a war indeed the actual abuse—of stock options by some on poverty must overcome. entrenched managements. These opportunities for abuse Here, as in many other include manifestly undesirable problems that beset the incentives for artificial exageconomy, the lesson is summed geration of the short-term earnings of the firm so that up by the old comic strip misled investors will increase their demand for the compaobservation: “We have met the ny’s stocks, thereby raising the enemy and he is us!” value of management’s stock options. Management does this instead of undertaking the harder and riskier task of providing more enduring earnings for the company by means of entrepreneurial effort and innovation. Even worse, it has been observed that large rewards of stock options have often been given to managers of the companies who have accomplished little or nothing for their firms, but who have benefited greatly when the stock price of the firm has risen in a period of generally rising stock market prices. In other words, this has proven to be an incentive for management to do little or nothing for the firm, the investors or society, because without undertaking any of the risk or effort this requires, they would still be richly paid, often in hundreds of millions of dollars. This problem of divergence between the interests of society and those of management is inherent in the corporate form of organization of the large business firm. The large amounts of money needed to create the business can only be obtained from a large number of investors—the corporation’s many stockholders. But the resulting dispersion of corporate ownership among many stockholders, with no stockholder owning enough stocks to enable it to control the company, makes management by the stockholder-owners unworkable and necessitates giving the task of management to an essentially separate group, the hired management of the enterprise. The result is what is described as the separation of ownership from management that is typical of the modern corporation. But since an effective program of innovation in the firm’s products and production methods is likely to require very hard work and the undertaking of great risks, management is likely to be reluctant to undertake such a course.
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Sekem: A Remarkable Tale of Social Entrepreneurship As just indicated, stock options can be a method to achieve the goal of reconciling the interests of managers and shareholders and society. For under the stock option form of compensation, managements gain most if they can do their utmost to raise the market value of the company’s securities, and that is presumably what good profit and sales performance will achieve. Moreover, a simple change in the way employee stock options are provided to management promises to remedy the problems just described. The problem can at least be alleviated if the quantity of options granted to the individual executive is based on the performance of the firm’s securities in comparison to that of the firm’s industry as a whole. That is to say, more options are offered in proportion to the extent that growth in the firm’s output or sales exceed those of related firms. But the rules for taxation of firms in the U.S. have all but prevented this solution. Those rules permitted a reduction in the amount of the tax that would otherwise have to be paid for the provision of the stock options, but only if the quantity of options granted to management was not based on its performance! In other words, the arrangement was completely perverse; it was an incentive for continuation of the temptation of management to pursue its own interests at the expense of stockholders and the community as a whole. CONCLUSION It should be clear from these and an abundance of other experiences that all societies still have much to learn about how to most effectively promote economic growth which alone can ultimately terminate the poverty that has plagued humanity throughout the ages. In particular, amelioration of the universal problem of poverty will require reexamination of our institutions; determination of what institutional arrangements promote general prosperity rather than impeding it; and action to carry out the modifications that experience, observation, and systematic research tell us are required. I return, in conclusion, to Sekem, to the Egyptian tale in which a remarkable and determined exercise of entrepreneurship succeeded in making the desert bloom, overcoming obstacles that would have lead weaker individuals to surrender. Its ultimate victory has many lessons for all societies. It illustrates dramatically that the obstacles imposed by nature are not all that success in a war on poverty must overcome. Here, as in many other problems that beset the economy, the lesson is summed up by the old comic strip observation: “We have met the enemy and he is us!” The story of Sekem shows that these problems do occur in developing lands as well as ours. More importantly, it demonstrates that in such places, too, institutional impediments can be overcome and, with sufficient determination and thought, they can even be removed.
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Ayman El-Tarabishy and Marshall Sashkin
Social Entrepreneurship at the Macro Level: Three Lessons for Success
Innovations Case Discussion: Sekem
In recent years, the increasingly popular topic of economic entrepreneurship has included a concern with entrepreneurial innovation in the not-for-profit sector. It seems to us that this sort of entrepreneurship is not yet generally or fully understood. For example, a New York Times op-ed piece by Nicholas Kristof (2008) offers examples of social entrepreneurship. We question whether some of these examples really represent social entrepreneurship: Andrew Klaber’s charitable foundation covers the school expenses of children orphaned by AIDS, while Jennifer Staple’s organization collects old reading glasses in the U.S. and ships them to poor countries. These are, of course, inspiring examples of young people who have created charities that have done a great deal of good, but they are not examples of entrepreneurship, let alone social entrepreneurship. A central reason is the fact that neither is truly innovative. Many charitable organizations, such as Orphans Against AIDS, provide educational assistance to such children; Save the Children is a wellknown, long-standing example of this work. As for the mission of Staple’s Unite for Sight, the Lions Club International has been collecting eyeglasses and distributing them to the poor for many years. One might argue that Kristof ’s examples are innovative because they are Internet-based, but both of the much older charities we mentioned also have extensive Internet sites.
Ayman El-Tarabishy is Assistant Professor of Management at The George Washington University in Washington, D.C. He is responsible for courses in entrepreneurship, leadership, and an on-line executive MBA program for physicians and health-care administrators. He is also executive officer of the International Council for Small Business. Marshall Sashkin is Professor Emeritus of Human Resource Development at The George Washington University, where he continues to deliver lectures on leadership and research methods in the Executive Leadership Program. His current research centers on leadership, entrepreneurship, and organizational performance. © 2008 Ayman El-Tarabishy and Marshall Sashkin 160 innovations / World Economic Forum special edition
Social Entrepreneurship at the Macro Level Some would argue that social entrepreneurship is characteristically different from “ordinary” entrepreneurship. Gordon Shockley (2008), however, has pointed out that the fundamental attributes of entrepreneurship in the public and nonprofit sectors are actually no different from the fundamentals of entrepreneurship in the private for-profit sector. His argument rests in good part on Joseph Schumpeter’s (1934) classic definition of entrepreneurship: its core is defined by innovation, and the entrepreneur, whether a person, a nonprofit corporation, or a government agent, is merely the carrier of the innovation into society. This is not an unreasonable point, especially as few would care to argue against as respected— and innovative—an economic theorist as Schumpeter. Shockley seems to be correct in asserting that some nonprofit and government-based entrepreneurial operations are really not much different from private-sector entrepreneurship. However, we believe that the example of Sekem, detailed in the case written by Ibrahim and Helmy Abouleish, teaches us that social entrepreneurship, while surely based in innovation, may—and perhaps must—go farther than the description that Schumpeter applied to private-sector innovation and entrepreneurship. First of all, when examined carefully, the case of Sekem makes it clear that at least in some cases—specifically, large-scale or nationallyfocused social entrepreneurial efforts—the innovator is just as important to the success of an entrepreneurial effort as the innovation itself. The Sekem case also points out the importance of context for success in social entrepreneurship at what we might label the macro level. We refer here to social entrepreneurship that successfully brings innovation—or, more properly, many innovations—into a large social system ranging from a community to a nation. Specifically, then, the Sekem case points out three crucial elements of social entrepreneurship at the macro level: The innovation, without which there would be no entrepreneurial activity. While this is hardly a new idea, it is worth noting that a recent critique of entrepreneurship (Shane, 2008) pointed out the high failure rate of new business ventures as proof that entrepreneurship may not be, as Schumpeter (1939) declared threequarters of a century ago, the driving force of capitalism and economic development. That proof, however, is in fact erroneous because new business ventures are, to a large extent, mere replications of extant business operations. That is to say, as Schumpeter and other entrepreneurship researchers such as Danny Miller (1983) have observed, entrepreneurship is not entrepreneurship without innovation. The entrepreneur, that person who is able to (a) develop (or identify) an innovation, (b) take a highly active role in creating an organizational venture based on that innovation, and (c) take high (but realistic) risks to successfully establish that venture. As a macroeconomist, Schumpeter tended to downplay the role of the individual entrepreneur. Modern researchers, especially in the U.S., have, however, tended to overemphasize that role. This may be due to the extreme importance placed on individualism in American culture. A realistic view lies somewhere between these extremes, with the individual entrepreneur playing an important if not always cru-
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Ayman El-Tarabishy and Marshall Sashkin cial role. For example, the sociologist Robert Merton (1973) observed that while innovations, especially crucial innovations such as the calculus or the telephone, are commonly identified with an individual “genius,” the fact is that those innovations—and many lesser-known innovations—were actually “overdetermined,” that is, developed quite independently by more than one individual at about the same time The social context of entrepreneurship. Contextual concerns are, of course, often taken into consideration in terms of competition and/or organizational partnerships. However, to achieve a full understanding of social entrepreneurship, such concerns must be extended to include key aspects of the communities—the social structures—within which innovations are adopted. Specifically, to obtain a comprehensive overview of entrepreneurship in general and of social entrepreneurship in particular, one must incorporate within a viable theory of entrepreneurship such social factors as education, health care, and cultural values. In fact, this is not a new idea. For example, in his classic book, Diffusion of Innovations, Everett Rogers (2003) observes that innovations inconsistent with the values and beliefs of potential adopters are unlikely to take hold on a large scale. THE CASE OF SEKEM Ibrahim and Helmy Abouleish, father and son, provide an inspiring account that might appropriately be titled, “The Emigrants’ Return.” The idealism Ibrahim Abouleish reflected in returning to his homeland to create innovative institutions that would advance both economic and social needs is more than admirable. It is the mark of one who, in terms used by the social psychologist David McClelland (1987), functions at the highest level of development of the motive pattern that characterizes leaders. McClelland and his associates (McClelland & Boyatzis, 1982) identified this as an exceptionally high power motive. But at this level, leaders use power not for their personal gain but, rather, to benefit the larger social system. McClelland called this “institutional power” because such leaders work within an organizational context, using organizations and institutions to apply power and influence in socially positive ways. Social entrepreneurship of the sort described in the Sekem case—that is, at the macro level—aims to create a sense of organizational community. It may even be aimed at creating change in a whole society, as did Mohandes (Mahatma) Ghandi. McClelland observed that such leaders see their power as deriving from a greater or higher authority, often religion, as is true for Ibrahim Abouleish. The leadership scholar James McGregor Burns points (1978) out that leaders who use power in the manner we have described engage followers in “a relationship of mutual stimulation and elevation that converts followers into leaders and may convert leaders into moral agents” (p. 4). Exhibiting a power need at this highest level and using it to create communities of the type just described—and of the type developed by Ibrahim Abouleish—may well require that the entrepreneur have
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Social Entrepreneurship at the Macro Level personal character of a most uncommon kind. We have, the reader may note, already begun to focus our comments on the three elements of macro-level entrepreneurship that Sekem teaches are crucial for success. That is, we have already started to describe and discuss the nature of Abouleish, the entrepreneur in this case. Before going further, then, let us proceed in a more organized fashion. First we will attend to the innovation—and its many extensions—that is at the heart of this fascinating case. Next, we will return to the nature of the entrepreneur (and his successors), with a focus on several important aspects of the entrepreneur that extend beyond his inspiring and idealistic goals. Finally, we will turn to aspects of the context that this case teaches us are crucial for success of macro-level social entrepreneurship. THE INNOVATION In his history of the development of Sekem, which he founded in 1977, Ibrahim Abouleish describes his goal of developing a farm that used only organic farming methods. This was a response to the massive use of nonorganic fertilizers and, especially, pesticides in Egyptian agriculture. He barely notes the severe toll this widespread use of pesticides on produce of all types had on public health. However, as the former director of a medical institute in Austria, Abouleish must surely have recognized this problem. But it is clear, from the beginning, the innovation behind Sekem was not simply the use of organic farming methods. Abouleish describes how, right after he had purchased the land for his farm, he began to plan for houses for workers, a school for workers and their children, a medical center to meet the health-care needs of his planned community, and a social-activities center. As the farm, and the multifaceted entity named Sekem, took form and grew, so did the nature of the project’s innovations. Production of an extract of a medicinal herb for an American firm was actually Sekem’s first innovative venture. It did not in fact involve farming, but the construction on the farm property of a chemical laboratory to produce the extract that was sent overseas. Later, in 1986, Atos, a joint venture between Sekem, a German bank, and a German firm, was set up. Atos first marketed plant-based German drugs to Egyptian physicians. Later still, in 1992, another German firm became a partner in the production and sale of natural cosmetics in Egypt. Libra, a Sekem subsidiary established in 1988 to supply raw materials (such as the plants from which extracts were obtained) to other Sekem operations, began organic cotton production in 1994. Organic vegetable farming, another addition to Sekem’s innovation set, was conducted by the firm Hator, a Sekem subsidiary founded in 1996 that partnered with a firm based in Cyprus. Much of the produce went overseas. It seems that each time a new product line was added, a new company was formed under the Sekem umbrella. For example, Naturetex, a separate subsidiary, collaborates with Egyptian textile firms to produce fabrics without using dangerous chemicals. Naturetex also produces children’s clothing for export. innovations / Davos-Klosters 2009 163
Ayman El-Tarabishy and Marshall Sashkin The success of the organic vegetable crops was clear, yet it was hindered by the continued pesticide spraying by nearby cotton producers, which left a residue on Sekem’s products. A massive public relations campaign led to an agreement with Egypt’s agriculture ministry to “test” the yield per hectare of the organic approach to cotton growing and compare it to that of farms using fertilizer and pesticides. Year after year of testing repeatedly demonstrated the advantages of Sekem’s approach. Eventually, reluctantly, pesticide spraying was discontinued on nearby farms. According to the Abouleishes’ historical account, all cotton production in Egypt eventually ceased to use pesticides! This alone would have made Sekem a success, due to the significant advance in public health achieved by reducing or eliminating the use of pesticides. But there is much more to the story. Under the Sekem Development Foundation, a wide range of social services are provided to both employees and the community at large. A medical center and clinic serves 120 patients daily, not only employees but members of the local community. The Sekem School serves 300 K–12 students; many are the children of employees but the school is open to all. Education for child workers is provided, as is a program of education for the handicapped, programs in adult literacy and career skills, and programs in art, music, and sports. In expanding its activities, Sekem’s initial training for workers has morphed into career-development training. Vocational training is offered to individuals who may or may not become Sekem employees. There are also courses for adults who want to start businesses. We have repeated some of the detail presented in the Abouleishes’ case in order to emphasize both the wide variety and the extensive interconnectedness of the innovations that make up Sekem, but the point is clearly made by Ibrahim and Helmy Aboulesih: successful macro-level social entrepreneurship requires the integration of multiple social elements, including but not limited to business innovations. THE ENTREPRENEUR Born in Egypt, Ibrahim Abouleish went to Europe for graduate study. He earned a PhD in pharmacology and became a researcher, generating more than a few drug patents and eventually becoming head of the Division of Pharmaceutical Research at the University of Graz in Austria. During these years he also married an Austrian woman, Gudrun Erdinger, and they had two children, a boy, Helmy, and a girl, Mona. A visit to Egypt in 1975 impressed upon Abouleish the need to deal with problems of pollution, education, and poverty, among others. So, in 1977, he and his family returned to his homeland to establish an organic-based farm. As we have already noted, if that were the true and sole focus of his efforts, it would hardly qualify as an innovation; organic farming was not a new idea, even in 1977. But Abouleish had a far broader, multifaceted goal: to create a comprehensive development initiative.
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Social Entrepreneurship at the Macro-Level Abouleish’s first aim, however, was to enlist the entire family in his dream. With that goal attained, he could begin a process that was to extend far beyond farming. As he writes, “I would move to Egypt, establish a self-sustaining farm, and then over time add additional projects focused on education, health, and culture.” To begin to this process he needed funding. Abouleish was apparently reasonably well-to-do, with funds adequate to purchase the initial 70 hectares of land, but he needed a large Abouleish’s commitment to infusion of capital in order to his values and his faith was a begin operations. He had arranged for an American firm to constant driving force behind purchase a plant extract needed to his personal efforts and his manufacture an herbal drug remedy, but he still required funds to step-by-step successes. obtain the extract and build a chemical laboratory to process the plants. Perhaps a surprising beginning, when the overt aim was to establish a farm using organic methods—an aim that was not initiated until 1994, more than 15 years after the founding of Sekem. What we see in this account is Abouleish’s pragmatism. His real aim was not limited to farming but was truly multifaceted, yet where he started depended on opportunity, not a rigid plan. Many years ago, Herb Shepard (1975), a highly regarded American organization development and change consultant, wrote that one of his key rules of thumb for successful change was, “Light many fires!” That is, rather than emphasizing a single major project, Shepard recognized that successful organizational change calls for many small but interconnected efforts that will eventually produce major change. Abouleish realized this instinctively. Abouleish’s pragmatism did not extend to a willingness to violate ethical principles. In a land where bribery and baksheesh are accepted as basic elements of doing business, Abouleish refused to participate, despite the difficulties this created. Here again we see a crucial aspect of the successful macro-level social entrepreneur: goals are not approached by doing “whatever it takes” but by doing what is known to be right. Abouleish’s commitment to his values and his faith was a constant driving force behind his personal efforts and his step-by-step successes in lighting many fires. THE CONTEXT The successful entrepreneur rarely forgets the context of his or her entrepreneurial activities. Context is, however, most often thought of as government regulation, funding opportunities, and competition. Abouleish had many run-ins with government agencies and bureaucrats. He faced severe problems in obtaining initial funding, which were only overcome slowly and often with painful difficulties and innovations / Davos-Klosters 2009 165
Ayman El-Tarabishy and Marshall Sashkin setbacks. Even competition was a factor, in that the chemical companies that produced fertilizer and pesticides had no interest in being put out of business and had no scruples about paying off anyone who could help them. Regulation, funding, and competition are relevant issues for all entrepreneurs, including social entrepreneurs. Dealing effectively with these issues calls for the recognition of additional contextual elements. One of these is high-level contacts with power and influence. Early on in his development project, Abouleish was confronted by an army general who wanted to take his land. Abouleish had friends and contacts in high places, including then-president Anwar El-Sadat, with whom he had gone to school. Abouleish used his influence with Sadat to stop what otherwise would have been the end of his dream. The general was transferred and forced to apologize to Abouleish—a deeply humiliating circumstance for the officer. Key influential contacts are part of the “working capital” of the macro-level social entrepreneur. At least some of these contacts must have not only strong positions of power but also a degree of honest concern for people and development. This is asking a lot in many situations, perhaps more than is possible. Chemical companies, as noted above, were quick to catch on to Abouleish’s aim of ending, as much as possible, the use of chemical fertilizer and the spraying of pesticides. They used spies and they paid government bureaucrats to foster false rumors about Sekem, asserting that the organization—and Abouleish in particular—were not true Muslims but actually worshipped the sun! (Sekem is the transliteration of an ancient Egyptian hieroglyph meaning “vitality of the sun.”) They used Imams in local mosques to spread this lie. Abouleish then set up a meeting, bringing together a wide variety of local officials, religious leaders, and influential sheiks. At that meeting, he used his deep knowledge of the Koran to explain to those present how what he was doing not only was consistent with Koranic teaching but was specifically aimed to carry out the principles expressed in the Koran. He used concrete examples to illustrate this, demonstrating to those present, slowly, step-by-step, that “Islam lives deeply in Sekem.” What we refer to here is not simply Ibrahim Abouleish’s evident religious knowledge but his understanding of the sociocultural context within which his development projects had to function. Abouleish’s awareness of the cultural context and his ability to make social innovation congruent with local custom and culture (in this case, religion) were crucial factors in the success of Sekem. Recall, too, that in describing individuals at the highest level of leadership development, McClelland observed that they often see the source of their vision and goal as being based in and deriving from their religious belief. One implication here is that one who is not native to the social context in which he or she attempts macro-level social entrepreneurship may be unlikely to succeed in ventures of the sort described in the Sekem case.
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Social Entrepreneurship at the Macro-Level CONCLUSION Let us briefly consider a third example of social entrepreneurship offered by Nicholas Kristof, one that really is social entrepreneurship, perhaps even macrolevel social entrepreneurship. In Mexico, Ariel Zylbersztejn founded Cinepop to project free movies in parks using inflatable screens because the vast majority of Mexican citizens could not afford the price of admission to a movie theater. If that was all he had done, Zylbersztejn would have simply founded another charitable venture. However, his model is based on finding sponsors who pay to have advertisements included in the free show. These funds not only support the free movies, they are used to supply microcredit, in partnership with other agencies, to individuals and families hoping to start small businesses, as in the model pioneered by Nobel laureate Muhammad Yunus, founder of the Grameen Bank in Bangladesh. The money raised is also used to partner with social-welfare groups to help impoverished families who show up to see the movies. Cinepop is now three years old, and 250,000 people attend their movie screenings each year. Zylbersztejn’s goal is to use the Cinepop model in other nations with mass poverty, such as Brazil, India, and China. Note that Zylbersztejn has developed a real innovation. This innovation is not simply showing free movies to the poor in public parks; that is not new. His innovation is, rather, the way he has “bundled” his free movie plan with a complex, interactive, and community-focused set of partners, goals, and activities. In this case it is clear that the innovative entrepreneur is just as important as the innovation. Indeed, it is hard to separate the two. We also see that the Abouleishes’ third lesson—the crucial involvement of community and culture—is a key aspect of the Cinepop model. After all, what defines culture more than the movies people go to see? We see clearly that the lessons presented by Ibrahim and Helmy Abouleish may not be limited to Sekem, yet we cannot conclude this analysis without noting the true difficulty of success in such social entrepreneurial ventures. One of us, Ayman El-Tarabishy, is a citizen of Egypt. His father emigrated, much like Ibrahim Abouleish, and founded a successful international import-export business. And, again like Abouleish, he subsequently returned to his native Egypt. His hope and aim was to establish a factory that would create prosperity for his employees and the surrounding community, and thus demonstrate the real possibilities of economic development and change. His idea was innovative, though perhaps not to the degree of Abouleish’s concepts. Moreover, his past efforts demonstrated that he had the personal character required for entrepreneurial success. However, Tarabishy lacked the sort of network of influential personal contacts that Abouleish describes, almost in passing. He could not go to Sadat or Mubarek when faced with uncooperative bureaucrats or generals with hidden agendas. The larger culture, in which this man had little influence, defeated his efforts and his dreams, and he suspended his entrepreneurial efforts in Egypt. We do not mean to cast a pessimistic veil over the likelihood of success of innovations / Davos-Klosters 2009 167
Ayman El-Tarabishy and Marshall Sashkin macro-level social entrepreneurship efforts. Such efforts are desperately needed and they can succeed, as demonstrated by Abouleish and, for that matter, Muhammad Yunus. Nonetheless, our own experience tells us that we must attend carefully to all three elements of successful macro-level social entrepreneurship as defined and demonstrated in the Sekem case. When we do, we may be able to more successfully identify situations in which this form of social entrepreneurship can succeed and situations that are best avoided. For this we must express great appreciation for Abouleish’s teaching with respect to this sort of social entrepreneurism. The lessons we have extracted from the Sekem case seem to us to be crucial for both understanding and successfully engaging in macro-level social entrepreneurship. We have much for which to thank Ibrahim and Helmy Abouleish—as does Egyptian society. References
Burns, J. M. (1978). Leadership. New York: Free Press. Kristof, N. (2008, January 27). The age of ambition. New York Times. McClelland, D. (1987). Human motivation. Cambridge, England: Cambridge University Press. McClelland, D. C., & Boyatzis, R. E. (1982). Leadership motive pattern and long-term success in management. Journal of Applied Psychology, 67, 737–743. Merton, R. K. (1973). Singletons and multiples in scientific discovery. In R. K. Merton, The sociology of science (pp. 342–370). Chicago: University of Chicago Press. Miller, D. (1983). The correlates of entrepreneurship in three types of firms. Management Science, 29, 770–791. Rogers, E. (2003). Diffusion of innovations (5th ed). New York: Free Press. Schumpeter, J. A. (1934). The theory of economic development. Cambridge, MA: Harvard University Press. Schumpeter, J. A. (1939). Business cycles: A theoretical, historical, and statistical analysis of the capitalist process. New York: McGraw-Hill. Shane, S. F. (2008). The illusions of entrepreneurship. New Haven, CT: Yale University Press. Shepard, H. A. (1975). Rules of thumb for change agents. OD Practitioner, 7(3), 1-5 Shockley, G. (2008, June). Government as social entrepreneur: A theoretical basis for empirical research. Paper presented at the world conference of the International Council for Small Business, Halifax, Nova Scotia.
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From Fear to Hope
Upholding the Rule of Law via Public Defenders
Innovations Case Narrative: International Bridges to Justice
Every day in countries throughout the world, citizens are arbitrarily detained, tortured, and denied access to counsel. In recent years, however, the majority of transitional and post-conflict countries have demonstrated their commitment to human rights by signing international conventions and passing domestic laws to safeguard citizen rights. Unfortunately, many of these new laws remain unenforced due to a lack of trained lawyers, legal infrastructure, and resources. As a result, torture remains the instrument of choice as the cheapest form of investigation. Although this human rights issue threatens millions of people all over the world, the human rights advocacy community has focused much of its efforts on higher profile political prisoners and on developing the international and local prosecutorial side of the justice system. Without support for the local implementation of the rule of law, which includes effective defense counsel, the vast majority of ordinary citizens are still left vulnerable to everyday practices of brutality and lack of due process rights. International Bridges to Justice (IBJ) was founded to fill this gap by focusing on the local implementation of laws safeguarding citizen rights and by strengthening the critical, and most often neglected, defender side of the scale. IBJ aims to ensure that citizens in all countries have access to basic legal rights, including competent representation, protection from torture, and a fair trial. IBJ started in 2001 with a focus on China. For the past six years, IBJ has helped bring about both widespread and targeted changes in China. For instance, IBJ conducted criminal defense training in China in a unique partnership with public authorities. It also has held nationwide annual public awareness campaigns that China’s legal aid community heralded as the start of a legal rights revolution. An example of a more targeted change is the opening of the first juvenile interrogation room in Sichuan Province, China. Equipped with video recording equipment for interrogations, this room ensures better protection of juvenile defense rights. As part of this initiative, legal aid lawyers will also be given timely access to inter-
Karen Tse is the Founder and CEO, International Bridges. She was elected as an Ashoka Fellow in 2004, and in 2005 was the recipient of a Skoll Award for Social Entrpreneurship. © 2008 Karen Tse innovations / Davos-Klosters 2009
Karen Tse rogation documents, allowing them to challenge problems with police procedures. More recently, IBJ hosted two events—one in Dublin, Ireland, and one in Washington, DC—where grassroots Chinese defenders received training from members of international law societies and public defender offices. With its success in China, IBJ received numerous requests to support defenders and expand its reach to other countries. IBJ circulated over a million advisement of rights brochures and posters in China, Cambodia, Burundi and Rwanda. IBJ has trained over 10,000 lawyers in China, Vietnam, Cambodia, and Burundi and has produced a practical Defender Toolkit for over 500 Legal Aid Centers in China and Cambodia. A toolkit for Zimbabwean lawyers is near completion. In India, two newly elected IBJ fellows are making headway. More recently, a preliminary legal needs assessment in Guatemala and El Salvador resulted in promising partnerships. And most recently, IBJ has expanded its programming into Africa, with the launch of the first advisement of rights campaigns in Rwanda and Burundi, and has also begun work in Zimbabwe. Through these efforts, which move forward country-by-country, case-by-case, poster-by-poster, IBJ seeks to support the critical work of defenders and build the surrounding infrastructure to enable them. These defenders are the first line of protection for everyday citizens. It is they who uphold the law. Without them, the criminal justice system becomes an unjust, unbalanced prosecution machine. Yet courageous defenders are often themselves under attack and resources for their work is sorely lacking. IBJ’s task to support them is immense and at times seems overwhelming, In addition to training and building the legal infrastructure, a shift in consciousness must underlie the changes in order for the laws to take root. None of this is possible without bringing together the concerted efforts of the worldwide community to support this endeavor. This is no easy task. Yet, with the progress IBJ has made, and with its strategic plans for the future, we are paving the road as we walk on it. THE GENESIS From 1994 to 1997, I worked in Cambodia as a lawyer doing aid work for both the United Nations and the International Human Rights Law Group. During that time, I experienced pivotal moments that shifted my perceptions of approaches to international human rights dramatically and inspired me to found IBJ in 2001. The Boy who Stole a Bicycle One of these pivotal moments came when, as part of my work with Cambodian prisoners, I peered through the bars of a cell and talked with a young boy whose only crime was an attempt to steal a bicycle. He had been detained, tortured by the police, and was languishing in prison. Like most prisoners in Cambodia, he had no lawyer or human rights worker to defend him or safeguard his rights. He had no 170 innovations / World Economic Forum special edition
From Fear to Hope pending trial date to determine his guilt or innocence. I flashed back ten years to my college days, organizing letter-writing campaigns for political prisoners. We had demanded that they be free from torture and be granted their right to fair and speedy trials. But as I came face to face with this young boy, I realized that neither I nor my fellow students would have written a letter for him. He was not a political prisoner; he was just an unimportant little boy whose mischief had landed him in prison indefinitely. The prison guards did not appear concerned that I was talking to this boy who bore obvious signs of beating. They didn’t have much to hide; the use of force to extract confessions was just a part of standard police operating procedures. As I looked at this boy, I wondered why his interests had never attracted my attention before. Perhaps ten years earlier, there was little that we could have done for this boy. But during the last decades of the 20th century, governments throughout Asia, including Cambodia, Vietnam, and China, had passed new laws outlawing torture and providing citizens with basic rights, including the right to a defender. But citizens like this boy were unimportant to the government. The denial of their basic rights now had less to do with policy and more to do with history and the vestiges of an old legal system that formerly tolerated and even condoned this denial of rights. In this boy, I saw thousands like him who would be the direct beneficiaries of a functioning criminal justice system with a standard of basic human rights. By helping these countries to implement their own domestic laws consistent with human rights principles and helping to safeguard prisoner rights, we had the opportunity to drastically improve and perhaps even save the lives of everyday citizens. The Training of the Guard My second shift in perception came through work I started in 1994 with two colleagues from the United States. We had come to Cambodia to set up a project that would provide the first intensive training to a select group of 25 human rights activists who would later become the country’s first core group of trained public defenders. At that time, the Cambodian legal system was in shambles. Fewer than ten attorneys had survived the Khmer Rouge period. Although the new laws provided for the “right to a defender,” notions of defendant rights were foreign. Few people knew or understood the significance of these laws. No structures or procedures were in place to implement them. And during the recruiting process, applicants said that they would likely be criticized for holding the courts accountable to the new laws. On one of the first days of the 10-month training, I asked my new students to tell me of their experience and understanding of conducting investigations for criminal cases. After a brief period of silence, Peung Yok Hiep, the oldest and most
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Karen Tse respected woman of the class, finally stood up and said, “Nekru (teacher), I am the most experienced of defenders here. I have defended in over 100 trials, including murder trials, but I have never had the need to conduct an investigation… because all the criminal cases already have confessions.” I quickly became aware of how commonplace it was for people to accept torture-induced confessions as truth. However, as the defenders became aware of the rationale behind the new laws that outlawed the use of torture to obtain coerced confessions, their attitudes shifted quickly. These defenders became staunch advocates I realized that, though the against the use of coerced confessions and emerging criminal justice systems became strongly comhad within them the potential to mitted to challenging their use in court. protect everyday citizens, in most But their own desire countries these citizens were most for change in the system was not enough. From likely to be left unprotected from the inception, there were from abuse, torture, and coercion. problems with the Cambodian government With the lack of support for and Ministry of Justice, which initially did not defenders, the first line of defense want defenders to be against abuse, this would only trained and organized. The judges, prosecutors continue.... In this gap, I saw an and police officers, who opportunity to make a difference. had long held almost absolute power, felt similarly. They did not like the idea of defenders suddenly holding them accountable to laws and challenging their way of doing things. As a new public defender movement, these defenders literally had to push themselves into the intractable old system and create a role for themselves amidst great opposition from the established order which had not invited their presence. This included resistance and opposition not only from the Cambodian government, court, and prison officials, but also from segments of the international community that did not see defender work as a priority. Yet, despite these impediments, these defenders slowly began to effect change. Not long after role-playing numerous “motions to suppress” in class, Peung Yok Hiep boldly rose during court. As she waved her client’s bloody shirt, she asked the defendant to bend down so that she could show the judge and prosecutor the three holes in the defendant’s head that had been inflicted during interrogation. She indignantly asked the court to respect the letter of the law. Although she was not successful in this case, months later the same judge finally granted the first motion 172 innovations / World Economic Forum special edition
From Fear to Hope to suppress in the country, thereby freeing a formerly pregnant woman who bore cigarette burns and had miscarried during beatings that occurred during her interrogation. By successfully gaining access to prisoners, establishing norms that called for their representation in court, and setting up the first public defender offices throughout the country, these defenders established their presence and changed the human rights landscape in Cambodia. Putting it All Together These courageous defenders were standing up and literally changing the course of history on a day-by-day, case-by-case basis. Yet despite the critical importance of their work, support of these defenders was most often viewed by international aid groups as unimportant. They prioritized their support in favor of those already in power—the judges, prosecutors, and police. Even though the defenders were making progress, international support for these Cambodian defenders was severely cut. Cambodian defenders are not alone in this situation. The defenders, focused on rights of the accused, are the most neglected and under-acknowledged group of human right defenders in the world. Their presence, at the early stage of a case, is one of the strongest guarantors of human rights. Their work is critical to the birth and sustainability of a stable society. Recent laws strengthening citizen rights throughout the world have been passed. Yet very little international attention is focused upon the further development and implementation of their criminal justice laws and support for defenders is paltry. I realized that, though the emerging criminal justice systems had within them the potential to protect everyday citizens, in most countries these citizens were most likely to be left unprotected from abuse, torture, and coercion. With the lack of support for defenders, the first line of defense against abuse, this would only continue. In this gap, I saw an opportunity to make a difference. Given the passage of new criminal laws in countries throughout the world, the question was not whether the change was possible, but whether we as a world community had an enduring commitment to making it happen. DEFINING IBJ: STRATEGICALLY AND SPIRITUALLY Filling the Gap: The IBJ Strategy In 2000, in my last year of divinity school, I began to put together a strategic plan for IBJ to seize this opportunity. IBJ set out to create a community of individuals in the United States, Europe, and elsewhere who will join forces with human rights defenders and legal aid lawyers in Asia to ensure effective defense counsel for each and every child, woman, and man held in detention. IBJ filled a specific unmet niche market in the non-profit arena as an organization that approaches human rights through a specific commitment to the legal development of criminal justice systems in Asia. While there were existing organizations whose mission serves at a innovations / Davos 2009 173
Karen Tse cross section to the work of International Bridges to Justice, there is no organization whose sole mission is to specialize in this area and whose work is committed to organizing paid and volunteer resources and expertise abroad to provide services and assist in the development of legal systems for criminal justice in countries in Asia. IBJ aimed to find its niche by partnering with local groups and supporting local defenders in strengthening their legal skills, advocacy skills both in and out of court, and helping them to develop sufficient organizational capacity to carry out their mission. IBJ focused initially on the countries of China, Vietnam, and Cambodia, where legal rights were supported by statute, but not in practice. To this end, International Bridges to Justice significantly supports and enhances local and government legal aid efforts in Asia to protect citizen rights and to implement existing criminal laws through providing training partnerships, legal and administrative structural support, and material assistance. IBJ’s original strategic plan listed three goals: Goal 1: Provide direct technical support and training to emerging legal aid organizations in Asia. Goal 2: Build International Communities of Conscience to support emerging legal aid organizations in Asia. Goal 3: Advocate and support the prioritization of just and effective criminal justice systems on the agenda of organizations involved with international human rights and legal development. Today our goals remain the same. We have further developed the methodology based on the many lessons we have learned through our initial projects. In response to global demand, we have expanded our scope by reaching out to Latin America, Eastern Europe, and Africa and by developing ways to scale our efforts. Transformative Power: The IBJ Spirit During my time in Cambodia, I learned a third powerful lesson. This lesson led to to what would become the spiritual foundation of IBJ and the guiding principal behind all of IBJ’s work. In 1996, I was working for the United Nations as a “judicial mentor” training judges, prosecutors, and police officers in Kandal province. One of my duties was to confront police officers about their routine practice of the torturing prisoners. The UN had armed me with the new “Cambodian Laws” that had outlawed practice of torture, yet I wasn’t sure what to do. In fact, I had no idea at all. I knew that simply telling them that it was against the law was not going to work. Seeking some sort of insight, I went to the ocean and asked a God that I wasn’t even sure existed how I was supposed to do this thing that seemed impossible. I got my answer: the ideal of justice requires bridging the gap between one’s inner life and values, and one’s work in the outer world. In the next few days, I designed a workshop that started with basic questions that connected the police officers to their values and hopes. I asked them why they had decided to become police officers. Most answered that they wanted democra174 innovations / World Economic Forum special edition
From Fear to Hope cy. They pointed to the atrocities of the Khmer Rouge and said they didn’t want to ever go back to a period like that. Yet they also said that they were vehemently against the new laws, which stated that there was a “presumption” of innocence for prisoners who had not yet received a fair trial. They also stated that they felt that torture was the only way to get prisoners to “tell the truth” and confess to the crime that they had just committed. I introduced the notion that these confessions were perhaps weren’t very reliable, but many The officers began to consider insisted that tortured confesall those thousands of people, sions were reliable. Many insisted, even after role play, that if including their relatives, who they were innocent, they would not give a false confession even gave confessions under duress if they were beaten. and torture. “This, the old I brought in a picture of the posted rules of the former system, is a system where Khmer Rouge Toul Sleng torpresumption of guilt is ture center. The posted rules stated, “Don’t you dare try and operating,” I said. “Do you tell a lie or you will be given really agree with this system?” more lashes.” The officers began to consider all those thousands of people, including their relatives, who gave confessions under duress and torture. “This, the old system, is a system where presumption of guilt is operating,” I said. “Do you really agree with this system?” The officers began to talk among themselves about these new laws. They began to look again at their values and beliefs. They spoke about how they wanted to move forward from their past and not move backwards. But were their actions consistent with their professed values, hopes, and beliefs? Over some time, many began to reconsider. Because of their reflection, many decided that they wanted to change and did. I had tremendously positive and transformative experiences while training hundreds of police officers. However, even as the training sessions became more successful, I was sometimes threatened and felt unsafe. When I discussed my discomfort with my Buddhist meditation teacher, his response was simple: “Remember that whatever you focus on will grow.” I also sought advice from Sister Rose, an Indian nun from Mother Teresa’s order. She ran the Missionaries of Charity orphanage that I volunteered at in my spare time. Her response, too, was simple: “You must seek to find the Christ in each person, or you must seek to find the Buddha in each person. Then you must work with that Christ or Buddha.” Like my meditation teacher, she believed in the power of transformative love. innovations / Davos 2009 175
Karen Tse I took their wisdom to heart, and sought to work with the Christ and Buddha in each person. During my time there, I saw phenomenal changes in the human rights terrain and was eventually warmly welcomed by the police officials who had initially been reticent. The first public defender offices were established, the first motion to suppress a tortured confession was granted, and the first arraignment court in the country was born. When I left, the prison director, who had already implemented an exercise program and vegetable garden in the prison, asked what they could do to express our friendship. I suggested that they allow me to hold a celebration in the prison for the prisoners, to reclaim their humanity. And on my last day, they let out 120 prisoners, 30 at a time, and together with the prison guards (some with armed AKA 47’s) we sang songs, ate chicken curry, and had a lion dance. I saw the prison guards and police beyond their uniforms and embraced their humanity, and they in turn were willing to see the prisoners beyond their uniforms and embrace them in their humanity. Most major shifts and successful social movements do not occur simply because someone intellectually figured out “what to do.” Moses had to go to the desert before he figured out what he needed to do and how to do it. Spirituality was at the base of his call, as it was with the work of Gandhi, Martin Luther King Jr., Dorothy Day, and countless others. As human rights activists today, we too need to penetrate below legalistic “rights” discussions and “go to the desert” to discover what it means to draw from the vast well of our spiritual resources and wisdom in our approach to human rights work. Without it, we become disconnected from our work and our values. We may espouse one set of values and yet act in an inconsistent way. We work for human rights and yet we limit ourselves in the breadth and possibility of our work when we refuse to see the “other” as one who is connected to us and shares in our humanity. Without a holistic approach, we easily become burned out. By not explicitly recognizing the interconnectedness of all beings, we rob ourselves of an important and invaluable human rights resource for mutual understanding in cross-cultural negotiations and working together. IBJ’s work must adhere to and incorporate principles of transformative justice and values based leadership. Our accomplishments must stem from love, the recognition of the interconnectedness of all beings, and the inherent worth and dignity of every individual. The recognition of our shared humanity allows us to see possibilities that we might have been blinded to before. From this understanding, we are able to approach our work from a position of equality. We can recognize our own humanity and our own capacity for growth and mistakes. We recognize the recent developments of nascent legal systems. This recognition of our communal human potential for change and transformation is grounded in our own humble recognition of our own U.S.-based human rights journey as well. We have much to learn from each other and we must embrace the truth that we have something to share from our own journeys.
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From Fear to Hope IBJ’S LOCAL EFFORTS: COUNTRY-BY-COUNTRY, CASE-BY-CASE IBJ’s journey began in China. IBJ was the first legal non-Governmental Organization (NGO) capitalize on China’s move towards more democratic institutions within the legal aid criminal justice sector. IBJ in China: A Foot in the Door In 1998, China signed the International Covenant on Civil and Political Rights, which recognized that the right to a fair trial included the right to government supported counsel for the indigent accused; the right to an attorney who was adequately prepared; the right to communicate with counsel; the right to be free from torture or other cruel, inhuman, or degrading treatment or punishment; the right to be free from arbitrary arrest and detention; the right to confront the witness at trial, and the right to an appeal. However, a right without a remedy rings hollow. At the time that China institutionalized these changes in the law,m the institutional capacity to execute these changes was far from ready. The ratio of all lawyers to citizens was 1:10,000. The number of criminal defense lawyers was much smaller and even today is only four percent of the total. In 2000, I read newspaper articles about lawyers in China who were struggling. Because of the new laws I saw an opportunity to make a difference. I, however, had only been to China as a tourist. I was not an expert and could barely speak Mandarin (I grew up speaking Cantonese). Despite my lack of expertise, I believed that if we wanted to work together with (and not against) the Chinese government to help them implement their own domestic laws consistent with human rights, they would welcome us into their country. In fact, I felt this way about all countries, and to date I haven’t been that wrong. For the first years I could not get any funding for China. We were just a startup with no track record and an unpaid staff of one. I eventually realized that, if I wanted to start, I had to do it without money and prove that it was possible. I made the trip to China on a $5,000 donation from an old friend and a borrowed blue velvet blazer. When my contact told me that the meeting he had set up with the Ministry of Justice branch of National Legal Aid of China had fallen through, I flew there anyway and got a 15-minute appointment. We met and went to a Chinese restaurant. Though I could barely speak Mandarin, for some reason we understood that we should work with each other. Somewhere in the middle of the dinner, I remember he shook his head and said, “I don’t know why, but I want to work with you.” He invited me back to his office the very next day. The next morning, I was introduced to his deputy chief. I asked if it would be possible for me to get into a province and begin work there. I looked up at a list and said “Anhui” because it started with an A. Since then our projects have grown through the support of dedicated defense counsel from the U.S. who came on as IBJ staff and volunteers, the IBJ China staff, and, most importantly, courageous lawyers throughout China. innovations / Davos 2009 177
Karen Tse IBJ arrived in China at this highly expeditious time. It recognized China’s legal challenges and was ready with a plan that was designed to address the immediate need to build both a credible criminal justice system and trust with a government not accustomed to allowing outsiders into the inner sanctum. The challenges IBJ was prepared to address included: • Training the new breed of criminal defenders in China so that they understood their role as an advocate for the accused and not as a place holder to legitimize the system. • Building awareness that ongoing legal reforms would be necessary to execute the new set of laws. • Building support for the new changes to the law among the existing participants, including judges, police, government officials. • Raising citizen awareness about their rights. • Creating a network of defenders outside of China to support and protect the new criminal defenders. IBJ’s progress in China over the past six years is impressive. IBJ has trained defenders in all 31 provinces and has established three Defender Resource Centers across China, with a fourth on the way. IBJ in China: Know Your Rights One of IBJ’s first engagements with China targeted rights awareness. Chinese police stations and courthouses featured a banner with large red letters that read: Confess—Better Treatment Resist—Harsher Treatment This banner reinforced the old, now illegal, behavior of extracting confessions using torture. It was one of the first things we needed to change to break the cycle and change the mindset of the police, the judges, the lawyers, and the accused citizens brought before them. We crafted a new poster: If You are Arrested, Know Your Rights Below this declaration, we listed those rights: you have a right to a lawyer; you have a right not to be tortured. The government agreed to place their logo aside ours as validation of the importance of respecting these new rights. We made an initial 1000 of these posters with the garnered skeptical government permission to distribute them. They weren’t convinced these posters had any value. But they were incorrect. The posters were an instant hit among people. They were so successful that it went from 1,000 posters, to 10,000 to 360,000 to over half a million. The posters were soon translated into Tibetan, Mongolian, and Yuighur. The following year, 3,000 law students who were members of the Youth Communist League joined together with us in a new campaign. Though many have seen an image of them storming the police stations with their new posters declaring rights of ordinary citizens and the accused, the more accurate image is that they found themselves welcomed in for cups of tea and endless discussion with the police. It didn’t
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From Fear to Hope hurt that the poster bore the logo and imprimatur of the 14 top law schools in the country. IBJ in China: Pilots and Partnerships In June of 2004, IBJ began its first Chinese pilot project located outside of Beijing in the city of Hefei in Anhui Province. Anhui was not high on the priority list of provinces to be served by the central government, nor did it appeal to the international community. It was simply an industrial province with everyday people and everyday problems. IBJ opened a bare bones office, without even a sign announcing its existence, and got to work. IBJ’s resource center was started in cooperation with the National Legal Aid Center of the Ministry of Justice, Anhui Justice Department, and Anhui Provincial Legal Aid Center. Located in an aging apartment building a few floors below Anhui Provincial Legal Aid, IBJ’s mission was clear: To create a core team of Chinese attorney trainers and increase access to justice for the indigent. An exceptional public defender moved from New York to Anhui to set up this provincial project and lead the way. Four years after signing cooperation agreements, IBJ’s resource center in Anhui realized many of its goals. Through this center, IBJ has trained a core community of Anhui lawyers that excel in their practice and are committed to zealously defending the rights of the accused. IBJ trained a core group of attorneys to replicate their knowledge and in turn train other lawyers in the Province. This core group of lawyers has now become trainers and has trained hundreds of lawyers over the past year. IBJ has hosted 74 training events in Anhui, including roundtable discussions with all members of the legal community. And, more recently, IBJ’s Community of Conscience program accepted two attorneys from Anhui to participate in legal training in Washington, D.C. Moreover, IBJ expanded the Anhui defense community’s vision about what can be done to affect change in ways that cannot be understated. One core attorney said about his experience with IBJ, “IBJ helped to open my mind.” Because of this success, the Anhui Defender Resource Center (DRC) has become a template for IBJ’s regional and national program initiatives throughout China (See Box: Walking alongside IBJ Defenders). IBJ is expanding this Anhui model program for improving both the quality of indigent defenders and protection of the rights of the accused by creating regional DRCs and using them as bases for regional programs and activities (see Figure 1: Defender Resource Centers). This transition takes into consideration IBJ’s strategy of seeking concomitant bottom-up and top-down strategies for reform. By transitioning from an Anhuibased pilot DRC to a regional DRC, IBJ will be capable of affecting legal reform on a larger scale throughout southeast China. It is a logical progression that will expand IBJ’s resources and provide a broader institutional capacity to affect permanent reform, not only in the practice of individual lawyers, but also in the function of China’s legal aid system.
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Figure 1. Defender Resource Centers in China. This expansion plan is progressing steadily. In 2007, IBJ opened a second Defender Resource Center in the province of Xi’an. IBJ has a National Center in Beijing where it plans and implements projects of national scope. IBJ has just begun a clinical project to establish criminal defense clinics in select law schools around China. By the end of 2008, IBJ will open two more Defender Resource Centers in northwest and southwest China. With a fully operational network of DRCs strategically placed around China, IBJ will be able to participate more directly in the development of its justice system. Working from the ground up, the DRCs will continue to carry out a variety of model pilot programs that will remedy obstacles that impede the fair and effective administration of justice. At the same time, the DRC in Beijing will encompass a top-to-bottom philosophy, functioning both as a regional hub for northeast China and as a central office coordinating all national programs and overseeing the three other DRCs. IBJ has also agreed to work with National Legal Aid China to restructure the management and function of the legal aid system. The driving force of the IBJ model is to develop model legal aid centers as examples to legal aid communities throughout the country and to establish 180 innovations / World Economic Forum special edition
From Fear to Hope
Figure 2. Since 2001, across the 31 provinces of China, IBJ has held over 50 roundtable sessions, visited over 70 locations during rights awareness campaigns, and trained over 2000 people in over 50 training sessions. improved training models, structures, and systems for the delivery of criminal legal aid services to the poor. The IBJ model aims to establish the creation of a core team of Chinese attorneys whose purpose is to train legal skills to other attorneys within and without their own Province. Once a core team of Chinese trainers selected from model centers is accomplished, IBJ’s immediate support is no longer needed; instead, the core team and model centers are largely self-sufficient beacons of legal excellence (see Box: Sen Suxia). In addition to the ongoing work of the Defender Resource Centers, for the last six years IBJ has orchestrated rights awareness campaigns, training initiatives and round table discussions that are reaching all the 31 Provinces of the country (see Figure 2). IBJ has been busy training defenders, mentoring defenders, influencing criminal justice policy, and changing the notion of what it means to receive a defense in China. In 2007, in both Chongqing and Tianjin, IBJ held roundtable forums intended to improve access to counsel for juveniles. As a result of these roundtable innovations / Davos 2009 181
Karen Tse Walking Alongside IBJ Defenders Training and resources are critical, as are shifts in attitude, but ultimately, IBJ’s goal is to increase the number of fair trials and decrease the use of torture as a short-cut to justice. When we found out in a follow-up meeting with a legal aid center in China six months after a training session that the legal community had only entered one not guilty plea in that time period, we realized how much more work we had in front of us. We didn’t understand how we had gone wrong because we had received such positive responses to the training, along with commitments to implement the new methodologies. This high rate of guilty pleas did not make sense, so we asked the trainees why. They told us it wasn’t the training that was the problem. Rather, despite their initial enthusiasm, as defenders they felt unprotected after IBJ left and they felt that there was no support or follow-up. This was an important lesson for IBJ that we cannot just begin this process of building a legal system. We must follow up and walk with our defenders on a case-by-case basis as they stand up against torture and for true investigative police and justice work. To respond to this lesson, IBJ conducted roundtables through local legal aid centers, bringing together lawyers, prosecutors, judges, justice bureau officials ,and police officers to address the rights of lawyers in criminal defense. In addition, realizing the need for greater comprehensive support of defenders on the ground, IBJ became firmly commited to the birth of defender resource centers. IBJ’s strategy for the future incorporated this early lesson learned. forums, in March 2007 in Chongqing the bar association, the city prosecutor and the police department reached an agreement to appoint legal aid at the investigation stage to juvenile criminal suspects. Under the agreement, the police department is required to set up a separate interrogation room for juvenile suspects, where the police will record interrogations and notify lawyers to be present. Legal aid lawyers will also to be given timely access to interrogation documents, thereby allowing them the opportunity to challenge problems with the interrogation procedure the police employed. Requiring the presence of lawyers at interrogation sessions represents a pioneering step in China. Also as a result of an IBJ-hosted roundtable event, in Tianjin, legal aid has secured the cooperation of the Tianjin prosecutor’s office, as of January 2007, to assign legal aid to juvenile suspects. The opinion requires prosecutors to have a legal aid lawyer or other guardian present at all juvenile interrogations. The effect of this agreement has been immediately felt; legal aid is witnessing a rapid rise in the number of juvenile cases assigned in the pre-trial stage. In one case, for example, involving an assault between classmates, the prosecutor received the case and notified legal aid to provide representation to nine suspects and three victims. The legal aid center sent 12 lawyers to represent the juvenile suspects. Because of cooperation between legal aid and the prosecutor’s office, the first of its kind in 182 innovations / World Economic Forum special edition
From Fear to Hope Shen Suxia: Director of the Jin’an District Legal Aid Center in Anhui Province Despite difficult working conditions, Shen Suxia strives daily to afford her clients a zealous defense. As China struggles to develop a fairer justice system, it will look toward attorneys like Shen Suxia who embody a spirit of self-sacrifice and perseverance in protecting the rights of the most vulnerable members of the population. Shen Suxia’s 17 years as an attorney are a lifetime in China, spanning from the genesis of the modern legal system to the present. Upon her graduation in 1989, Shen Suxia joined a law firm where she specialized in defending criminal cases. At every point, she encountered enormous resistance to obtain discovery, investigate cases, and prepare for trial, sometimes struggling even to meet her clients. Concerned that she was unable to devote more of her time to representing those most in need of her services, in 1999, when a governmental legal aid center was finally established in Jin’An District, Suxia left private practice to become a legal aid lawyer, a rare career choice in a country where it is almost unheard of for an individual to leave a position of relative wealth and prestige for one less esteemed. Suxia is now at the vanguard in establishing a model practice for legal aid lawyers as director of the Legal Aid Center in Anhui Province. Still in its nascent stages, China’s legal aid system suffers from a shortage of personnel and money. The Center, which employs three lawyers, is located in a one-room office without central heat and with only one computer, donated by IBJ in 2004. Under the guidance of IBJ, Suxia has made tremendous strides in her criminal defense practice, allowing her to show temerity and determination in defending each of her clients. She now challenges the prosecution and the legitimacy of forced confessions. In doing so, she stands in marked contrast to the standard practice of Chinese lawyers. The change of mindset she has shown is the first step to revolutionizing the way cases are handled throughout China.
Tianjin, the prosecutor’s office decided not to prosecute the juveniles and the juveniles were allowed to remain in school. Despite all of this progress, the work is far from over in China. Today over 50 percent of all legal aid cases involve children, 25 percent carry a possible death penalty, 5 percent of the cases involve people with obvious disabilities such as blindness or deafness. Many legal aid offices are grossly under-staffed. And most practicing defenders still do little more than sit next to a client they barely know and offer no advocacy. Yet, the work of IBJ has seen rapid advancement and with the strong strategic alliances formed with Chinese partners and friends in the realization of this goal, we are confident of the future.
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Karen Tse Ouk Vandeth: IBJ’s First Fellow A survivor of the Khmer Rouge genocide, Mr. Ouk served as a Police Official from 1985 to 1994. It was during that time that he became acutely aware of the inhumane tactics security personnel would use to obtain confessions from the accused. In this capacity, he worked closely with prosecutors and became interested in becoming a lawyer. It was then that he became part of the first generation of IBJ trained Cambodian defenders. Mr. Ouk then attended the only law school in Cambodia. Graduating with a Legal Defending Training Certificate, he began work as a public defender for what would later become Legal Aid of Cambodia (LAC). Eventually, Mr. Ouk was promoted to director. In this role, he strengthened LAC’s relationships with government, peer NGOs, and multilateral aid agencies. As an IBJ Fellow, Mr. Ouk completed a baseline survey on criminal legal aid which revealed that out of 15,544 criminal cases in 2006 only 40 percent received any criminal defense representation. Of the people who did receive legal representation, a disproportionate number were living in urban areas. In Phnom Penh, for example, four of every five individuals accused of a crime have access to a criminal defender. By contrast, in the more rural province of Prey Veng, the likelihood of that same outcome drops to one in five. This finding clearly identifies a need for additional legal aid services throughout the country, most especially in rural areas. Mr. Ouk’s defense work directly addresses this need. Of the 32 criminal cases he defended in 2007, 27 came from provinces that were previously without access to legal aid. Other Early Efforts: Cambodia and Vietnam In addition to China, IBJ got an early start on projects in both Vietnam and Cambodia. Cambodia’s turbulent past saw the complete destruction during the 1970s of its basic infrastructure, including its criminal justice system and related institutions. Though UN-lead international intervention in the 1990s started the process of bringing fractured communities together, today Cambodia is still overcoming the reverberating impact of genocide. It still faces the challenges of ending endemic torture and rebuilding its legal system. The work that was begun in the 1990s to initiate defender programs was abandoned by the international community halfway through. Reflective of this is that of the 24 provinces, ten of them lack a legal aid/public defender office, leaving the Cambodians of those provinces particularly vulnerable to abuse. IBJ’s goal is to facilitate the establishment of defender offices in the remaining provinces that have none. To begin this process, IBJ formed a partnership with Legal Aid Cambodia (LAC) in September 2004 and jointly opened its eighth provincial office in
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From Fear to Hope Rattanakiri, a rural province on the edges of Cambodia. This legal aid center has since represented 222 criminal defendants. In 2006, because far too many Cambodians remained unrepresented, IBJ employed Mr. Ouk Vandeth, a Cambodian, an ex-police officer, and an experienced criminal defense lawyer to mobilize a fragmented legal community towards the goal of providing defense counsel for all (See Box: Ouk Vandeth). In 2007, IBJ moved into its own office in Cambodia and began the registration process as an incountry NGO. In the summer of 1998, I conducted a legal needs assessment for Vietnam on behalf of the American Bar Association. In a meeting between myself and the then Minister of Justice, he acknowledged the wide gap between the letter of the law and the actual implementation of criminal laws and expressed a willingness to partner with organizations in the States who could be of assistance in this regard. There are no public defender offices or their equivalent in Vietnam. The president of the Ho Chi Minh Bar Association told me that he was saddened that over a thousand defendants had nowhere else to go when his bar association was forced to turn them away due to a lack of resources. He requested that donors consider assisting their Bar Association to establish the first public defenders offices in Vietnam. I could not, at that time, locate the support Vietnam needed to initiate these important programs. It was not until six years later, hosting the first-ever criminal defense training program in April of 2004, that IBJ opened a window of opportunity for criminal justice reform in Vietnam. Vietnam had begun the process of reforming its economy to become market-responsive in 1986. As this transition matured, the government turned its attention to building a legal environment that enables citizens to exercise their basic constitutional rights. This and other changes presented IBJ with an opportunity to help Vietnam rebuild its judicial system. Through the legal training in 2004, IBJ was able to help over 200 Vietnamese lawyers, representing more than 20 bar associations, hone their criminal defender skills, discuss the criminal justice environment and strategies for sustainable reform, and build the confidence necessary for competent representation of clients. To further support the participants and other defenders in Vietnam, IBJ has begun developing a comprehensive Defender Resource Manual in collaboration with the Vietnam Lawyers Association (VLA), the only national organization for lawyers. IBJ’s various partners in Vietnam have stressed the urgent need to build awareness of the basic legal rights of citizens to the police, judiciary, government prosecutors and to the citizens themselves. Also, in partnership with the VLA, IBJ is planning the first advisement of rights campaign to distribute posters in legal aid offices, detention centers, and on the streets throughout the country. IBJ is now working with potential partners in Vietnam to expand its programs there. The work, however, has not been without its own challenges, many of which still need to be overcome.
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Karen Tse New Horizons in India and Africa With overwhelming requests from countries throughout the world, and with the continued maturation of its approach, toolkit, and strategy, IBJ has begun to expand its reach. The second wave of in-country efforts focus on India and Africa. Recently, a preliminary legal needs assessment was conducted in El Salvador and Guatemala, though no program has yet begun. IBJ in India IBJ first started receiving requests to work in India when respected leader and social activist Swami Agnivesh walked into IBJ’s office in the summer of 2006. He explained his personal observations of the vast number of people in India languishing in jail due to pre-trial detention. He told me of the widely acknowledged use of torture in jails and of the high number of custodian deaths. According to research from the International Centre for Prison Studies (2007), 69.7% of all Indian prisoners are pre-trial detainees. According to the National Human Rights Commission of India in 2004-2005, 1,493 deaths occurred in police or judicial custody. Despite the number of laws passed and commissions established to abate human rights violations, the country’s prisons are grossly overcrowded (at a 145.4% occupancy level), and torture and other forms of abuse are still an everyday occurrence. About the same time, I heard from one of my colleagues about a 40 year-old man in India who had just been released. While happy for the man who was finally going home, I found the underlying facts disturbing. He had gone into prison at the age of 14, was acquitted at the age of 17, but was not released until the age of 40. Though we were eager to begin work in India, we found funding options to be severely limited. Many acknowledge the enormous problem of torture and lack of due process rights despite the laws prohibiting this. We were told repeatedly that India was too big, too complicated, and furthermore did not like Western influence. Despite being discouraged, we realized that there was a huge need. We somehow believed that we could overcome the challenges. IBJ first traveled to India in November of 2007. We discovered that many of our advisors were correct. It is a huge country without an immediately centralized and evident method to target the problem areas. And there does exist some distrust of foreign influence. However, within days we found ourselves warmly welcomed in by civil society, government, and legal communities. Since then we have has fostered important alliances with state institutions and civil organizations in both Delhi and West Bengal, such as the High Courts, Delhi Legal Aid Services Authority (DLASA), the Law Secretary of the Government of India, the State Bar Council of West Bengal, and the Director General of Police State of West Bengal. Strategically, we realized that the best way to address our desire for both breadth and depth within the country was to work both at a grassroots provincial level in Calcutta as well as on a National level in Delhi. IBJ has recruited two IBJ 186 innovations / World Economic Forum special edition
From Fear to Hope African Prisoners In Burundi, we visited the main prison, Mpimba Prison, in Bujumbura. I was struck by how much it reminded me of a visit to a Cambodian prison. A decade earlier on a completely different continent, I had been surprised to see all the children in prison. I had been surprised when one explained that her husband had committed a crime ten years ago and, as they couldn’t find him, she was there instead. She accepted this as a way of life. I remember thinking, “this is where there is no rule of law.” Ten years later in Burundi I am having a déjà vu experience. I see all these children in prison. One little guy, about twelve years old, is stuck in with all the men for stealing a mobile phone. A young girl, not even a teen, yet says she is in for a sex crime. “Are you kidding? You aren’t old enough to know what that means,” I say. Even more surprising are the adorable babies. I pick one up. The mother smiles and tells me the baby is why she is here. She stole two diapers and an iron and has been a pre-trial detainee in prison for almost two years. She claims she was only borrowing the iron but that she did have every intention to steal the diapers. Finding this outrageous, I speak to the prison director. H agrees get her before a judge. But, he says, in this prison of 2,800, almost 77 percent are pretrial. So what are we going to do about them? I agree. He has a point. The entire system needs help, not just this one woman. Fellows in West Bengal and New Delhi. IBJ also signed a Memorandum of Understanding with Bangla Manabadhikar Suraksha Mancha (MASUM), a community organizing and legal advocacy group in West Bengal that works to educate and empower local citizens against human rights violations by the state. As our first strategic event in India, IBJ will host a National Training Conference in collaboration with DLASA in July at the High Court to bring together 108 legal aid lawyers from every state to foster the criminal justice movement throughout India. IBJ in Africa Despite the 1990s wave of “democratization” and economic liberalization across Africa, formidable challenges remain. Almost all 53 African countries have passed lofty human rights laws yet torture and other human rights violations continue because these laws are not properly implemented. In Burundi, for example, 1,990 cases of prison torture were recorded from 2002 to 20064 Burundi has only 90 qualified lawyers in practice;5 its neighbor Rwanda only 200.6 Many of Africa’s prisons are massively overcrowded and millions of detainees are subjected to lengthy pre-trial detention. Zimbabwe’s 47 prisons have an official capacity of 17,000 but currently hold over 35,000 inmates7 (See Box: African Prisoners). In 2006, IBJ launched its Africa Program in Burundi, Rwanda, and Zimbabwe. Last February of 2007, IBJ initiated an Advisement of Rights campaign that sparked an immediate onset of urgent request for help. In the first three months of
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Karen Tse the campaign, our Burundian partner APRODH, received over 900 calls and 200 letters from individuals urgently requesting assistance after being denied their rights. We hadn’t anticipated such a strong and immediate response and found ourselves unable to meet the need. We are currently raising funds to initiate a first pilot public defender office. In addition, IBJ has signed memoranda of understanding with the Bar Associations in Burundi and Rwanda as well as Rwanda’s Prosecutor General. In Zimbabwe, IBJ is engaged with the country’s Law Society and Legal Resources Foundation. Rights awareness and defender training and advocacy projects are under way and IBJ is in the process of recruiting IBJ Fellows in these three countries. In addition, IBJ has received further requests for assistance from Liberia, Mozambique and Uganda. SCALING THE IBJ MODEL: THE GLOBAL DEFENDER SUPPORT PROGRAM Beyond the handful of countries IBJ has reached there are multitudes more that are ripe for the kind of services IBJ provides. According to reports, 113 countries practice torture, despite the fact that 93 of these have signed international conventions and have domestic laws to safeguard citizen rights. Public defenders and legal aid lawyers have made urgent requests for international assistance. Encouragingly, governments have shown a willingness to act. There now exists a unique opportunity to dramatically improve the legal systems of developing countries. Yet, over the past decade, international support for enhancing the legal systems in developing countries has largely concentrated on funding and training the police, prosecutors, and judges. Vastly fewer resources have been directed towards defenders, despite the fact that they represent a critical element of a viable criminal justice system. This gap, the same gap that inspired IBJ to begin with, still exists. And IBJ remains one of the only NGOs specifically focused on filling it. IBJ is committed to filling this gap because we believe that the importance of defenders, particularly in countries where the criminal justice systems are still in development, cannot be overstated. Defenders must not only provide just and competent legal representation, they often must also push forward fundamental reforms in their country’s criminal justice system. Through its experiences so far in Asia and now Africa, IBJ has recognized two key points. First, these defenders need more than criminal defense tools and training if they are going to act as champions of reform. To continue in their courageous efforts, it is essential that they have access to a supportive international community, opportunities to continually develop and learn, and recognition for their efforts to continue their courageous efforts. Second, though IBJ would like to help every country that would benefit from its assistance and every country that asks for help, it simply does not have the resources to do so. In response to these realizations, IBJ is launching a new program designed to 188 innovations / World Economic Forum special edition
From Fear to Hope provide defenders with the essential support they need and to extend IBJ’s reach without crippling its capacity. The program, the Global Defender Support program (GDS), is the catalyst that will allow defenders all over the world to collaborate over an extended period to share ideas, find solutions, and build innovation. Through GDS, IBJ will provide courageous defenders everywhere with increased social capital so that their chances of success are greatly improved. By establishing a community of practice and also continuing its grassroots country proAccording to reports, 113 gramming, IBJ brings a countries practice torture, despite more complete solution for success to defenders. the fact that 93 of these have The GDS will have signed international conventions three overall objectives: •Enable defenders from and have domestic laws to any country to access safeguard citizen rights. Public and customize criminal defender resource defenders and legal aid lawyers materials for implementation in their own have made urgent requests for countries by developing international assistance. a rich and comprehensive repository of comEncouragingly, governments have mon defender resource shown a willingness to act. There materials (tools, methodologies, now exists a unique opportunity processes). to dramatically improve the legal •Build communities and promote knowledgesystems of developing countries. sharing among defenders on a global level by creating a collaboration platform that provides access to the defender resource materials repository and facilitates discussions on best practices and lessons learned. •Promote international awareness, recognition, and support for defenders by providing international support from their peers and other key criminal justice stakeholders, offering global accreditation programs, fellowships, and overseeing defender awards. To accomplish these objectives, GDS will consist of defender engagement strategies, international partnership building activities, and a technological online collaboration platform. GDS will involve three activities: it will provide tools, methodologies, and processes; build international partnerships; and run accreditation and celebration programs. IBJ’s innovative two-track strategy—one continuing IBJ’s local efforts, the innovations / Davos 2009 189
Karen Tse other building GDS—balances the local and global needs inherent to IBJ’s work. The GDS program extends in-depth country programming to new nations and provides a community of practice for all defenders, whether working within or outside of IBJ country initiatives. In so doing, this approach enables IBJ to continue its mission of institutionalizing defender practices worldwide but also allows defenders to share ideas with their peers worldwide. Through this cross-fertilization, IBJ provides defenders with greater capacity to innovate, achieve maximum impact, and scale at a rate that was never before possible. Country specific development becomes one part of the whole. To complete the picture, cross-boundary networks link defenders with existing knowledge and with each other. The result is better legal rights for citizens, and a chance to end torture. GDS: Tools and Techniques IBJ’s GDS program will facilitate the expansion of ongoing activities to new country locations by drawing on the materials and programs IBJ has already developed. These include: • a defender toolkit • an accreditation program • a national assessment and scorecard initiative • a worldwide partner / community program • a fellowship program • a defender-outreach and innovation award. One integral part of the GDS model is IBJ’s Fellowship program. As with Mr. Ouk, IBJ recruits and trains local defenders who, as “IBJ Fellows,” then lead the development of IBJ’s programs in new countries. The vision is that of 108 fellows throughout the world joining forces together towards our mutual goal of ending torture and guaranteeing due process rights for all in the 21st century. Because GDS leverages IBJ Fellows to lead the launch of new country programs, the expansion of IBJ’s country programs can be achieved much more rapidly than a onecountry-at-a-time approach. The Fellows-based approach is also more cost-effective as it builds on scaling and replicating the same defender resources across multiple countries. As another integral component, IBJ will build an Internet-based training and networking platform through which IBJ will be able to share its defender resources with people in all countries, even ones in which IBJ is not yet working. IBJ will tap into up-to-date, social-networking ‘Web 2.0’ technical platforms to facilitate community-building and information exchange.9 This platform will help IBJ build a global network of supporters and advisors. There is a close relationship between promoting legal rights and the use of advanced information and communications technologies. Just as businesses reap operational efficiencies by using the Internet, so too can IBJ support the international defender community by building a platform to access data, collaborate, and develop knowledge and good practice. IBJ is planning several other new activities as part of the GDS, including:
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From Fear to Hope
• Criminal Justice Accreditation Initiative—A way to bring defenders from different countries where IBJ does not operate into the IBJ community, by providing the means for them to gain skills and knowledge, as well as become certified to help train defenders in their country. • Criminal Justice System Scorecard Project—A template mechanism for defenders to assess the state of their country’s judicial system, as a way to have a formal evaluation that progress can be compared to. • Community Advisory Councils—Local and international partners that will support the work of Fellows in their country through helping with partnership development, providing advice, or pro bono support. • “Justice Makers” Innovation Award—With a donation from a private entrepreneurial donor, IBJ recently created JusticeMakers.net—an online community that shares intellectual capital and best practices in the field of criminal justice. The site hosts competitions, facilitates discussions, and connects passionate members of the criminal justice community with their counterparts from around the world. The first competition launched on June 26, 2008 and sparked locally-sourced solutions to criminal defense challenges in developing countries. IBJ is sharing the stories, aspirations and challenges of these JusticeMakers and is positioning these heroes as the face of the larger criminal justice movement. Ultimately, these initiatives are geared to bring the community of defenders and legal professionals into a community of practice. The Global Defender Support program (GDS) offers a unique and powerful opportunity for IBJ to develop the infrastructure for justice on an unprecedented scale. While local initiatives will continue to be the most integral aspect of IBJ’s work, GDS will allow IBJ to connect our passionate local defender organizations in ways that have never previously been explored. The result of GDS will be a global community of practice in which lawyers truly feel connected to each other and have a tangible system of support. Innovation happens in all of our local communities, but without an effective, interactive, personal network to diffuse this innovation, it is less likely to expand beyond the borders of the community in which an idea is created. GDS will facilitate knowledge diffusion and resource sharing, and will also create more opportunities for personal interaction, which is crucial for strengthening defenders worldwide. Further, cross-cultural interaction will foster a higher volume of legal innovation because experiences can be shared and analyzed in new ways by people from varying backgrounds, creating a rich environment for ideas to grow. The GDS is a scalable model that will widen the reach of IBJ’s tools, practices, and strategies. The GDS is the future of IBJ.
SUPPORTING THE FUTURE OF IBJ If we are to put IBJ’s strategic plans into action, IBJ must institutionalize and leverage its relationships and collaborations with the worldwide legal, social and busiinnovations / Davos 2009 191
Karen Tse ness communities. On this front, IBJ is already developing a robust group of partners and supporters.10 As IBJ’s activities continue to gather momentum, a number of organizations have expressed interest in partnering on projects or contributing resources to the programs. For instance, IBJ’s first two “Communities of Conscience” groups—in Dublin in October 2006 and Washington, DC in January 2007—were sponsored by a coalition of bar associations, international law firms, and defenders who graciously paid for individual defenders to attend and donated space and personnel for the events. The events brought public defenders from China to the West for training sessions. The defenders met and learned from other defenders and also formed what we expect will become enduring relationships. Once the model is established, IBJ envisions thousand of Communities of Conscience sprouting up to support defenders worldwide In addition, two dozen top defenders from countries throughout the world have contacted IBJ about collaborating on projects. Meanwhile, a number of law firms, barristers’ chambers, law schools, and legal associations, such as the Senior Lawyers Project, the IBA, and Advocates for International Development are working with IBJ. For example, Matrix Chambers donated $10,000 to sponsor advisement of rights campaigns in Africa. The International Bar Association has requested that IBJ collaborate on Zimbabwe’s criminal justice manual. Most recently, Greenberg Traurig donated $10,000 to support a local defender. Our entire India program was launched only because of the generous support of the Clifford Chance Foundation which provided $150,000 in seed capitol to initiate our India project and support two Indian fellows. The flood of support and cooperation from the international community has begun to take hold. CONCLUSION: WORKING TO END TORTURE IN THE 21ST CENTURY Over the past several years, International Bridges to Justice has been fortunate to receive the extraordinary support of committed individuals from all over the world. Individuals who have chosen hope in the face of uncertainty—uncertain political tides, uncertain safety, uncertain job security, uncertain organizational status, uncertain risk against their financial contributions. All of us have brought both our gifts as well as our imperfections to this endeavor. While indomitably strategic, the path has not always been smooth or clear. But certain things are clear. There are 113 developing countries that torture, 93 of them recently having passed laws outlawing torture and listing basic due process rights. We have a clear and unprecedented window of opportunity to support these countries in the implementation of these laws and to act now for human rights in a way that was never before possible. Twenty-five years ago when I was in college, dictatorships, authoritarian and closed communist governments were rampant. Today we see emerging democracies and more open communist systems with laws designed to protect their people. But little of the dream is realized. Few of these laws are actually implemented, 192 innovations / World Economic Forum special edition
From Fear to Hope leaving their citizens particularly vulnerable to abuse. The ghosts of the past remain as vestiges of old systems entrenched despite new laws. There are more ways than one to deal with ghosts of the past. One is the international courts and tribunals to prosecute war criminals, and truth commissions to begin healing processes. In order to build an ethical future we must reconcile with the past. However, in our international commitments and prioritization of resources, we are almost missing the point. For instance, while over 56.3 million dollars is still going into the war crimes tribunals in Cambodia to prosecute fewer than ten war criminals, almost half of the present day Cambodian provinces do not even have a single public defender. Residents of these provinces are particularly vulnerable to abuses of due process rights, including the use of torture as an instrument of investigation. Based on the evidence of work in other provinces, early access to counsel would change this. For less than 250,000 dollars we could open legal aid centers in the remaining neglected provinces and address this problem in the immediate present. End the ghosts of the past by proactively putting the system in place so that history does not continue to repeat itself with police officers using interrogation methods of past generations I write today from an IBJ training event in Burundi, another country that has suffered through genocide. They also have many ghosts of the past, and today torture and abuses of due process rights are rampant. To turn the chapter and build a new Burundi, each participant was asked to think through and answer this question, “What is my role, my part that is the contribution to the whole?” I was encouraged by the sincere answers of the group composed of 50 judges, prosecutors, police, and lawyers. Though from various parts of the judicial system, all acknowledged the need for and requested assistance in developing a system for early access to defense counsel. While acknowledging their tortuous past and current broken down judicial system, they also expressed hope. They are on their way. But they cannot get there alone. And neither can most countries at the beginning of this journey. While IBJ is heartened to have begun having an impact in seven countries, we are also disturbingly aware of the defenders and other members of the judiciary in countries throughout the world who have cried out for support. As Martin Luther King Jr. said, “The time is always ripe for justice.” Justice does not “roll in on the wheels of inevitability” but comes about because of the dedication and hard work of committed individuals. So join me in responding, also in the words of King, to the “fierce urgency of now” that is upon us.
1. International Centre for Prison Studies, Prison Brief for India, 2007. 2. National Human Rights Commission of India, Annual Report 2004-2005. 3. International Centre for Prison Studies, Prison Brief for India, 2007. 4. Ligue Iteka, Annual Report on the Situation of Human Rights in Zimbabwe, May 2007 5. IBJ Interview with Bar Association of Burundi President, Tharcisse Ntakiyica, November 2006; 6. IBJ Interview with Bar Association of Kigali Executive Committee, November 2006 7. IBJ interview with Law Society of Zimbabwe Secretary, Arnold Tsunga – November 2007
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8. Sources: ICCPR, Amnesty International 9. The California Public Defenders Association uses an interactive website that is designed for the use of defenders, providing legal research resources, links and training materials. The website is powered by a listserve device that networks defenders from many geographic areas to share information and resources that would otherwise be available only piecemeal, and has transformed the practice of law in California. IBJ envisions using a similar technology for the GDSP platform. 10. Our partners include law firms, legal associations and law schools, including Harvard University and Georgetown University, and IBJ’s financial sponsors include the Open Society Institute, the US Department of State, the MacArthur Foundation, the Skoll Institute, and IBA Foundation. IBJ is especially grateful to early supporters Echoing Green, andAshoka.
innovations / World Economic Forum special edition
Kenneth Neil Cukier
Seizing the ‘Arbitrage Opportunity’ for Legal Rights
Innovations Case Discussion: International Bridges to Justice
The idea of innovation used to conjure up images of scientists in white lab coats peering into microscopes. Then, what sprang to mind were buff Silicon Valley entrepreneurs devising new business models. These caricatures sound simplistic, but they largely held. However, a new form of innovation has emerged that forces us to change our mental picture again. Its agent of action is the social entrepreneur, and the method is to do for society what their forbearers did for business. On the surface, the link between innovation and rights may not be apparent. International Bridges to Justice’s operations seem straightforward: it promotes legal rights around the world by partnering with governments to develop and assist a community of public defenders. It sounds like another do-good non-governmental organization. But this is to severely misunderstand IBJ’s work and the method of its founder and president, Karen I. Tse. Rather, it represents a radical approach. On one level, IBJ cleverly turned a series of difficult obstacles into a “market opening” for its activities. At the same time, IBJ’s initiatives effectively transform legal rights from a political problem to an economic issue. By putting it on a different plane, a window of opportunity is opened whereby substantial, long-lasting change is possible. The IBJ story is instructive not only because it reveals a new form of innovation, but because IBJ’s approach may serve as a model for other global problems that require many stakeholders to be brought together. Yet it embodies something far greater, too. From its modest first step of fostering rights, where it ultimately ends is at the audacious goal of ending state-sanctioned torture in this century. To realize this, Ms. Tse implores, requires a change in consciousness. It is powerful ideal. Does it simply fit the pattern of the wonderful hyperbole that all entrepreneurs share? Or is Ms. Tse actually on the path towards achieving this, in the footsteps of people like Mahatma Gandhi or Martin Luther King Jr. To consider this, it is vital to understand the rich dimensions of IBJ’s innovation, which is not obvious on the surface. Kenneth Neil Cukier is a business correspondent at The Economist. He has written widely on technology, public policy, and international relations. He has followed IBJ since its founding in 2001. © 2008 Kenneth Neil Cukier innovations / Davos-Klosters 2009
Kenneth Neil Cukier EXPLOITING THE GAPS “The entrepreneur is the innovator who implements change within markets through the carrying out of new combinations,” the economist Joseph Schumpeter famously wrote in 1934.1 The way this happens is that entrepreneurs identify what in hindsight we may refer to as “opportunities,” but looks very different at the outset. It is a reality where something seems amiss. Entrepreneurs often spot this where most of us do not. A way to think about it is as the “white spaces” or “holes” on a map, not the images of land. Jean-René Fourtou, the former chief executive of Rhône-Poulenc, called it “la vide” (emptiness).2 Sachio Semmoto, the founder of numerous Japanese telecom firms, describes it as “the contradiction”—that is, an inconsistency in what exists that opens up a chance for the what-can-be.3 In the case of IBJ, Ms Tse saw something special at a special time—but saw it in a new way. She noticed that there was a gap between what countries had signed up to do regarding legal rights and what they were actually doing. As she noted in her essay, some 113 countries are said to practice torture, even though around 93 have signed international conventions and established domestic laws to safeguard citizens’ rights. The difference between the public pronouncement and the practice created a sort of “arbitrage opportunity.” There was a way to use the system itself to plug the hole. The art of arbitrage is to capitalize on the difference that exists between things at the same state in time. Yet what was needed was an entity to point out the divergence and come up with a way to bridge it. Thus, “International Bridges to Justice.” The international dimension—the “I” in “IBJ”—is essential. The local legal community cannot do it alone: it does not have the infrastructure, training, or resources. In fact, trying on their own might only invite retaliation from those whom its actions threaten—the very people, ironically, charged with upholding the law, such as police, government officials, and even judges. (It is not uncommon for judges in countries where IBJ operates to detain lawyers who argue that their client was tortured.) In addition, IBJ “partners” with governments. It is welcomed in since it sells itself as a sort of service-provider to help the country’s own reforms. Legal rights, after all, is a foundation to all other social goals. The IBJ method is novel. Most human rights groups take the opposite approach. Rather than work with governments, they relish their role as outside agitators. To work within the system would seem tantamount to condoning it. Furthermore, they tend to focus on major cases and try to remedy specific abuses. If the person gets released, they claim victory and may turn their attention elsewhere. An example is Amnesty International’s classic letter-writing campaign, which although extremely useful on the individual level, is not as effective on the societal level. Other groups like Human Rights Watch document and expose abuses—itself vitally important, yet leaves the fundamental problems unaddressed. In 2001, when IBJ was founded, no organization was working solely on the broader plane of the long-term, practical implementation of rights in criminal law. There are many reasons why, but the most important is because when earlier 196 innovations / World Economic Forum special edition
Seizing the ‘Arbitrage Opportunity’ for Legal Rights groups were formed, the circumstances were not ripe for much more. But today, almost all governments are moving in the direction of adopting global norms and standards. It creates a market opening. For example, in 2001 China joined the World Trade Organization and won a bid to host the 2008 Olympics—important symbols of the country’s integration into the international community. Adhering to global legal rules is a part of the trend. So in this way too, IBJ bridged a gap between what other rights groups were doing and the new area where it could act. In Schumpeter’s terms, it was the “market” by which IBJ effectuated change through “new combinations.” Those “new combinations” have other features. IBJ works with the existing defender community. It is a humble approach. This makes its work more easily accepted by the defenders as well as governments. Also, it enables the programs to develop deep roots among the practitioners, so that IBJ’s initiatives have staying power. Moreover, instead of aiming for immediate victories, IBJ focuses on the long-term, by slowly developing a sustainable infrastructure for legal rights. Ms. Tse often refers to this as creating “generational change,” that is, institutionalizing defense rights so that it does not rely on the goodwill of any particular individuals at any particular time, but is an inherent feature of a country’s judicial system. Again, this is new. To think of it in parable terms, it is not a question of giving a man a fish or teaching him to fish—the innovation here is organizing him into a co-operative. (That is, taking fishermen and providing them with better training, better materials, and establishing a community so that they can do what they do better.) In so doing, IBJ does not want to stop rights abuse so much as prevent it. In addition to being a hub for the local defender community, IBJ also acts as a sort of “market-maker.” It establishes the environment for legal rights to take hold by being the agent that brings parties together. IBJ found that assisting the defender community only addresses one part of the problem. It is not enough if the climate in which they work is not amenable to their activity. Instead, it is necessary to bring different parts of a judicial system together—such as the prosecutors, police, judges, prison officials, etc.—so that defenders were not seen as hostile to the judicial process but an essential component to it. This is not so obvious to people from non-Western legal traditions, or countries with embryonic judicial systems. The West’s adversarial legal process otherwise looks disrespectful; defenders are seen to antagonize other parties (whose reaction is to lash out against them). So IBJ took on the role of market-maker by bringing these groups together. With such a tense situation, it took an outsider to be the agent of action. IBJ was seen as neutral. And Ms. Tse herself did not seem threatening (more “reverend” than “lawyer” perhaps…). In many instances, the meetings among prosecutors, defenders, police, and judges represented the first time the parties had ever met outside a courtroom. In Ms. Tse’s spiritual facet of her work, she describes this as a chance for their uniforms to disappear and their humanity to show through. By connecting in this larger, spiritual way, people could empathize with each other and learn. And from this, change. Often, in the honesty and intensity of the dialogue, participants found their faces moist with tears. innovations / Davos 2009 197
Kenneth Neil Cukier Strikingly, the most important dimension of IBJ’s innovative approach is also its most discreet (and I disclose it with care). IBJ works on “legal rights”; the idea of “human rights” almost never appears in its literature and is very rarely discussed. Ms. Tse publicly emphasizes that the central problem facing countries with developing legal systems is not so much the handful of political prisoners that already have the attention of the West, but the tens of thousands of ordinary people who face abuse in the criminal justice system on an everyday level. Clearly the basic legal rights of citizens—the young Cambodian boy accused of stealing a bicycle, in the example from Ms. Tse’s essay—is something that everyone can sign on to, be it government official, policeman, or prosecutor. Human rights might be controversial; legal rights need not be. Is the emphasis on legal rights a political calculation so that IBJ stays in the good graces of the governments with whom it partners? What is certain is that IBJ’s approach gives it access and therefore influence. Is the link between legal rights and human rights close, such that concentrating on one will surely improve the other? It is clear that creating the infrastructure for the rule of law is critical on many dimensions, from protecting property rights and upholding contracts to ensuring basic legal safeguards that lead to a stable society. Ultimately, the gaps that Ms Tse encountered, and which seemed to others to be obstacles, actually turned out to be “market openings” through which an innovative approach could take hold. In this way, Ms Tse’s work sheds new light on Schumpeter’s idea of innovation and change. Yet it required not only looking at the issue differently but acting differently too. TRANSFORMING THE PROBLEM In speeches where she has sought to explain IBJ’s unique approach, Ms. Tse likes to quote Kofi Annan, who in 2005 as United Nations Secretary-General said about human rights: “The era of declaration is now giving way, as it should, to an era of implementation.”4 Where in the past it was important to get countries to sign on to accords, now that they largely have, the key is to get them to fulfill their commitments in practice. That is the gap that IBJ identified as a sort of arbitrage opportunity. But the genius of IBJ, and the second pillar of its innovation, is in how it did this. The work of IBJ had the effect of changing the nature of the problem. Enforcing legal rights on a day-to-day level where it affects the lives of ordinary people is hard. It requires making changes deep into the legal system: its institutions, practices, and attitudes. (Hence, IBJ’s activities had to encompass the overall legal environment, not simply defenders.) Still, developing a robust infrastructure for the defense side of the docket is critical. As Ms. Tse noted in her essay, defenders are the first line of support in a criminal justice system; the sooner a person has access to an attorney, the less likely his rights will be violated. IBJ’s work shows that when resources are put towards informing citizens of their rights and ensuring a supply of well-trained defense 198 innovations / World Economic Forum special edition
Seizing the ‘Arbitrage Opportunity’ for Legal Rights attorneys, the incidence of abuse is markedly reduced. But building out this infrastructure takes time and money. Indeed, the more pragmatic the work, the more capital intensive it is. The implication is that IBJ’s method actually transforms the issue of ensuring legal rights from a political problem to an economic one. Thinking about it in this way changes its nature and creates new possibilities for change. Indeed, it becomes possible to informally calculate the cost of legal rights. This puts a price tag on rights abuse; a monetary sum above incalculable physical and emotional costs. In so doing, it suggests that it may also be possible to out-finance it. For example, based on IBJ’s experience of running programs in Asia and elsewhere over the past seven years, the amount needed to provide a basic level of rights is extremely low: perhaps only a few cents per year, per person. This encompasses establishing a national network of legal-aid centers, publicity of rights campaigns, access to defense lawyers and case support. Thus, a country like Thailand with 65 million people might need around $10 million to provide basic legal rights and prevent torture; for Niger’s 14 million people, around $4 million; and so on. We may quibble about the right amount. But by transforming the problem in this way, the IBJ method opens up a promising new avenue for it to be addressed. This sort of informal economic analysis suggests that governments, civil-society groups and the business community might want to rethink their approach to fostering rights. IBJ’s initiatives that establish a creative partnership among stakeholders seems appropriate, since the issues are larger than any one group can handle on its own. New relationships between the local community and a global support-system is also crucial. Lastly, the role of the private sector is vital, since it excels at the very on-the-ground implementation that is required. In this respect, IBJ has forged alliances with private law firms and has tried (albeit with only limited success) to engage the business community. One reason why IBJ has made the cost of realizing rights so low is due to its creative use of technology. A question that IBJ’s experience raises is whether the organization could have existed prior to the Internet. Of course, other human rights groups existed earlier. Yet, as always, one is hostage to one’s times. Technical limits impose invisible constraints that we only see in hindsight. Earlier rights organizations needed to grow slowly and piecemeal, since there were limitations on the “coordination costs” that their activities entailed. Management is difficult when it happens over a telephone and fax machine; information is scarce and costly to share. By contrast, one of the Internet’s key attributes is that coordination and collaboration is far easier, and communities can form and interact far more efficiently. In this light, it is unsurprising that in 1997, at the dawn of the commercial Internet, the Nobel Peace Prize was awarded to Jody Williams and the group she coordinated largely via the Internet, the International Campaign to Ban Landmines, which had been founded only six years earlier. In the same way, IBJ is a beneficiary of using information-technology as a cornerstone of its activities. At its most basic level, the technology is a way to keep defenders abreast of curinnovations / Davos 2009 199
Kenneth Neil Cukier rent laws and rulings. In the West, where information flows smoothly, it is easy to take this for granted. But in developing countries, something as modest as an Internet-enabled PC serves as a massive law library. And it is not always certain that prosecutors and judges are familiar with the law; arming the defenders with information is vital. The computer acts as a “neutral messenger” with which defense lawyers can present unwelcome statutes and precedents to the court. In some circumstances, to contradict a judge or prosecutor is considered insulting and invites trouble. Being able to shrug one’s shoulders and point to the PC as the source of the information depersonalizes the situation. Additionally, computers and the Internet act as the eyes and ears of the capital cities and international community. It also provides a voice to the defense attorneys. The technology is a life-line for defenders (sometimes in remote areas) to reach the broader world to get support and advice. It also redraws the balance of power, because judges and prosecutors are implicitly put on notice that what happens in the court room is being watched elsewhere. Furthermore, the technology enables the defenders to form a community, in which they can support one another, provide advice and rally for change. This might sound banal, but it is one of the most important aspects of IBJ’s work, and one of the biggest benefits that the Internet brings. All great movements require communities, whether artistic groups, scientific schools of thought, political parties, or social change. Invention may be a solo activity, but change happens through groups. It takes a village. Online, people can share information and form groups easily. For defenders in immature judicial systems, there is strength—and safety— in numbers. Lastly, the technology enables IBJ to scale—that is, grow larger by extending marginally less, not more, resources. This is because the IBJ method is above all intellectual property—and like most informational goods, developing the first one is expensive and time-consuming, but replicating it is cheap. The magic of the IBJ approach is that many elements of it can be easily applied to other countries and other contexts. IBJ estimates that around 70 percent of its projects and materials, such as the defender “toolkits” and accreditation systems, can be reused elsewhere with only minor modification. Importantly, the IBJ method is “iterative” or “emergent”—Silicon Valley terms that basically mean that IBJ learns as it goes along, rather than simply executes a preset plan. This makes the organization flexible to change depending on the circumstances. At the same time, it means that the process is inherently open to incorporating improvements, which then can flow though all of IBJ’s activities elsewhere almost instantaneously. The ability for organizations to generate and share knowledge in this way, and to learn, is what distinguishes 21st century enterprises from their 20th century counterparts. And it is why IBJ has been successful in the handful of countries where it has direct activities, while also being able to go global. Other NGOs adopt a sequential approach whereby they grow through incremental steps and countryby-country in a linear fashion. However, IBJ recognizes that the technical tools 200 innovations / World Economic Forum special edition
Seizing the ‘Arbitrage Opportunity’ for Legal Rights now exist that let it can reach deep into legal communities around the world simultaneously from its base in Geneva. The IBJ model scales because it explicitly taps into the abilities of others, while upholding the notion that to lead is to serve. THE SPIRITUAL ELEMENT Medieval alchemy occupied itself with turning base metal into gold. Yet this is actually a superficial characterization: it took place in the context of religious mysticism not science. At its core, it was about the spiritual transformation of the alchemist. So, too, the journey that Ms. Tse pursues has as its apex not so much a reform of the legal system, but a change of consciousness among individuals, so that they share in their common humanity. The context is globalization and markets; the transformation is in awareness. Legal rights are simply the immaterial residue that is left in its trace. The front door of IBJ comprises formalistic things such as habeas corpus and rules of evidence, but it leads to a place where what matters is a shift in thinking. On one level, this is seen in the “Communities of Conscience” program, in which defenders from developing countries and mature legal systems meet. But on another level, it is what drives all of IBJ’s projects, particularly where different stakeholders are brought together to empathize and learn from one another. Ms. Tse’s unique background as both a lawyer and reverend puts her in a position to understand this, just as it gives her credibility to speak on different levels to different people in pursuit of her goals. Those goals seem modest: helping governments live up to the standards they themselves have set. Yet the ultimate destination is revolutionary: Ms. Tse’s ambition is to end state-sanctioned torture in the 21st century. It may sound utopian, but it should not. There are parallels with the movement to abolish slavery in the 19th century. It took many reformers from different walks of life. It took many years. It seemed impossible at the outset; powerful interests were entrenched. (And wasn’t it just a sad fact of life: didn’t slavery exist since time immemorial, the argument went…) New institutions needed to be created. Yet ultimately, it was not so much the introduction of law but a change in consciousness that accounted for the success—abolition laws only followed the shift that had already taken place in people’s hearts. Of course, incidents of slavery still crop up today. But they are exceedingly rare, and never state-sanctioned. Most importantly, no one would even try to intellectually justify it. Like slavery, state-sanctioned torture is an utter anachronism, argues Ms. Tse. Just as the 19th century was the one that saw slavery abolished, so too the current century can be the one in which torture is totally repudiated. In following this path, Ms. Tse is not only carrying forward the ideals of social reformers, but also the legacy of Schumpeter’s entrepreneurs. This is because her objective is not an “incremental improvement” to the system (that is, trying to reduce torture), but an “innovation” that radically upends the order of things (that is, eradicating it). IBJ has crafted an astute formula for the times. It eschews activism in favor of innovations / Davos 2009 201
Kenneth Neil Cukier institutionalization, by using the system to change the system. It turns obstacles into opportunities by exploiting the “arbitrage” potential of the inconsistencies. It scales tremendously by melding local and global communities. It acts as a marketmaker by serving as a neutral platform to bring stakeholders together. Its activities effectively transform the problem of human rights from the political to the economic realm, thereby opening up a new avenue for the issue to be addressed. IBJ’s destination, ending torture, is earth-shaking in its magnitude. And its work is transformative in terms of the rule of law and the way people think. IBJ’s approach can be usefully applied to other global issues. For instance, in areas as diverse as climate change, public health, economic development, or conflict resolution, multiple stakeholders with overlapping and divergent interests need to be brought together. Yet few of the institutions that currently exist are able do that, particularly not at an international level; indeed, the very attempts often lack legitimacy and create ill will. At the same time, non-profit organizations and civil-society groups usually position themselves as an alternative to governments rather than their partner. What makes the IBJ model profound is the way it strives to go beyond these artificial barriers—examples of “old solutions to new situations,” as Ms. Tse expressed it in her essay. Instead, the IBJ method bridges the grassroots with the highest levels of government, and speaks with authority to both. It bridges the local community with the global one. IBJ is a model for how decentralized systems can interact to form powerful communities for change. In the past we honored the businesspeople that Schumpeter’s idea of the innovator had in mind. As we reset our image for modern times, we can look back at history to others who innovated for the social good, from slavery to suffrage to civil rights. Their battle was not simply with an unjust system, but also with their peers who failed to see that change was possible. It is something all pioneers face. Whether the names of such leaders are etched in marble or lost to memories, to this honored list must now be added Karen I. Tse and International Bridges to Justice.
1. Joseph A. Schumpeter 1934: The Theory of Economic Development. An inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Harvard University Press, Cambridge (Seventh printing, 1961). 2. Kenneth Neil Cukier 2006: “Hero with a Thousand Faces: Innovative Entrepreneurship and Public Policy” Report of the 6th Annual Rueschlikon Conference on Information Policy, Swiss Re, Zurich. 3. The Economist 2008: “Disruption of service.” London, Feb. 7. 4. Kofi Annan 2005: “Secretary-General’s Address to the Commission on Human Rights.” Geneva, April 7. Online: http://www.un.org/apps/sg/sgstats.asp?nid=1388 (Last viewed May 15, 2007)
innovations / World Economic Forum special edition
Philip Auerswald and Debra van Opstal
Coping with Turbulence: The Resilience Imperative
Change in the 21st century is rapid-fire and turbulent. As globalization, technological complexity, and interdependence have created new opportunities, they have also created new uncertainties. In this environment, resilience is emerging as a new and increasingly critical priority for companies and countries alike. Yet few people understand why resilience is critical—or even what it is. WHY RESILIENCE MATTERS Here’s a simple resilience awareness test. Which of the following has the potential to disrupt business and society on a large scale: terrorist attacks, overgrown trees or leaking water? The correct answer is all of the above. The terrorism option is obvious. But, overgrown branches in Ohio were a proximate cause of a cascading power blackout across state and national borders and multiple power grids, which left 50 million people in the United States and Canada without power for several days and caused $4 billion to $6 billion in economic losses. And, in 1984, water leaking into a chemical containment vessel at the Union Carbide plant in Bhopal, India, created a cloud of toxic gas that led to the world’s worst industrial disaster: it killed 3,000 people and injured 200,000. Obvious risks are not the only ones that need attention. For business, it is not enough to plan based only on known risks—quantified and modeled under business-as-usual assumptions. For government, it is not enough to fortify against high-impact, low-probability events: the malicious terrorist attacks or natural disasters that capture popular imagination. Risks are just as likely to emanate from disruptions in global networks—for energy, communication, information, transPhilip Auerswald is a Founding Co-Editor of Innovations, an Assistant Professor and Director of the Center for Science and Technology Policy at George Mason University, and a Research Associate at Harvard University’s Kennedy School of Government. He is an editor of Seeds of Disaster, Roots of Response: How Private Action Can Reduce Public Vulnerability (Cambridge University Press, 2006). Debra van Opstal is the Senior Vice President of Programs and Policy at the Council on Competitiveness, a Washington-based, nonprofit, nonpartisan organization whose members are CEOs, university presidents, and heads of labor unions. Before joining the council, she was the Fellow in Science and Technology and Deputy Director of the S&T program at the Center for Strategic and International Studies in Washington. © 2009 Philip Auerswald and Debra van Opstal innovations / Davos-Klosters 2009
Philip Auerswald and Debra van Opstal portation—that are interlocked, allowing failures to cascade across networks, borders, and societies. Resilience is the quality that enables enterprises and societies to cope with those unexpected events that have potentially catastrophic consequences. In this essay we argue that a sustained strategic focus on resilience—one as intense as that ordinarily placed on growth—is an urgent priority for business and government at all levels worldwide. For countries, a strategic focus on resilience means not only ensuring the reliable provision of basic services but also reducing the variations in economic opportunity that come with major societal shocks. Where sustainability (a more familiar Resilience is the quality that term as applied to policy) is enables enterprises and societies about managing a level of resource consumption, to cope with those unexpected resilience is about managing events that have potentially disruptions to critical systems—physical, virtual, health, catastrophic consequences. In and economic. A resilient socithis essay we argue that a ety can cope with a variety of such disruptions to critical syssustained strategic focus on tems with agility, speed, and resourcefulness. resilience—one as intense as For companies, resilience is that ordinarily placed on about anticipating, managing, and responding to sudden growth—is an urgent priority change. As has become all too for business and government at evident in recent months, a firm's shareholders and cusall levels worldwide. tomers are not well served when a market valuation built on years of strong quarterly reports crumbles when an unanticipated hazard exposes inadequate preparedness. But resilience is not just about avoiding losses or preserve shareholder value. It is also about being poised to seize suddenly available opportunities to create value. The organization that pays attention to flexibility and adaptability—and has prepared for a spectrum of surprises—is better equipped not just mitigate disasters, but also to capitalize on such opportunities. When it comes to understanding the resilience imperative, however, many companies fall short. This happens partly because the risk landscape has changed so dramatically in just the last decade. Global enterprises now operate quite differently from the multinationals of the last century, but their risk management processes have not kept pace. Multinational companies typically transplanted themselves as self-contained businesses on foreign shores, but global enterprises 204 innovations / World Economic Forum special edition
The Resilience Imperative splice different pieces of their business operations across different geographies, and network them to each other through voice and data IT systems and supply chains. That has raised the ante on network disruptions from operational downtime to a “bet the bottom line” risk. And globalization is creating new strategic risks. The Global Risk Network at the World Economic Forum identifies strategic trends that could create significant economic losses. But are companies connecting the dots between these strategic risks and their own risk-management processes? Resilience requires companies to create innovative approaches to manage threat, risk, and change. What they need is not an improved ability to predict the future, but systems Companies, communities and that can better adapt citizens create an ecosystem of to turbulence and surprise. Resilience resilience. Businesses cannot be requires process innoresilient if the communities in vation: disciplined, systematic, and crosswhich they operate and the citizens functional thinking they employ are not also resilient. A across the organization, including its company may be ready to resume missions, operations, markets, and technioperations following a disruption, cal infrastructure. but the surrounding infrastructure When resilience fails, private-sector might not be functioning or the organizations pay a citizens might be psychologically price. The problem is that their failures have unready to return to normalcy. far-reaching consequences for public welfare as well— regionally, nationally, and sometimes globally. Traditionally, governments have refrained from intervening in the way that companies manage risk and resilience, understanding that the markets will exact a toll. But the stakes have increased beyond anyone’s expectations. Countries are not much better prepared. We have just seen the failures in U.S. financial risk management cascade across sectors and trigger a global financial and credit crisis. Trillions of dollars of value in market capitalization has been lost. The entire developed world has been driven into recession, not just a growth slowdown. As a result, the Director General of the International Labor Organization (ILO) reports, world unemployment is likely to increase by 20 million over the coming year. The number of working poor living on under $1 a day could rise by some 40 million and the number at $2 a day by more than 100 million.1 innovations / Davos-Klosters 2009 205
Philip Auerswald and Debra van Opstal
What Business Leaders Should Know About Resilience The rise in operational and strategic risks is outpacing traditional riskmanagement systems. The past 20 years has seen a dramatic decrease in the number of stocks receiving a high-quality rating from Standard & Poor’s and a dramatic increase in the number of low-quality stocks. Meanwhile, from 1993 to 2003, more than one third of Fortune 1000 companies lost at least 60% of their value in a single year.2 A survey by Lloyds of London and the Economist found that one company in five had suffered significant damage from a failure to manage risk and over half (56%) had experienced at least one near miss. Ten percent of respondents reported three near misses during the previous year.3 Surveys show that a preponderance of board directors and senior executives are poorly informed about emerging risks.
• In a survey of 250 executives and board members, the two largest barriers to effective risk governance systems were a lack of tools for analyzing nonfinancial issues and a culture of skepticism that such non-financial indicators are directly related to the bottom line.4 • Only one-third of respondents said their non-financial reporting measures were excellent or good. • Nearly half of respondents said non-financial factors were ineffective or highly ineffective in informing the decision-making process.5
Companies tend to silo risk specialties and often fail to connect the dots between risk intelligence and strategic planning. A study by Deloitte Research found that many of the largest losses in value among the world’s largest global companies resulted from their failures to manage risk effectively and systemically. Almost half of the 1,000 largest global companies suffered declines in share prices of more than 20% in a one-month period between 1994 and 2003, relative to the Morgan Stanley Capital International (MSCI) World Index. And the value losses were often longstanding. Roughly one-quarter took more than a year for their share prices to recover, sometimes much longer. By the end of 2003, share prices for one-quarter of these companies had not recovered to their original levels.6 Most companies monitor multiple risks—from environment, health and safety to market and credit risk to compliance and IT security, but less than 30% report strong interaction between the risk silos and proactive sharing of information.7 And, unfortunately, risk doesn’t respect silos. A data breach is not just a problem for IT professionals; it can rapidly evolve into a reputation risk, a litigation risk, and a financial risk that engages the entire enterprise.
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The Resilience Imperative Technological risks to societies are rising as well. Although the number of accidents is dropping, the losses for each one are much higher. • In aviation, the number of accidents per one million take-offs has fallen dramatically, but the number of fatalities per accident has doubled—and will rise higher still with 800-passenger planes. • In rail, state-of-the-art safety has reduced the probability of accidents, but highspeed trains multiply the possible consequences because a doubling of speed means a quadrupling of collision impact. • Urban areas are growing vertiTo prepare for turbulence and cally: more traffic areas and shopping centers are relocated change, governments must be underground, where fires can ready to change the way they have devastating consequences and escape routes are prepare and partner. getting longer. Worldwide there are 37 residential blocks higher than 200 meters and dozens more on the drawing board. Global welfare now depends on the resilience of a set of complex technological systems (much of it privately owned), economic activities (much of them privately conducted), and resource utilization that affects the lives and livelihoods of people around the world. Companies, communities and citizens create an ecosystem of resilience. Businesses cannot be resilient if the communities in which they operate and the citizens they employ are not also resilient. A company may be ready to resume operations following a disruption, but the surrounding infrastructure might not be functioning or the citizens might be psychologically unready to return to normalcy. To prepare for turbulence and change, governments must be ready to change the way they prepare and partner. They need to reexamine the relationships and responsibilities of the public and private sectors, understanding the crucial web of mutual interest and interdependencies. And a critical new skill is required for effective policy and governance: an ability to adapt to the unexpected. But that adaptability is rarely spontaneous. Resilience requires more than reactive responses; it reaches beyond proactive preparation. Resilient systems, enterprises, and individuals put into place the culture, training, and processes to manage change with agility and resourcefulness. ENDOGENOUS VULNERABILITIES: A PARABLE OF THE PRESENT Just as the industrial age showed us that environmental vulnerabilities are an economic and social reality, so the post-industrial age in which we now live is expos-
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Philip Auerswald and Debra van Opstal ing a different set of vulnerabilities: the endogenous security vulnerabilities of a civil society. Private actors seeking to increase competitiveness through greater operational efficiency will normally outsource, automate, or eliminate tasks they see as peripheral to their core business competency, and they will avoid investing in equipment they see as redundant. To reduce costs, managers may seek ways to make use of external infrastructures for which others bear the cost: consider how firms use the Internet as the backbone of their internal corporate communications. They may undertake to reduce redundancy in internal systems and decrease the depths of their protective firewalls to levels consistent with “normal” levels of risk.8 They may take other actions, including mergers and acquisitions, to realize economies of scale and scope: to improve corporate performance by embracing a wider range of functions and opportunities. Distributed efforts to improve productive efficiency at the firm level have yielded countless improvements; together, over the past decades, these have resulted in staggering reductions in costs. Yet competitive pressures do not allow firms to make large investments aimed at reducing vulnerability to disasters that are highly unlikely and nearly impossible to predict. The public can also be vulnerable to endogenous events: those whose outcome results at least partly from human actions. Hurricane Katrina is a good example. The hurricane damage was magnified first by the failure of the system of levees and barriers protecting the city of New Orleans, and second by the failure of the public officials responsible for protecting its people. For example, the communications systems collapsed and no security protocols were in place that would enable infrastructure service providers from the private sector to reach affected areas. An exogenous counter-example is a meteor strike: this event is completely the result of actions beyond human control.9 Until recently, hurricanes and other extreme weather events were similarly viewed as exogenous events and were described, in the language of faith rather than of economics, as “acts of God.” But we increasingly understand that human actions affect not only the impacts of extreme events but actually the probability of their occurrence. Cumulative decisions weaken natural barriers to storm surges, place human populations in vulnerable areas, and change environmental and climate patterns on a global scale. Natural disasters are no longer acts of God; they are now a function of human choices. In all the millennia of human history, this has never happened before. Thus the abstract concept of an endogenous security vulnerability is present everywhere today in the brick-and-mortar world of everyday business decisionmaking. Moreover, the increasing race for competitiveness and economies of scale pushes firms to develop ever-larger systems, with larger potential associated risks. Many examples exist of large-scale and/or highly connected infrastructures vulnerable to unlikely events, with severe consequences if they do occur. Athletic facilities can now hold 100,000 persons, aircraft like the new Airbus 380 can seat up to 850 passengers, and a new Royal Caribbean cruise liner that carries 6,400 vacationers. Food processing and distribution firms serve ever-increasing shares of the 208 innovations / World Economic Forum special edition
The Resilience Imperative national market, and power distribution networks serve a third of the nation’s population. 10 In each of these examples, the quest for economies of scale induced by a highly competitive market economy has the potential to amplify the consequences of a catastrophic failure in an infrastructure system. Ironically, the existence of endogenous vulnerabilities has now been most starkly illustrated right where we thought we had the most robust quantitative systems for managing risk: in the financial markets. A May 2007 article in The Economist describes the relationship between incremental innovation, growth in profitability, and increased vulnerability. Read in retrospect, it documents how the underlying risks that unraveled capital markets this past fall were hidden in plain sight for more than two years: [I]nvestment banks have played a crucial part in bringing about the extraordinary changes seen in the financial markets, starting in the 1980s and accelerating dramatically in the past five years. Technology and innovation have brought unprecedented breadth, depth and richness to financial instruments. According to McKinsey, a consultancy, the stock of shares and public and private debt securities held in America grew from 2.4 times GDP in 1995 to 3.3 times in 2004. In Europe the increase was even more dramatic, albeit from a lower base. These figures do not include derivatives, notional amounts of which traded privately, or “overthe-counter” securities, which had soared to $370 trillion by last June, from $258 trillion less than two years earlier, according to the Bank for International Settlements (BIS). Given such torrid growth, the markets are becoming increasingly vital to global financial stability…11 To be sure, private firms have a strong incentive to avoid calamities in which their actions (or inactions) are functionally related. But alignment of public and private incentives goes only as far as the scale of the smallest event that could put an end to the firm. It is precisely where the accountability of the private firm leaves off that the responsibility of the public sector picks up: Investment bankers themselves have a vested interest in not blowing up their firms. The biggest banks are thought to be investing hundreds of millions of dollars a year in technologies to measure risk and stress-test it. Comfortingly, regulators who scrutinize the banks’ risk-weighted capital say it is stronger than ever. But capital is only one line of defense. The banks’ ability to cope with liquidity crises and credit crunches is harder to gauge. Facing rapid innovations among firms in the financial sector, government officials were placed in the uncomfortable role of either impeding innovations, with the risk of undermining the prospects for longer-term growth, or permitting innovations, with the risk of exposing the public to costly outcomes.12
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Philip Auerswald and Debra van Opstal Taking risks and managing them is an investment bank’s core business. Bankers believe that through their risk-taking, their industry supports entrepreneurs and hence economic growth. The trouble is that new risks are almost invariably explored before anyone has developed a good way to measure them. [R]egulators reckon that on balance the growth of markets has been a good thing, making the financial system safer than more traditional forms of bank lending. The trouble is that given the complexity of the new instruments and the range of clients and countries involved, they can never be absolutely sure that a monumental crisis is not brewing somewhere.13 A system-wide liquidity crisis is exactly the sort of failure of interdependent systems that risk models, calibrated against a business-as-usual baseline, cannot handle. Yet it is also the sort of low-probability, high-consequence event for which responsible officials in the public sector must, seemingly against all odds, seek to prepare. SOCIAL INNOVATION AND RESILIENCE: THE NEED FOR NEW PUBLIC POLICIES Given the risks created by endogenous vulnerabilities—be they related to financial market instability, network resilience, climate change, or high-consequence terrorist attack—governments must begin to examine the nature of the relationship with the private sector. Key questions to consider: • Where the public interest in outcomes is substantial, what role should the government play in minimizing citizens’ exposure to risk? • How can government initiatives aimed at addressing the public’s risk exposure be designed and implemented so that they enhance, rather than inhibit, the function of the markets on which the economy depends? • How can companies that invest in resilient operations be rewarded for their contributions to public welfare? Markets alone cannot, and will not, correct for endogenous vulnerabilities without the engagement of government. This is because markets don’t price the true value of the risk to the public caused by endogenous vulnerabilities. This is a familiar concept. In the case of environmental externalities, the price mechanism is ineffective because the good in question (clear air or clean water) is not traded. In the case of the security externalities, the absence of the relevant market is only part of the problem. The other, more severe part of the problem is that private accountability leaves off where public vulnerability picks up. A paramount challenge to government, and governance, in the 21st century is thus to arrive at a set of policy instruments that will firmly and insistently “nudge”14 markets toward resilience—protecting the public interest without dictating operational terms of action.
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The Resilience Imperative The government can affect private decision-making to reduce public vulnerabilities in three ways: • affect relative prices and profits; • expand technological options; and • reinforce market incentives for change. Affect Relative Prices and Profits To address situations in which private actors do not take into account the public consequence of their actions, government can simply tax (or subsidize) the offending (or beneficial) activity. Taxes designed to change behavior, as opposed to taxes designed simply to raise revenue, are known as “Pigouvian” taxes, after A paramount challenge to the early 20th century government, and governance, in English economist Arthur Cecil Pigou.15 Some the 21st century is thus to arrive Pigouvian taxes, such as at a set of policy instruments that those on cigarettes, seek to limit consumption will firmly and insistently behaviors that primarily “nudge” markets toward harm the consumer directly; others, such as resilience—protecting the public those on gasoline and other environmental interest without dictating “bads,” seek to limit conoperational terms of action. sumption behaviors that do not harm the consumer directly but are understood to harm society. The most obvious example in public discussion today is the gas tax. With commodity prices recently in freefall and the public more aware of the negative externalities of gas consumption, the United States has a great opportunity to begin to bring the amount of its gasoline tax into line with that imposed in other developed countries. An increase in the gas tax could help finance reductions in taxes on income—which, as anyone employed will be glad to report, is a “good.” Pigouvian taxes like those on gasoline work because, in an otherwise stable environment, we expect that increasing the price of any existing good, service, or (notably) input into a production process will lead to a decrease in its usage. However, and importantly, the magnitude of the change in usage generated by a Pigouvian tax depends on the availability of good substitutes, as well as the overall cost share of the input. As a consequence, while policy can predictably affect behavior through a Pigouvian tax, the magnitude of the induced impact will vary substantially depending on the particulars of the situation. So, getting back to a gas
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Philip Auerswald and Debra van Opstal tax, a winning policy agenda involves not only reducing taxes on “goods” but also spending some significant share of the revenue to improve the quality and availability of substitutes to gasoline. The better the available substitutes, the more effective the Pigouvian tax. Consider a second example related to societal resilience: management of vulnerabilities associated with the transport of toxic inhalation hazard (TIH) chemicals. Increasing the rail rates charged for TIH-chemical shipments may induce firms with good substitution options—for example, water treatment plants using chlorine gas—to reduce or eliminate their TIH usage, as intended. Other firms, however, may have more limited substitution options—for example, plastics manufacturers using chlorine gas. For them the increased rates will simply amount to a transfer from chemical producers to the government without any significant public benefit having been achieved, as presumably intended, through a reduction in the quantity of TIH chemical shipments. Pigouvian taxes are likely to be even less effective in inducing changes in behavior when the good or service in question is a capital good rather than an input into production. Price is only one of the various parameters of interest to a firm contemplating the purchase of a capital good. Also of first-order importance are performance, durability, and the costs of finance. Policy can affect each of these decision-making margins in different ways. It can contribute to improved performance by setting standards. It can partly resolve uncertainty regarding performance and durability through testing and certification. Various policy mechanisms to facilitate capital investments can also encourage adoption. And, of course, the government can employ a procurement mechanism to increase volumes and reduce the costs of capital goods and other products whose adoption by industry would reduce public exposure to risk. Thus, Pigouvian taxes are good at affecting the mix of inputs into a production process. And, in some circumstances, they may induce firms to seek entirely new approaches. Expand Technological Options Policy action can also influence risk reduction by increasing the range of technological options in areas that pertain to the public interest. The primary mechanism available to government along these lines is direct or indirect support of research and development. The difference between this sort of subsidy and the Pigouvian subsidy described above is that an R&D subsidy is provided in an entirely different market from the one in which the external effect is present. For example, returning again to the transport of toxic chemicals, a Pigouvian policy might levy a surcharge on railcars containing TIH chemicals. In a technology-based approach, a government R&D program would subsidize firms that seek competitive new approaches to accomplish industrial tasks with less intensive use of TIH chemicals.
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The Resilience Imperative While the benefits of improved technology are evident and continued advance a necessity, a public policy strategy that emphasizes technology development alone faces at least three fundamental obstacles: Uncertainty. Research is an inherently uncertain process. Technical solutions with desirable specifications may be achievable, but they cannot be counted on to materialize when they are needed. Long Time Horizons. To research new technical options and bring the most beneficial among them into practice is a process that routinely requires a decade or more. Such time-frames put outcomes outside of the scope of accountability for corporate leaders, directors of federal agencies, and elected officials alike. System Integration Challenges. Industry supply chains are large, complex technical systems whose modification can result in unintended consequences. The generic challenge of transitioning an invention into a market-ready innovation is exacerbated here by the difficulty of embedding a new innovation into these complex systems. But government can play a positive role in aligning public and private interests by using technology collaboratories, changing procurement standards, and modeling vulnerabilities and failure paths. Technology Collaboratories.The U.S. Department of Energy (DOE) has used strategic collaboration to reduce risk and encourage investment in more secure energy control systems. The public stake in and need for such systems has become increasingly obvious since 9/11. In 2001, a disgruntled employee hacked into the control system of a sewage plant in Australia, triggering a large discharge. In 2003, the Slammer worm infiltrated the operations network of a nuclear power plant and for five hours disabled a panel used to monitor the plant’s safety indicators. More organized, malicious actors could have increased the toll immeasurably. Rather than regulate a security standard, the DOE created an opportunity for companies to test security software packages in a simulated environment before deploying them. The National Scada Test Bed (NSTB) used the latest cyber attack tools and computer experts to probe the vulnerability of the systems and provide a confidential assessment and mitigation roadmap. Within a few years, more than 80% of vendors of control systems in the oil, natural gas, and power sectors had taken advantage of the opportunity. Procurement Requirements. The government should never underestimate its ability to influence the private sector through the procurement process. In the United States, the federal government buys around $400 billion in goods and services and could leverage that purchasing power to set new standards for resilience for its vendors. In fact, many private firms have already adopted contract requirements to ensure that their supply chains are resilient. Although the federal government has traditionally supported social objectives, such as reserving percentages of procurement for affirmative action and small businesses, it has yet to exercise its market clout in requiring vendors to meet resilience standards. Simulation and Modeling. The government could also provide access to highperformance computing systems, resident in the national laboratories, to create innovations / Davos-Klosters 2009 213
Philip Auerswald and Debra van Opstal more visibility into vulnerabilities for private enterprises. With better modeling and simulation capabilities, the interrelationships among different types of risk, potential failure paths, and the company’s exposure to loss can be modeled and quantified—and such data might motivate CEOs and corporate boards to take action. Such models have been developed for complex engineering challenges but are equally relevant in providing insight into multiple, interacting risks in the business processes. Reinforce Market Incentives for Change Since the data show that the companies that are more risk intelligent and resilient actually do better in the market, the question might well be asked: Why doesn’t the market reward these qualities with better ratings and lower insurance premiums? And what can the public sector do to reinforce market mechanisms? The ratings agencies and insurers are already moving in this direction. Standard & Poor’s, for example, is carefully integrating enterprise risk management into its ratings assessment. And some of the leading insurers and re-insurers are creating market incentives to encourage their adoption. Government could reinforce these trends. It could adopt new disclosure requirements that accelerate our understanding of how companies are managing risk and change. It could incorporate more sophisticated approaches to total risk engineering in its own policies and risk-management responsibilities, and it could create new pre-event financing options that leverage commercial markets to diffuse risk. Adopt New Disclosure Requirements. The government could reinforce these trends is through more targeted disclosure of non-financial and strategic risks to the Securities and Exchange Commission (SEC). It could also require companies to disclose more about their risk-management processes. We can look back a decade to see how this might work. The year was 1998 and Y2K concerns were sweeping the globe. The SEC chairman, Arthur Levitt, sent this statement to more than 9,000 publicly traded firms: At midnight on December 31, 1999, the vast majority of computer systems may not be able to distinguish the year 2000 from the year 1900. Many experts feel that this programming flaw could debilitate computer systems worldwide….Time is short. Because the lack of information regarding your preparations for the year 2000 could seriously undermine the confidence that investors place in your company, it is imperative that you provide thorough, meaningful disclosure on this topic.16 In the Y2K case, the government asked the companies to expose not their vulnerabilities but their readiness to deal with risk. Today, the capacity to manage risk and to rebound from disruption is increasingly relevant to earnings and shareholder value. Companies may not be able to project a specific probability of risk for all contingencies. But they can certainly disclose more about their risk management prac214 innovations / World Economic Forum special edition
The Resilience Imperative tices, the composition of their risk committees (which traditionally has been limited to credit and market risk specialists), and their oversight by the governance system. Understanding a company’s readiness to deal with risk and capacity to respond to disruption is likely to become extremely relevant as a predictor of future earnings—and extremely useful in creating incentives that make societies more resilient. Incorporate Risk Engineering Principles. Public policies for insurance coverage that ignore the relationship between level of risk and risk pricing have been less than effective—and may actually reduce expenditures for preparedness and prevention.17 Since the data show that the In contrast, some of the companies that are more risk leading insurers and re-insurers are developing robust princiintelligent and resilient ples and best practices for risk actually do better in the engineering and resilience and rewarding clients that adopt market, the question might them. well be asked: Why doesn’t the Consider this case. Ocean Spray, with a plant on the Gulf market reward these qualities Coast of Florida, calculated that a major hurricane could cause a with better ratings and lower $75 million to $100 million insurance premiums? And loss. Risk engineering experts advised it on how to secure secwhat can the public sector to tions of the buildings most vulreinforce market mechanisms? nerable to high winds and recommended investing in backup power generators to protect its grapefruit inventory. During the wild hurricane season of 2004, the plant took direct hits from two of the four hurricanes that struck the Florida coastline with only superficial damage and minimal losses. Indeed, the data show that risk engineering approaches yield dollar losses that are 75% to 85% lower. During Hurricane Katrina, clients of FM Global collectively invested $2.3 million to prevent losses that were estimated at $480 million. In other words, for every dollar spent on targeted preparedness measures, $208 was saved in one single major event.18 Government could incorporate the systems approaches into public sector riskmanagement practices as well. For example, public officials could factor in the cost of reconstruction and assistance following a major disaster; they might discover that they would save tax dollars by undertaking similar risk engineering in publicly-owned facilities and infrastructure and offering homeowners incentives to do the same—before a disaster occurs.
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Philip Auerswald and Debra van Opstal Create Market Financing for Disasters. Finally, government can partner with the private sector to create innovative financing mechanisms that fund recovery from natural disasters. Floods, storms, earthquakes and heat waves place a huge burden on the public sector, which not only carries the cost of relief efforts but is also responsible for rebuilding public infrastructure. Moreover, public entities consciously or unconsciously decide to retain risk by not insuring their infrastructure. For example, in 2005, economic losses from natural catastrophes hit a record high, with direct financial losses of $230 billion (0.5% of total worldwide GDP). Despite a record insurance payout of more than $83 billion, uninsured direct losses of $150 billion Today’s threats are too had to be carried by individuals, ubiquitous to be isolated and companies and the public sector. More recently, in 2007, a total of too nimble to be contained. 335 natural catastrophes led to losses of $64 billion across the In such a world, responsible globe, of which $40 billion were companies and governments uninsured.19 Traditionally, the public secare compelled to emphasize tor has adopted a post-event accessible actions rather than approach to disaster funding, including increasing taxes, realloillusory remedies. cating funds from other budget items, accessing domestic and international credit, and borrowing from multilateral financial institutions. Most rely on assistance from international aid. Pursuing a post-disaster strategy has several potential disadvantages for governments. Funds are diverted from key development projects to pay for emergency relief. Governments must pay the premium to raise new domestic debt in a credit constrained, post-event market, and raising taxes can weaken the economy further and discourage new private investments. Finally, international aid often arrives too late for immediate disaster relief. Governments could also save considerable amounts by shifting from relief to pre-event risk financing; that is, by setting up solutions that involve financial reserves, contingent debt agreements, insurance and alternative risk transfers. How could this work? One example is catastrophe bonds that transfer risks from the sponsors to market investors. In essence, the bond offers investors an attractive risk/return profile. The issuer invests the capital in low-risk securities (such as treasuries) and the interest plus a premium is paid to the investors. If the bond matures without the pre-specified event occurring, the principal is repaid to the investors, similar to regular bonds. If a catastrophe does occur that “triggers” the bond, investors may lose some or all of the investment principal they have paid. In that event, the funds are paid to the bond sponsor to cover losses. 216 innovations / World Economic Forum special edition
The Resilience Imperative CONCLUSION We are now facing a new set of risk dichotomies that demand new approaches in the way countries, companies, communities, and citizens prepare for and manage risk and prepare for resilience. While technology creates both quality of life benefits and competitive advantages for societies and enterprises, it also carries the potential for larger and more widespread disruptions. Rates of technology diffusion have been increasing geometrically. It took 55 years for the automobile to spread to a quarter of the country, 35 years for the telephone, 22 years for the radio, 16 years for the PC, and only 7 years for the Internet.20 Innovation, and its rapid global diffusion, has made life easier for hundreds of millions of people and driven up productivity rates worldwide. But it has also increased the extent of disruption when the technology networks fail, and has increased the cost to companies. For example, the hourly costs of downtime for U.S. companies were estimated at $2.8 million for the energy sector, $2 million for the telecom sector, and $1.6 million for manufacturing. Globalization both mitigates risk and creates new ones. So some companies are leveraging geography to disperse risk. Rather than creating static backup sites (which often gather dust until a disruption occurs), they are creating shadow seats in each of their locations and cross-training employees in different geographies to ensure that critical functions continue in case of an emergency. On the other hand, the diffusion of interconnected operations also increases a company’s exposure to infrastructure disruptions—in the systems of transportation, communications, and information that otherwise enable the enterprise to operate seamlessly across different geographies. Suddenly we see the rapid spread of other phenomena: from contagious diseases among employees traveling between sites, to widespread geopolitical instabilities and terrorism. Private risk failures now have the potential to create public sector catastrophes. Risk failures in the public sector—for example, a failure of public health systems to contain outbreaks of contagious diseases or manage the availability of vaccines—can cascade into the private sector’s ability to rely on its workforce and manage its workflow. In the 20th-century, paradigms of security evolved from Maginot lines, to doctrines of containment, to firewalls. Each succumbed in its turn to technology and globalization. At the start of the 21st century, the very notion of security defined in terms of “perimeter defense” or “threat containment” has become all but obsolete. Today’s threats are too ubiquitous to be isolated and too nimble to be contained. In such a world, responsible companies and governments are compelled to emphasize accessible actions rather than illusory remedies. In such a world, resilience is no longer an afterthought. It is an imperative.
1. ILO, Media and Public Information, October 20, 2000. Reference Number: ILO/08/45 http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Press_releases/lang— en/WCMS_099529/index.htm .
innovations / Davos-Klosters 2009
Philip Auerswald and Debra van Opstal
2. Adrian Slywotzky and John Drzik, “Countering the Biggest Risk of All,” Harvard Business Review, April 2005. 3. Lloyd’s of London with the Economist Intelligence Unit, Taking Risk On Board, 2005, p. 6. 4. Deloitte Research and Economist Intelligence Unit, In the Dark: What Boards and Executives Don’t Know About the Health of their Business, 2004, p. 4. 5. Deloitte Research and Economist Intelligence Unit, In the Dark II: What Many Boards and Executives Still Don’t Know About the Health of their Business, 2007, p. 2. 6. Deloitte & Touche, Disarming the Value Killers, 2005, p. 1. 7. Ernst & Young, Global Internal Audit Survey, 2007, p. 5. 8. This section draws from Philip Auerswald, Lewis Branscomb, Erwann Michel-Kerjan, and Todd La Porte (eds.), Seeds of Disaster, Roots of Response: How Private Action Can Reduce Public Vulnerability, Cambridge, U.K.: Cambridge University Press, 2006. Many additional examples are cited in National Research Council, Making the Nation Safer: The Role of Science and Technology in Countering Terrorism, Washington DC: National Academies Press, 2002. 9. For discussion a variety of catastrophes, including one that could be caused by a large meteor hitting the earth, see Richard Posner, Catastrophe: Risk and Response, Oxford U.K.: Oxford University Press, 2004. The meteor case illustrates a catastrophe in which human actions could mitigate impact, but not the probability of an event occurring. 10. For further discussion see e.g. Swiss Re,The Risk Landscape of the Future, 2004. http://www.swissre.com/pws/research%20publications/risk%20and%20expertise/risk%20perception/the%20risk%20landscape%20of%20the%20future.html 11. The Economist, “The alchemists of finance,” May 18, 2007, special section pp. 3-6. 12. Ibid. 13. Ibid. 14. See Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press, 2008. 15. Former Chairman of the Council of Economic Advisors Greg Mankiw is among the founding members of a recently constituted “Pigou Club” advocating for higher Pigouvian taxes. 16. Debra van Opstal, Transform, Council on Competitiveness, 2007, p. 41. 17. As a consequence of the debate over the government’s recent intervention in financial markets, the principle of “moral hazard,” on which this observation is based, has moved from textbook obscurity to global notoriety in a matter of weeks. 18. William Raisch and Matt Statler, Crediting Preparedness, International Center for Enterprise Preparedness, NYU, August 2, 2006. http://www.nyu.edu/intercep/research/ 19. Swiss Re, Disaster Risk Financing: Reducing the Burden on Public Budgets. Swiss Re, June 2008, p. 2. 20. Council on Competitiveness, Innovate America, 2005, p. 37.
innovations / World Economic Forum special edition
TECHNOLOGY | GOVERNANCE | GLOBALIZATION
Support for Production of the Innovations Special Edition for the World Economic Forum Annual Meeting 2009 Provided by the Schwab Foundation for Social Entrepreneurship
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 Ewing Marion Kauffman Foundation The Ash Institute for Democratic Governance and Innovation, Harvard University The Center for Global Studies, George Mason University MASSACHUSETTS INSTITUTE OF TECHNOLOGY Legatum Center for Development and Entrepreneurship
School of Public Policy
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