Don't Patronize, Please

Note: This is a blog post I wrote for Wokai. Wokai is a website that allows you to lend money to the poor in China. You can also find this post on the Wokai Adventures blog.

Al Hammond: “…Most of what Mr. Karnani says seems just silly—armchair theorizing. His numbers are wrong—as we have already explained in detail elsewhere, although he does not acknowledge the criticism. And he misquotes me and attributes words to me that I’ve never spoken, thus underscoring his questionable scholarship...But it is his larger critique that is more troubling.”

Aneel Karnani: “Al, I am sorry that you are not happy with my article…that certainly was not my intention…I take scholarship seriously, and would appreciate it if you would substantiate the charge of ‘questionable scholarship.’”

The above email debate between Ashoka’s Al Hammond and University of Michigan’s Aneel Karnani was posted (with permission) on Next Billion’s blog last Thursday. Their exchange was sparked by an article that Karnani wrote back in December. The article, “Romanticizing the Poor,” was published in the Stanford Social Innovation Review, and it was provocative.

In the article, Karnani argues that market-driven solutions to global poverty are in need of a serious reality check because they assume that poor people are rational consumers and innovative entrepreneurs when in fact they aren’t. To Karnani, this romantic picture of the poor gives multinational companies (MNCs) in the tobacco, alcohol, and consumer products industries license to exploit poor people with harmful, unnecessary products; and it encourages the misguided notion that microfinance is a realistic means of alleviating poverty. For Karnani, the real harm comes when governments begin deferring their responsibility in the fight against poverty to the rosy market. Karnani pleads, “More Government, Please.” A few quotes from his article:

“But poor people seem to lose control more often, for reasons that reflect the realities of their daily lives.”

“Mounting evidence suggests that just being poor hinders people’s ability to make good decisions.”

“I have found little evidence suggesting that poor people are particularly discerning consumers or creative entrepreneurs.”

There is nothing romantic about the poor or being poor – anyone who has experienced poverty can tell you that – but please don’t patronize the poor either because:

Change needs to come from the bottom level. The quest for growth in poor countries has been long and elusive. In his book The Elusive Quest for Growth, William Easterly shows that in the past 50 years, foreign aid, capital investments (both in machines and humans), population control, policy reforms, and debt forgiveness aren’t the answers when it comes to explaining growth. When Easterly spoke at Stanford last spring, he concluded his talk by admitting that experts can only do so much to understand and promote growth. Instead he focused on the individual, specifically on the idea of the creative individual and individual responsibility.

Entrepreneurship isn’t classy. I agree with Karnani in that governments need to stay involved in the welfare of the poor by investing in infrastructure and reforming policies, but we’ve seen that neither government investments, nor policy reforms are the elixir to sustained growth and improved lives. Before we dismiss the poor as incapable of an entrepreneurial life, we need to consider for a moment that entrepreneurship isn’t just for the elite. Sure, poor people with cool ideas may not have access to the training, resources, and funding that their wealthier counterparts have, but all that can come with time and experience, while the vision of those ideas can never be taught.

Not all MNCs exploit. It’s suspicious that the only examples Karnani refers to in his article are MNCs in the tobacco, alcohol, and consumer products industries. What about, technology? Cell phones have penetrated developing-country markets at rapid rates, leading to interesting and beneficial services that run off the mobile platform, including mobile education (mEducation), mBanking, and mHealth. In the nascent field of mHealth, for example, the cell phone is quickly proving to be an efficient means of healthcare delivery in areas where health infrastructure is severely lacking. The introduction of mobile phones in the developing world means greater connectivity, which means more access to information and heightened transparency. The case study of fishermen in Kerala is a compelling one. (The illustration at the very top is by Belle Mellor and was used for The Economist's article "The meek shall inherit the web.") When healthy incentives align all players in the value chain, and value is delivered to each player – MNCs, governments, nongovernmental organizations, and the poor people themselves – you can’t call that exploitation anymore.

Everyone has the right to invent and innovate, and to make decisions to buy things without judgment, and if you can free yourself from a life of poverty in doing so, that’s a beautiful thing. “Freedom is just another word for entrepreneurship.” I believe in that.

The Stock Market Goes Social

Note: This is a shortened version of my recent blog post for Wokai. Wokai is an organization that I volunteer with and a cause that I am rooting for: it raises loan capital for micro-entrepreneurs in rural China, connecting people like you and me to borrowers via a peer-to-peer Internet platform. The following post is a general discussion of a hypothetical stock market that is based on social returns. To see how it relates to Wokai, refer to my original post.

In just ten minutes, I lost $400,000 dollars, and it hurt. No, I wasn’t on the NASDAQ – I was trading on the Social Stock Exchange, bidding and asking prices for the stocks of social businesses. This one guy managed to walk away with $4 million dollars. I was impressed! But to his dismay and my delight, we were not real social investors yet, and a social stock market was only a figment of our imaginations, thanks to the simulation game we were both players in. I know…phew, right?

The Wharton Social Stock Exchange is a simulation game that was designed for this year’s Net Impact Conference, which took place in November at the Wharton School of the University of Pennsylvania. (The three-day conference drew a diverse group of participants – business school students and professionals from both the private and public sectors – to discuss how to leverage business for good.) The 20 or so players in my session were all placed in front of computers and given stock profiles (including company description and stock ticker), dividend charts, and an initial allocation of stocks and cash. Using an interactive real-time trading platform, investments were valued and trades were made based on a company’s social (not just financial) performance. As popup windows brought social news updates (e.g., ethical sourcing, environmental practices) to us players, the room filled with pauses and then clicks, interrupted with the occasional sighs of frustration and relief. People were getting competitive.

The goal of the simulation exercise is to allow players to test out for themselves Muhammad Yunus’s proposed social stock market theory. In his book Creating a World Without Poverty, Yunus talks about how, as social businesses become more prevalent, financial institutions will open up and adapt to meet their financing needs. We will see more social venture capital funds, social mutual funds…all culminating in the rise of a separate stock market for social businesses only. Definitely hard to believe, given the current state of international markets, but going on a slight tangent now…

(start of tangent)

…What is a social business anyway? A social business is like a profit-maximizing business (PMB) in the sense that it is financially sustainable through the products and/or services that it offers. However, unlike PMBs, a social business’s ultimate goal is to achieve social impact – measured for instance by the lives it touches. Any profits turned are reinvested into the business, as opposed to being passed along to investors (no dividends). Thus, a social business operates on a non-loss and non-dividend basis. Why should social businesses exist? I like Yunus’s explanation and the logic that it represents: free markets are good --> then why have they failed the poor? --> because they are based on a single-track concept of capitalism that assumes that the pursuit of profit maximization leads to happiness --> but this is wrong, humans are multi-dimensional --> not all businesses need to serve profit alone…

(end of tangent)

Back to social stock markets, and why they are so important to the growth and development of social businesses. I’m a firm believer in incentives. As with PMBs, the budding entrepreneurs and CEOs of social businesses will catch onto bigger problems and come up with better solutions only when the financial and investor communities are ready to become more involved. Other benefits Yunus highlights include:

1. Increased liquidity for shareholders to choose their social investments

2. Heightened public scrutiny to avoid potential deception and fraud

3. Greater exposure to social businesses to attract more capital into the new market

So, as Yunus predicts, heads up that you might start seeing The Social Wall Street Journal reporting that so and so social business did such and such, increasing its share price from 10.00 to 12.50. Or that two complementary social businesses merged, increasing their share values in the eyes of social investors. And don’t be surprised if you see the Social Dow Jones Index alongside the other indexes. I’m telling you, it may seem like a far-fetched vision, but it’s only a matter of time. I think I’ll change my Facebook status to, Jessica is waiting for the stock market to go social.