Thursday, July 30, 2009

Some good news about global giving

Here is a very upbeat assessment of global philanthropy from high net worth families from Barclay's.  In addition to concluding that giving by wealthy families is holding up well during the recession, it argues that a massive generational shift is about to occur that will drive major changes in the market.
The whole report is worth reading (it's short, with lots of good graphs), but here are my takeaways:
* The wealthy feel an increasing obligation to be socially engaged.
* The young (age 18-34) are almost twice as likely to feel responsible for sharing their wealth as their parents (age 55+)
* The young (aged 18-35) are twice or three times more likely that those 55+ to view global causes and climate change as important.  
* Donors increasingly want to see the results of their philanthropy before they die.
* Though overall giving is down a few percent, many of the most engaged wealthy are giving more, not less, during this economic downturn.  They say they are prioritizing charitable giving over holidays, eating out, and luxury goods.  Only expenditures on education take precedence.

Wednesday, July 29, 2009

Dream it and you can do it (sometimes).

There is a lot of schlock out there in book stores on the personal motivation and business shelves.  "If You Can Dream It, You Can Do It" is a typical title, with many books assuring you that if you just take the first step, the world will rise up to meet you.  These books do serve a function:  they motivate people to be more entrepreneurial and give them permission to follow their dreams.  And, of course, I would not have spent the last nine years of my life working on GlobalGiving if I were not optimistic about the ability of a small group of people to change the world.

But many of these books are recipes for major disappointment and backlash down the road, because they fail to set expectations.  In that context, here is a very nice talk by Alain de Botton at TED.  His key messages are: 1) Success and failure have a huge random component. 2) Idealizing meritocracy results in an attitude that the poor are losers and deserve it, and 3) Promoting the idea that "You can do anything if you put your mind to it inadvertently leads to a lot of low self-esteem among the many people who try hard but fail.

Here are my takeaways from this:  a) Work hard in life and try to follow your dreams, but realize that randomness in life often trumps all, so don't be too hard on yourself if you don't succeed; b) If you are fabulously successful, be modest, and realize that luck probably played a big role (in addition to your hard work, vision, and intelligence); and c) given the importance of randomness, avoid putting all your eggs in one basket - maximize your chances for success by doing lots of experiments and ventures over time.

Monday, July 27, 2009

What's wrong with experts?

What's wrong with experts?

Nothing, as long as they don't monopolize control over decisions, resources, and information. Experts - people with special skills, a lot of experience, and/or who have thought a lot about an issue - should be an important part of any decision-making or resource-allocation process.

Experts are especially critical in technical fields, where there is a clear link between their expertise and outcomes. For example, if you are going in for heart surgery, you want the best expert you can find. Ditto if you want to fly in a jet, build a high-rise building or dam. Even in these areas, however, you want competition among experts, because that competition drives innovation and efficiency over time. Competition also allows best practices in these fields to adapt to changing technologies and socio-economic circumstances.

But there are many areas where there is no clear right answer or no clear best practice. And it is precisely in these fields that we must be careful of a "tyranny of the experts." Economic and social development pose many challenges for which there are no clearly demonstrated productive solutions. The low returns to the $2 trillion spent on development aid to date are testimony to this.

The relatively small number of aid agencies controlling the bulk of official aid means that a small number of experts control decisions over the allocation of most of the resources. This raises multiple problems. Let me demonstrate by describing a time in my career most people don't know about.

In the late 1980s and early 1990s, I worked in the World Bank's Jakarta office, where a group of two or three of us were in charge of hundreds of millions of dollars of rubber, palm oil, and coconut projects. For a period, we had more knowledge than any of our Bank colleagues about the financing, planting, and processing of these tree crops in Indonesia. As a result, any decisions about the design or implementation of projects had to come through us. Looking back, there were several problems with this:

* We knew a lot, but we didn't know everything - in fact I realize now that we were wrong about some fundamental things.

* Bandwidth: Managing projects in the Bank bureaucracy was exceptionally challenging, so we had to work many, many hours per day just to keep our own ideas and projects moving; there were not enough hours in the day for us to listen to a lot of new or opposing ideas.

* We had little incentive to listen to different views about what should be done, because we had all the power.

* Our rewards came from pleasing our colleagues and boss, not from the on-the-ground success of our projects. We would therefore respond to our colleagues' concerns first, and those of beneficiaries second (and in any case, we had to spend much more time at headquarters than in the field.)

* In an expert-driven culture, we was expected to come up with the right answer, and then implement it - not to launch of bunch of experiments with different approaches to see what worked best.

The bottom line is that, for what we were doing, there was no single right answer. But our opinions, biases and time constraints prohibited us from considering, allowing, or evaluation a variety of approaches to see what worked best. I also realize now that what might have worked best in 1985, before I began working on these projects, was not the same thing that would work best in 1990. But our various constraints (and power) inhibited our ability to adapt our thinking to the ongoing technical, social and financial changes in the environment.

In retrospect, I still believe that our expertise was valuable. But we did not leverage that expertise in the right way. Instead of our centrally planned, top-down design and administration of these massive projects, we should have been convening a conversation among all the stakeholders, promoting a series of different approaches, and helping everyone learn from the different outcomes so they could iterate toward ever better results.

The secret is that few "experts" like the current system. They know deep down that it is inefficient and ineffective. When given the opportunity to play more of a convening and coaching role, most of my colleagues at the Bank loved it because they knew they were adding more value. The challenge for the future is for us to enable experts to play this role to a much greater degree in the future.

Friday, July 24, 2009

"Rationality" and Development?

His big picture is familiar to readers of Hayek: societies develop NOT through the conscious design of some experts..., but through the “ecological” survival of institutions, norms, rules, firms, and products in a society of freely choosing individuals.
That is from a nice review by Bill Easterly of Vernon Smith's new book Rationality in Economics.

You should read the whole review, if not the book, since Smith tries to show how seemingly irrational behavior by individuals (e.g., cooperation), may actually be rational after all.  In addition, such behavior may promote the emergence of social institutions and economic development.

(I was once on a panel with Smith, whose name I did not recognize, and who was very unassuming. I noticed that he was pretty smart, so I asked him what his research was on. I knew I had blown it when his response started, "Well the work I got the Nobel Prize for was....".  This reminded me of the time I met Chuck Leavell.)

Thursday, July 23, 2009

Anyone - That's Who.

Mari and I have been talking about the GlobalGiving vision -- what we believe, the hypotheses we are operating on, and what we believe the future will look like as GlobalGiving succeeds. Much of this vision appears in various documents (funding requests, strategy documents, media reports, and blog posts). But we realize it's time to prepare a fresh vision statement that brings these elements together and adds new pieces we've not yet fleshed out.

Thinking about vision led me to recall a presentation, titled "5 Questions", that I made in 2002 at the Center for Global Development.

In that presentation, I said there were five questions to ask about the development aid business model, and that the answers to those questions would provide the superstructure for a modernized aid system. The five questions were:

1. Who should be able to propose ideas for projects or initiatives?
2. Who should be able to help select which get funded?
3. Who should be able to fund the selected projects?
4. Who should be able to to compete to implement them?
5. Who should be able to evaluate them?

The point of my presentation at CGD was that the current aid system concentrated the answer to all five questions in a very small number of aid agencies, experts, and consulting firms. This may have been appropriate when the current aid industry was created fifty years ago.

But the world has changed dramatically since then.

The starting answer to each of those questions should now be: "ANYONE!"

There will, of course, be reasons to restrict that answer to some degree for each question and each context. But the important thing is to start at the "anyone" end of the spectrum rather than at "the expert agencies and experts only" end of the spectrum. In other words, we start from the presumption that the answer to all five questions should be ''anyone," and we force ourselves to justify any decision to give special access or powers to experts.

The vision statement Mari and I write will be long and nuanced. But if I had to sum up a key part of the vision in one word, it would be "ANYONE."
(PS: What's wrong with experts, you might ask? Stay tuned for my next two blog posts...)

Monday, July 20, 2009

When aid agencies listen

The aid industry has spent over $2 trillion since World War II to help spur the development of poorer countries, with not enough to show for it.  Some people argue that the returns to the money spent are zero.  Others argue that at least some of the aid money has had a positive impact.  Most would agree, however, is that the productivity of aid spending has been very low.

As Mari Kuraishi and I argue in our chapter of Reinventing Foreign Aid, a key reason for this low productivity is the lack of market mechanisms in the aid sector.  Aid agencies face little competitive pressure  - they almost never go out of business, even if they do a terrible job!  By contrast, effective market mechanisms force out the poor performers, and enable effective newcomers to get traction and grow.  Surviving in a marketplace requires constant innovation and efficiency gains.

The good news is that Laura Freschi at AidWatch reports she is starting to see some of this competitive behavior with respect to the Millennium Challenge Corporation (MCC).  The MCC, which is only a few years old and may be concerned for its fate under the new administration, has been actively reaching out to stakeholders to get feedback and advice on how to innovate.  Hats off to the MCC for this.

Friday, July 17, 2009

The Evolution of Economics

One economist leading the effort to define that new paradigm is Andrew Lo, of the Massachusetts Institute of Technology, who sees merit in both the rational and behavioural views. He has tried to reconcile them in the “adaptive markets hypothesis”, which supposes that humans are neither fully rational nor psychologically unhinged. Instead, they work by making best guesses and by trial and error. If one investment strategy fails, they try another. If it works, they stick with it. Mr Lo borrows heavily from evolutionary science. He does not see markets as efficient in Mr Fama’s sense, but thinks they are fiercely competitive. Because the “ecology” changes over time, people make mistakes when adapting. Old strategies become obsolete and new ones are called for.

That is from an article in the Economist describing how the rational expectations school of economics has been discredited. Behavioral economics has been successful at exposing the fallacies of rational expectations, but it has not succeeded in creating a new framework. A new approach adopts elements of both schools, and places them in a dynamic evolutionary framework.

Thursday, July 16, 2009

Giving Markets meet Official Aid in the UK

A more radical approach would be to create a fund to match donations through champions of mass philanthrocapitalism globalgiving or kiva. By getting people to put up their own money, rather than voting in the abstract about where a small chunk of government money should go, it would be a more meaningful exercise and would give people a far wider range of choices. It could help to stimulate giving in general.

That is from a very good post over at Philanthrocapitalism, a blog by Matthew Bishop and Michael Green. It is worth reading the whole thing.

Wednesday, July 08, 2009

The Power of Proximity

The physical proximity of talented, highly educated people has a powerful effect on innovation and economic growth. Places that bring together diverse talent accelerate the local rate of economic evolution. When large numbers of entrepreneurs, financiers, engineers, designers, and other smart, creative people are constantly bumping into one another inside and outside of work, business ideas are formed, sharpened, executed, and—if successful—expanded. The more smart people, and the denser the connections between them, the faster it all goes.

That is from a recent McKinsey study. It has much relevance for economic development in poorer countries as well as the US. There have been a number of attempts to create physical clusters of economic activity in the developing world, most of which have failed because we don't yet understand the conditions leading to cluster formation (or how to create these conditions from scratch). And while the physical dimension of clusters remains very important (I am always amazed at how much I can get done on a short visit to Silicon Valley), the Internet opens up new virtual clustering possibilities.

We are starting to see clustering behavior on GlobalGiving and are rolling out features to encourage more of this. Since no one knows exactly what works, there is a large element of trial and error, which puts a premium on our ability to experiment rapidly with new features, keeping those that work, and dropping those that don't.

(Thanks to Dana Messick for the pointer.)

Tuesday, July 07, 2009

Don't just do something, sit there!

The Boston Review has an excellent discussion forum of Paul Collier's new book that includes an essay by the author as well as comments by Bill Easterly, Nancy Birdsall, and others. The discussion provides a meta-discussion of international development itself.

Collier makes some observations about poor countries and then draws what seem to be ineluctable conclusions about what the richer countries should do (in this case, intervene militarily). Those who read his first book, The Bottom Billion, found his arguments very compelling. The problem was that his observations were flawed statistically, and the conclusions he drew were flawed logically, as Bill Easterly has pointed out on many occasions (including here).

There is a strong human tendency to want to do something when one sees a bad situation. It is very hard for us to just sit there and do nothing. In some sense, the history of the World Bank is a reflection of the (admirable) instinct we have to try to make bad situations better. The problem, as Easterly has pointed out, is that honorable intentions do not necesssarily make for effective interventions. In fact, some interventions can make things worse, via the law of unintended consequences. The larger the intervention, the more severe the possible negative consequences.

Nonetheless, it is unlikely that the human instinct for action will go away even in the face of ferocious debunking of effectiveness by Easterly and others. So we need places where that human instinct can be channeled in ways that may be modestly effective and are unlikely to have catastrophic consequences. Nancy Birdsall, the head of the Center for Global Development, provides one of the levelest heads around on this front, by acknowledging the role that Collier has played in raising the issues and suggesting some more modest interventions that are better supported by the evidence.

Which makes me wonder why Birdsall has not yet been appointed the aid czar for the US.