Romney increasingly disconnected…

It was everywhere in the news yesterday that Mitt Romney made 14 million in 2011. Doing what was the first question that came to mind as the guy spent his year on the campaign trail. Does Romney have a job??

He must have made that money through his financial investments, plus the carry interests he had from his Bain Capital days (stakes he had in companies that were bought when he was with Bain and sold subsequently), and also probably speaking engagements, book rights, etc. But I wonder how most people will react to that huge number – especially those who think that they are “productive” members of society and have jobs that serve a particular function, which is most of us I think.

And then there is the question of taxes – he paid about 14% of his income in federal taxes. The highest marginal tax rate is 35% and Romney would definitely be in that bracket, having earned 14 million… So, how come he paid only 14%? What deductions did he take? He must be a Math & Tax Wiz - and I am probably an idiot by the way because the effective rate of my income I paid in federal taxes last year was pretty much what my marginal rate was (25%)…

Well… There is indeed a trick!! It turns out that long-term capital gains are only taxed at 15% and the Private Equity (PE) industry has battled hard to make sure that the Bush and then Obama administrations would keep the income generated by the sale of PE investment stakes classified as capital gain vs. ordinary income. Steve Schwartzman, CEO of heavyweight PE firm Blackstone, famously said that the Obama administration considering a change in that tax rule was equivalent to “a war … like when Hitler invaded Poland in 1939” among other PR gaffes…

But I digress… Going back to Romney, I believe that the numbers published yesterday will only further widen the gap between him and most folks out there. He made 14 million being on the road campaigning the entire year pretty much, thus not having a real job so to speak, and he only paid 14% on that amount in taxes – what happened to the progressive nature of taxes, one of the cornerstones of American society??

Citizen Activism and Political Courage

It is an interesting coincidence that last weekend we saw two striking examples of successful citizen activism (Planned Parenthood vs. Komen Foundation), after Komen had first announced it would stop paying for brain cancer screenings for low-income women before reversing its decision, and political courage (Bloomberg & Menino), when the New York and Boston Mayors took advantage of their teams playing each other in the Super Bowl to stand up for gun control. Those are actually two of the solutions that I suggested in my piece about Reversing Widening Inequalities.

Those are encouraging signs pointing to the end hopefully of the long apathy that has struck the US in particular since the Reagan years. And rest assured - those “small wins” matter. Planned Parenthood for instance fights an everyday battle in the trenches all over the country against extremely determined pro-life people, folks in my book who want to deprive women of a fundamental human right.

La Lucha Continua…

Reversing Widening Inequalities: A few Suggestions

In this post, I suggest solutions to solve the root causes of the widening inequalities that I identified in my previous article on the subject.

1. Change time horizon (long-term vs. short term) and reallocate shareholder value: Financial markets’ modus operandi presents the biggest obstacle for change. Large investors such as hedge funs, pensions funds, and institutional investors measure results and earn their pay based on quarterly benchmarks, thus their incentive is to maximize profits in the short run. At the same time, as noted in my previous post, the proponents of good governance agree that shareholder value gets maximized if companies focus on the long term. Jack Welch himself, aka Neutron Jack in the days when he conducted fierce restructuring processes at GE, earning him respect of adamant market supporters, has said the same for years.

Not everyone gets it in the corporate world though. Yahoo that has performed so poorly in the past few years and whose previous CEO was fired over the phone (!!) just announced that it paid its new CEO $26m – for what exactly? Probably staying on the job for more than a week…

Thus, there need to be a few corporate leaders enjoying great reputation and credibility in the business world who will come together and say that things should be done differently. This is what Howard Schultz, Starbucks’ CEO, has done with respect to political donations. “A few good men and women” have to step up and show leadership and vision.

A little research would help too. It would be useful to investigate the economic benefits that an additional dollar would bring to a rank-and-file employee vs. a CEO. What would be the macro impact for the economy if someone was paid an additional $10m a year vs. 1000 deserving employees getting an extra $10k? Granted - a corporate board is more interested to keep its leadership happy by paying them bonuses than to contribute to improving the economy. And they’d say anyway that by employing X number of people they provide them and their families with livelihoods and thus play a positive economic role – which is true. But again, the question here is one of allocation of value created. 10 million to one guy or 10k to 1000 people?

In our era can boards afford to focus only on their shareholders and senior leadership and dismiss their companies’ larger economic impact? We are all in this together, aren’t we? In societies where individualism is paramount the notion of “being in it together” does not carry much weight – in the business world maybe. But I bet ordinary people deeply relate to that notion – they feel part of the communities they live in and they care about their neighbors. More broadly, in the US in particular, Americans’ love for their country is a reflection that they feel a sense of belonging to a bigger community (the United States) and as such share a bond and responsibility with their fellow citizens. The corporate world should take note, go back to basics, and reflect the society’s view of the world.

2. Create conditions for bolder public policies: The middle class has little leverage to get politicians to come up with bolder policies that would benefit them. It can voice its concerns through its vote, but because the middle class is not organized its influence is diluted and marginal. We are talking about a large group of individuals that are disconnected from one another.

I am not sure it will be easy to get the middle class to mobilize en masse and become more active politically. Large web-based efforts that are quick and simple like signing petitions on Change.org have been successful – but mainly because they required so little effort. Folks out there are busy paying the bills and getting their kids through college. In the US in particular, most know that they will have to rely mostly on themselves as quality education for instance is generally expensive. As a result, they feel pressure to hold on to their jobs but also keep their heads down, thus reducing the likelihood that they will stand up to protest. The level of tolerance of hardship that Americans display is pretty amazing for an industrialized country.

If a broad political involvement on the part of the middle class is uncertain, politicians will have to show courage and leadership by taking measures that may be unpopular or draw a lot of criticism from the opposing party and possibly from their own camp (e.g. come up with a government-sponsored healthcare option or raise taxes). There should be recent examples - visible to all - of politicians who carried out unpopular measures but did not suffer politically.

New York Mayor Bloomberg has been unapologetic about his decisions around the use of eminent domain or around parking in the city. Yet, he has been reelected consistently. If there were more examples of politicians showing courage and not paying the price politically it may inspire more of our elected officials to be bold.

But are political courage and a greater activism of the middle class the only solutions here? Doesn’t the current political funding system encourage inertia since it relies so much on very large donors (e.g. the recently in the news Super PACS, be they individuals and corporations) who may be keen to preserve some form of status quo and also push their specific agendas? Many corporations give to both parties, which is a clear sign that they are content with the system staying the same. Would they be pleased to see a bold changemaker getting to some high office?

What would be the problem of having a political system with much smaller donation amounts? That money buys ads on TV that in general do a poor job of capturing reality. How about a level playing field with smaller donations and thus a much lower aggregate total to spend on political campaigns and ads? A lot of campaigning is done by volunteers, so having a smaller financial base would not affect volunteers’ involvement and the execution of a campaign.

This new campaign financing system would decrease the potential influence of a few large donors and thus potentially empower politicians.

3. Break the cycle of poverty by focusing on needs and results: I identified the lack of enabling context (lack of infrastructure such as public transportation or good education) as a root cause for the continuation of poverty in many areas. What would it take to have this enabling context in every community? How much would it cost? Do we even know? I think it would be very helpful as a starting point to put a number on those needs. Granted, it won’t be a straightforward and easy number to come up with but it should be possible to make an estimate regarding say the cost of a functioning public transportation system or the cost of bringing x number of students to their grade levels in reading and math. The total dollar figure is likely to be scary - but only with a number will we be able to determine how to go about finding the resources needed.

It is encouraging that the corporate community in some instances has understood the need to work hand in hand with city governments when those are not able to pay for the full provision of basic services to their constituencies. For instance, about 80 San Francisco-based hi-tech companies just created an interest group to collaborate with the City on public policies that affect them. The Chair of that alliance, angel investor Ron Conway, said “We have a vested interest in making San Francisco the “Innovation Capital of the World””.

Breaking the cycle of poverty will also be accomplished if concrete and tangible results of programs currently offered to those in need are evaluated systematically. Programs should have specific and concrete goals and objectives before they start. And they must be evaluated along the way and at their completion. There should be no sacred cows and only programs that have demonstrated results given the circumstances and context should continue to receive funding. I mentioned in the earlier post the Office of Social Innovation created by the Obama Administration that has mobilized funding ($50million appropriated by Congress in 2010 supposed to be leveraged 3 to 1) to support the replication of social programs having demonstrated success. The first grants were disbursed last year. We will stay attentive and check if that money does contribute to moving the needle on the fight against poverty.

I am ending this article keenly aware that coming up with solutions is much harder than identifying root causes. But I can’t help but think that if all those who want to bring about social change and make this world a better place contributed ideas using their experience and intellect and if we spoke to one another more, great solutions would surface eventually. We must believe in ourselves and in our capacity to move the needle!!

Santorum: Reinforcing Negative Stereotypes and the Two-Party System

I recommend this very interesting NYT article (http://nyti.ms/wvpNLu) that was published late last week and relates how Rich Santorum has made tons of money since leaving the Senate (incl. $1m in 18 months in 2009-10) by working for the very companies that benefited from the legislation he lobbied for when in Senate… Certainly not the first one in Washington to do this but that does not make it alright!!

Two conclusions here - Santorum is the ultimate insider contrary to what he wants people to think. And, how can we expect that a story like this one won’t make Americans even more distrustful of anything government and even angrier at politicians in general?

The US is fortunate to have a two-party system. Given how mad a lot of people are right now there would be a lot of room for extremist parties. The Tea Party chose to join forces with the Republican Party to have representation in the Congress and to potentially put its candidate in the White House.

But had they remained independent they could be the biggest party in the US in a multi-party system, certainly bigger than the Republican Party and potentially than the Democratic Party if a more radical left wing had emerged from the Occupy Movement and other left-wing manifestations of rejection of capitalism gone wild.

Root Causes Behind Ever Widening Inequalities

I wrote in a previous post about how inequalities have sharply widened in the past 30 years, i.e. how the middle class has been feeling the squeeze and how a lot of poor people have remained stuck in poverty while the richest have been capturing an ever growing proportion of industrialized countries’ wealth.

I will focus in this article on the root causes that I believe explain why inequalities have been so stark in a recent past after decades of more evenly distributed economic prosperity.

1. Unjust and imbalanced allocation of value created: Basically, the allocation of profits made by companies is disproportionately skewed towards shareholders and senior executives vs. employees. Companies’ boards want to keep their shareholders happy and retain their senior talent, so from their standpoint it makes sense to channel most profits that are not reinvested in the company to those folks vs. to regular employees. Corporations have managed to make money despite the crisis. As reported by Time Magazine last June corporate profits were higher in 2011 than they were in 2006 when the economy was booming ($1.7 vs. 1.5 trillion). Meanwhile, unemployment is now between 9% and 10% while it was only at 4.5% then. So, companies are certainly “lean” as we tend to hear often and productivity is up – at the cost of employment probably.

How to convince companies that part of those profits should be redistributed to employees while uncertainty about the economy is at its highest? I am not sure but I know that corporations have done little to revive the US economy even when times were better. I bet that Americans would be angry to know that from 1990 and 2008, according to that same Time article citing Nobel laureate Michael Spence’s research, “companies that did business in global markets […] contributed almost nothing to overall American job growth”. The vast majority of jobs those firms created were located in emerging markets because of those countries’ lower labor costs. Jobs created in the US came from domestically-focused sectors like hospitality, utilities, healthcare, retail, and government.

So, Corporate America seems to be more part of the problem than of the solution.

2. Short-term focus at the expense of long-term development: Most publicly-traded corporations obsess about hitting their quarterly earnings targets to keep financial markets and institutional investors happy. When they don’t their stock prices suffer mightily… The problem is that with such a short-term focus they have little incentive to make investments that would hurt their bottom line in the near term even if those proved beneficial in a more distant future.

Financial markets apparently prefer to see companies sit on $1.7 trillion of profits rather than take calculated risks (yes, times are uncertain) and invest some of those profits in something productive. How does this make sense though??

An interesting exception to that unfortunate situation is Amazon. A recent NYT article related how Amazon has chosen to focus unrelentingly on the long term, thus posting lower profit levels and disappointing the markets. Amazon’s CEO, Jeff Bezos, is absolutely unapologetic about this, pointing out that continuing to invest in his company’s infrastructure and platform will pay off eventually. When your business is logistics, it kind of makes sense, doesn’t it? Finally!!

Ironically, Amazon’s stock price (which is a reflection of how markets see a company’s future earning potential) has done pretty well – certainly much better than the NASDAQ since in the past 5 years (between late December 06 and late December 11) Amazon’s stock price posted a 341% increase while the NASDAQ went up merely by 9%.

So, this can be done… Refusing to follow financial markets’ “dictatorship” is possible.

Ask Jack Welch actually!! He would agree. Wasn’t Jack Welch, GE’s former CEO and “Uber-Leader”, the darling of Anything Corporate? Actually, Welch in line with good governance proponents advocated - for the first time way back in a 1981 speech at the Pierre Hotel - that companies should maximize shareholder value by focusing on the long term (see same NYT article). During his tenure, GE was widely viewed as “the world’s best managed company”.

So, why should companies now cave in to this narrow-minded and unproductive “financial orthodoxy”?

3. Lack of political will around programs targeting the middle class: We are hearing more that the middle class has been neglected by public policies and has been feeling the squeeze economically as a result. It’s certainly been true since 2008 but in fact for much longer - I pointed out in an earlier post that real salaries have on average remained flat in the US for the past 30 years. A case in point is how many big cities’ municipalities just gave up on keeping their downtown areas socially mixed. Revitalization of those areas in New York, Boston, and so many other big cities in the US and abroad has sought to attract wealthy new residents and tourists for the most part. New constructions have mostly targeted the rich, which indeed makes fiscal and economic sense. Cities have made money when they sold parcels they owned in “prime areas” to developers and not only do new residents pay their taxes in those cities but also they shell much higher property taxes than were collected before for the same locations.

But how does this make social sense? Middle class and poorer folks have relocated to less attractive but more affordable areas. The best neighborhoods are left to the rich and the occasional visitors – and god forbid, when social housing projects have remained in some downtown areas (as is the case in Boston for instance), the rich walk by the poor (usually, there is a “color line” too) and everyone equally distrusts and is afraid of each other. Great!!

4. Inability to break the cycle of poverty: The majority of social programs target the poor but many stuck in poverty are still there today – not counting the “new poor” who got stranded by the 2008-09 recession. For many in the US and other industrialized nations it has been impossible to break out this cycle of poverty.

This one is complicated and there are several factors coming into play. First, I feel the “enabling context” to get folks out of poverty is often not there. I am talking about the key ingredients that make it possible for people to be “productive” actors in our society. Two of those ingredients are infrastructure and education. For example, how often do we encounter in the US in particular cheap public transit systems that offer a dense network so that people can go anywhere in their urban areas in an efficient and affordable way? The absence of a solid public transportation system is an obstacle for those seeking employment (to find and keep a job). How about public education? Public school funding is fundamentally flawed in the US as about half comes from local funding and mostly from property taxes. Thus, the higher the house prices in an area, the more money goes to that area’s public school system. How can such a funding formula not generate major inequities?

Institutional racism – or broad stereotypes to use a gentler word – is another factor that undermines the enabling context. In the business world there is still an untold and implicit hierarchy – not everywhere certainly but in most places. Up there sits the “white man”. And if the white man has broad shoulders and looks like a quarterback it is even better!! The rest of the pecking order is open to discussion but certainly people of color still suffer from stereotypes and find themselves at the bottom of the hierarchy. Are we ever surprised when we see low-level jobs (fast food restaurant employees, cleaning or security folks) held by people of color?

How is this empowering to those in poverty? Don’t those stereotypes make obstacles seem even more insurmountable?

Beyond the “enabling context”, last summer’s riots in England have shown how dangerous massive cuts in social programs can be. Given current deficit levels these cuts are certainly tempting for local, state, and national governments. Eliminating programs across the board is the last thing to do but if some cuts are necessary how to decide which programs should go? That leads me to my next point, namely there does not seem to have been a systematic evaluation of social programs’ effectiveness and impact out there. Those stuck in poverty for generations have often been receiving support for a while, for instance to acquire skills or find a job. Do agencies implementing those programs know precisely how effective those have been? If the needle has not moved much in all that time, so to speak, do the folks on the ground know why and how to do a better job?

In an encouraging development the Obama administration created the Office of Social Innovation (now grouped with Civil Participation) in 2010. The idea is to replicate programs that have worked and fund their scaling in as many areas as possible.

Only when organizations implementing social programs can show what their results have been (favorable or not) will they be able to make a compelling case to keep those that have worked and channel more money towards new and improved ones.

Finally, how to make sure that those in poverty can find the courage and build the confidence to go out there, fight for themselves, and overcome obstacles? So many Americans love their country because they think that anything is possible if one is willing to work hard. And they’ll give you examples of folks who succeeded against all odds. Well, that’s the problem I have with this system – “against all odds”… As long as we don’t have a level playing field and the enabling context I mentioned above is not there it will take an extraordinary amount of courage, determination, and persistence to make it for those who were born in poverty.

Yes, those qualities are needed no matter what. Even with the support of social programs and a favorable environment around schools, infrastructure, etc. if you are a slacker, chances are you’ll be a slacker for a very long time.

But we should not expect everyone to be bootstrappers and have incredible grit, perseverance, and resolve to be able to make it out of poverty.

In the next piece concluding this series on our system’s crisis I will try to come up with solutions addressing the root causes of the wider inequalities we’ve observed.

Nutella: People Taking Notice – Finally!!

As our world is grappling with a systemic crisis, the risk of a major economic disaster in the Eurozone, the impoverishment of the middle class, and unabated poverty in most developing countries, the question, Is Nutella good for you, is on a lot of people’s minds… My post on Nutella’s nutritional benefits (or lack thereof rather) has been the most viewed article on my blog since I started it… I’ll have to think about what that means about the quality of my other posts - oh well…

But in the meantime, I wanted to follow up with some good news since an American mother earlier this year decided to sue Ferrero, Nutella’s maker, for false advertising. Read the story related on the NPR web site below.

http://www.npr.org/blogs/health/2011/02/10/133565759/a-mom-sues-nutella-maker-for-deceptive-advertising

People are taking notice – finally!! Come to think of it, this is similar to the strong reactions we are seeing among so many folks who had never been active politically before but can’t shut up anymore because they are angry, dismayed, and often disheartened. The People is rising…

The Occupy Movement and the need for a new model

As the Occupy movements are now facing bad and cold weather and the excitement from the first couple of weeks has waned, the big question is, how much of an impact will they have and how sustained will it be

The Occupy – “Indignados” movements will only succeed if ordinary people who are not activists do get involved. The usual suspects in those demonstrations and protest movements are the pacifists, the trade unions folks, etc. They certainly know something about organizing and mobilizing but I don’t think they have a lot of credibility in the general public – especially with those who do not share their political opinions. The young people whose mobilization on campuses across the US has been impressive also lack credibility because they are mostly viewed as inexperienced and idealistic. Activists who form the core of the Occupy movement have been dissenting for a long time, proclaiming that our system was flawed (and they were probably right about that). But ironically, they do not represent change since they have been at it for so long.

They are however capturing the “zeitgeist” as their anti-globalization / anti-capitalism rhetoric and agenda resonate with people angry about the current economic situation and consequently about our system that supposedly has created that mess. Americans – usually among the most disciplined ones and those who believe in the benefits of capitalism - are upset about high unemployment that, contrary to prior recession or slow growth periods, is barely going down and about rocky stock markets that experience large swings from one day to the next.

The Occupy – “Indignados” movements will have a long-term and significant impact if they can lead or actively participate in the reflection about the changes needed in our system. Despite the growing consensus that our system needs to be fixed there hasn’t been a concerted effort so far to carry out that thinking process.

The Occupy folks will probably have a more radical view than I on the question but I don’t believe that fighting capitalism all the way and making it evil, responsible for all the injustice and the suffering in this world, is the solution. The emergence of the middle class after World War II in Western societies, which meant that millions got out of poverty over these couple of decades, took place in a mostly capitalist society – but one that was more just and balanced.

In the 80’s a shift occurred as a result of the “Reaganomics”, the conservative economic policy that Reagan and Thatcher implemented for a number of years, and the gap between the rich and the poor started widening again and the middle class increasingly felt the squeeze. Real salaries (adjusted for inflation) have been flat on average in most Western countries since that time while wealth is increasingly concentrated in fewer hands.

The average difference in salary between lowest paid workers and CEOs were 1 to 8 in 1980. Things are slightly different today – for instance, the CEO of CBS, the US media company, made an astounding 60 million last year. If folks in the CBS mailroom made say $20k, the 1 to 8 ratio skyrockets to 1 to 3000!!!

Thus, in richer nations inequalities have been on the rise while some populations have been stuck in poverty for years. In the meantime, the situation in the Global South is not tremendously better. Even in China, India, and Brazil which are rightly viewed as success stories, significant inequalities persist. And a lot of other nations are still struggling with poverty even though they have received development cooperation aid and benefited from foreign direct investment for a long time, often have a talented work force, and, in some cases, enjoy natural resources that constitute a major source of income.

I will write more on ideas to reform our system in my next post, with a focus on industrialized countries as emerging / developing countries have to contend with particular issues that make their situation even more complex.

People Waking Up - Finally...

October 15^th was a great day!! I loved the mobilization around the world aiming at making our system better… It is good to see that people are waking up finally – especially Americans who happen to have an incredible resilience in face of adversity but are just used to keeping their heads low. Ordinary Americans conform – they don’t protest. They are docile – but that may be changing.

More on a possible groundswell in America and how the Occupy / Indignados movement could effect systemic change later…

Impressions from Africa - Flaws in Development Cooperation

I was in West Africa last week for my work and I interacted with folks from the government, foreign donor agencies, and an international NGO. In that short week I saw a number of symptoms of what I consider to be flaws of development cooperation.

First symptom, there may be too much money channeled to a developing country at once. On the surface, there is no such thing as too much money for a poor country. In reality, donor agencies agree with national governments on the destination of the money beforehand. Even though there has been improved coordination among donor agencies and other development actors with respect to their cooperation with national governments, the emergence of several programs focused on the same sector at the same time is far from rare.

The problem with that is one of absorptive capacity as developing countries’ entities receiving the funds have to be in a position to use them efficiently and effectively. The realization of an insufficient capacity may lead the donor agency to agree with the recipient country to put together a sort of program management unit, in addition to the existing structure, the job of which is to make sure that the program is well executed. Setting up such a program unit costs money and thus presents a dilemma: should the program be initiated with the extra costs incurred (money that could be used elsewhere) or should nothing be done until the national capacity has improved?

I can’t help but think however that local resources, such as the donor agency’s country office if there is one or some dedicated team within the recipient entity that would be trained or short-term local consultants, would afford more economical solutions for an acceptable result.

The irony of the ill-timed convergence of funding is that donor agencies and other development actors getting involved are persuaded to do so because they see those other guys committing money. Match funding is often the magic word, donors being much more comfortable, including towards their own leadership, engaging in a program or with an organization when others do the same. This is certainly not a rule that only applies to development cooperation as in the private sector prospective investors often look for cues such as other investors getting involved to make the jump themselves.

Second symptom, some incentives can have perverse consequences. I lament the use of per-diems in the world of development cooperation. It is easy for me to say certainly, writing from my kitchen in Boston and having an easy life compared to the vast majority of the world population. What I mean by per-diem in this particular case is compensation often paid by donor agencies and other development actors to nationals of the country where they work (those can be government officials, scientists, etc.) for completing a given task, most often to attend a specific meeting or series of meetings or be part of a task force.

From the outside, the concept may seem strange as those invited to participate in these meetings do so in the context of their work, so why pay them extra? They already receive a salary or some compensation for their daily work. The reality in Africa in particular is that salaries are low, especially in some sectors such as civil service or academia, and providing that extra compensation gives those folks an incentive to show up but also represents a fair practice as it reduces the income disparity that those people often suffer relative to representatives of development cooperation actors or their own country’s private sector executives for instance.

So yes, it is totally understandable. Where I start having problem with this practice however is when those per-diems create perverse incentives. It happens when members of an ad-hoc task force formed to work with some government entity and donor agency for instance do whatever it takes to keep that working group alive, keen to continue to receive their per-diems and other benefits or perks that may come with those, and thus losing sight of the primary objective, i.e. for the task force to fulfill its initial objective before disbanding.

Of course, there will be a fair amount of jockeying and pretending about why the working group should continue to exist because no one can say openly that per-diems have become a bigger motivation than the substance of the work per se. But it is easy to see through that pretending and schmoozing.

At the systemic level the whole salary scale of under-paid jobs should be revamped so that disparities are reduced. In that particular case of per-diems the problem often arises from the fact that folks sitting in the same room, representing the national government, local universities, donor agencies, and international NGOs may have salaries that range from 1 to 5 or even more. That can only cause resentment. While some disparities are to be expected, that salary gap should be looked at seriously with a view to being cut down.

Third symptom, talent is being squandered. I can think of one guy in particular who is smart and has clear potential but seems to spend most of his time trying to figure out how to “play the system” in order to increase his level of influence and make more money. He is a government official, so again how to blame someone whose income is probably disconnected with his own abilities? Granted. But then I would say that in most African countries the civil service is far from being the only professional option for highly educated folks. Working for the government supposes an interest in serving – if it is not the case, why choose that career? And remember, I am talking about highly skilled folks whose professional outlook is not as limited as that of most of their countrymen.

When providing for one’s family is such a struggle, how can the general interest be a strong motivator for anyone? I don’t know. It is a tough one. I do know however that a lot of folks in Africa decide to serve their countries by working for their government and, also increasingly, by trying to create social value in the private sector. Maybe those are the true unsung heroes – they are never mentioned, but given the hardship they have to endure their commitment is remarkable.

Again, there is only a macro response to that problem of wasted human potential. Government agencies will never be able to attract and retain talent and tap into their people’s full potential if they don’t pay them decently (again reducing disparities with other sectors is key) and don’t get them to work on interesting and impactful initiatives.

Come to think of it, this is what development cooperation should focus on. What are the elements of Africa’s environment that inherently impede its progress and development? I hear talks about promoting an enabling environment. That is fine and well but the short week that I spent in Africa only showed that such fundamental aspects of an enabling environment as coordination of efforts among funders, a decent local capacity, fair compensation, and a dynamic governmental sector, are far from being in place.

It is difficult for me to be optimistic. Maybe this is my nature or just an immediate reaction to what I witnessed. Two non-African colleagues who have lived on the continent for 20+ years told me last week that they are optimistic about the region - because the new generation is different from the older ones and training and capacity building pay off eventually.

At any rate, it is only by addressing the fundamental flaws hampering progress in African economies and societies and plaguing the effectiveness of development aid that Africa will reach its potential.

I am Back + The Meaning of Blogging...

It is interesting to go back into writing or blogging mode after a long silence. It got me to think about how disciplined I should be about writing regularly, what regularly means (every day, once a week, every time something newsworthy happens, “newsworthy” meaning what exactly), and what topics I should focus on, if any.

I have kept my blogging routine very loose evidently, having started with the intention to focus on social sector issues (more narrowly even on social enterprise or social investing) and actually writing more often than not about politics or social justice, sometimes both. For a “non-natural” writer like myself for whom writing is enjoyable yet not exactly easy there has to be an impetus for me to want to sit down and write. The impetus is often a reaction that I have to an event and that gets my juices flowing.

In that case, the blog plays its role of outlet, giving me a voice to express my opinion. When I get to write about a topic that centers on the social sector and is thus more closely related to my work, even though what I do is a passion of mine, I have more muted reactions to whatever happens in the sector that I want to write about.

Going forward, I’d like to keep the “spontaneity of intention”, i.e. waiting for an inspiration so to speak rather than forcing myself to write on some event because I feel I should. That being said, if I believe that my voice is valuable, among millions of others who express themselves through blogs (all is relative, right?), then I should make more of a sustained effort to write, bearing in mind that not every post should be a thoughtful – or what I try to be a thoughtful – analysis of or reaction to something that I care about.

Coming up… I was in Africa last week and the trip gave me some food for thought regarding development aid. Stay tuned!!

Fifty-Eight Million

I was in New York over the past few days for meetings related to one of my projects. Half of those were with people working in various parts of the United Nations system and the other half was with colleagues involved in the rest of the social sector, on the operating (NGO) or funding side. The message that I heard most consistently is that money is tight. Very tight. The general funding context for anything that seeks to create social or societal value seems incredibly depressed. The 2008 financial meltdown hit the social sector hard and it appears – based on these few conservations - that we are far from having returned to pre-crisis funding levels.

This occurs while in the US we all have in mind the incredibly hard battle that was fought over the next budget, the threat to shut down government operations for a while, and all the cuts that are going to occur (and luckily some to social programs that were avoided). I am all for chasing waste and redundancies - but the poor, the marginalized, and the elderly will likely suffer as a consequence of the new budget and of the probable changes to come in Medicaid and Medicare financing.

It seems as though we are all struggling and it is just damn hard for everyone these days…

Well – maybe not for everyone. Last week the compensation of the CEO of CBS was revealed for the year 2010. Leslie Moonves made a whopping 58 million – Fifty Eight Million, People. I am sure Leslie is a hard worker and did not steal his money. The CBS Board argued the increase in shareholder value (CBS stock has nearly doubled in the past year) that “outpaced both the industry and the company's internal targets" was the main justification for Moonves’ big payday. But the LA Times article (see hyperlink) is quick to point out that CBS’ total revenues in 2010 were largely unchanged from 2007 and that the company is not as profitable. Basically, CBS has recovered from the slump it went through along with most of its competitors.

Who else at CBS was as lucky as Leslie? CBS Chairman Sumner Redstone received a package valued at $20.3m and Viacom’s CEO Philippe Dauman pocketed nearly $85 million (!!!!), which included a $31.65m signing bonus.

That is about 165 million dollars overall, Folks!! How about the rest of the company’s executives and employees?

It boggles my mind that the question of allocation of profits is too often left aside. Too few among us are questioning our system. How much did CBS’ rank-and-file employees receive for the company’s supposedly vastly improved situation (well, don’t look as far back as 2007 though)? How much will shareholders get in dividends? How much will CBS reinvest in its own growth?

I am writing about Leslie’s (and the Other Philippe’s) Big Payday because I just cannot understand how we find it ok that a few individuals make millions of dollars while hundreds of millions of folks live in poverty around the world, including in our richer countries. We have to fundamentally re-think how income is distributed in our society. Granted, some folks making crazy amounts of dough may give some of it away and thereby create social value. But why be so enamored with redistribution and philanthropy when our distribution model is so flawed?

Friends out there – if you have ideas about how to fix our distribution model, please contribute by making a comment. Also, tell me if you know of any initiatives that are focusing on these systemic questions (income distribution, reducing disparities, etc.). We have to do it ourselves, People. Not much has been done since the Lehman meltdown in 2008 though so many in government and in the business world said that the “systemic crisis” that we went through would fundamentally change the way our society and economy work. Our future is in our hands – let’s do this.

Different Takes on Death Penalty

Last week, before the terrible tragedy in Japan, two pieces of news went totally unnoticed amidst the Charlie Sheen craziness... The Governor of Illinois abolished the death penalty in his state (only the 14^th state in the US) while the next day a new drug was experimented in the execution of an inmate in nearby Ohio.

What a country…

NGO and BOP – a Shared Ignorance

I was in Dakar last month ahead of the World Social Forum and on my way back I attended a one-day workshop in Paris on the Base of the Pyramid whose keynote speaker was Cornell professor Stuart Hart who coined the term in the early 2000’s with CK Prahalad who passed away prematurely last year. As I was telling my colleagues in Dakar about the BOP conference in Paris, none of them – yes, none of them – was familiar with the concept of Base of the Pyramid… They all happen to work for national platforms (i.e. country-wide associations) of NGOs, most of which are involved in social and economic development issues, so they know something about those who live at the base of the pyramid - even though the BOP notion is foreign to them…

I found that disconnect truly extraordinary. Those working on BOP-related issues firmly believe that the key to a sustainable social and economic development lies with BOP strategies. Thus, their “theory of change” is that through products or services that they will have jointly designed BOP populations will rise out of poverty.

The NGO community has similar beliefs about the need to empower developing nations’ populations and “teach them how to fish”, while making sure that the enabling context in the form of a democratic government and the essentials for development (infrastructure, education, healthcare, functioning institutions) are in place.

Therefore, two very large constituencies working on development issues, the NGO world and the business and academic sectors (mostly corporate folks, academics, and students attended the BOP workshop in Paris) seem to ignore each other’s strategies for poverty alleviation and sustainable development though – and this makes it even more striking - those are not that different from each other…

And, do not think that the NGO people are more narrow-minded and ignorant than their academic and corporate colleagues. None of the people with whom I spoke in Paris had attended the World Social Forum and, if they knew exactly what the World Economic Forum in Davos was (I used the reference to Davos to help them understand what Dakar was about, i.e. the “counter-Davos” so to speak), very few knew that something big was going on in Dakar (where over 50,000 people from around the world gathered), let alone took the time to visit.

Momentous Start to 2011

Early last year, I wrote a post that said basically that I was not a psychic and could only hope that good things were going to happen during the year. Shortly thereafter, the Haiti earthquake struck and some time afterwards the same happened in Chile – and before we reached the end of the first semester came the BP oil spill. I guess that if I reviewed every year looking for extraordinary events, I would come across a number of those natural catastrophes and political coups. But 2010 had a particularly momentous start – and so did 2011 with the Tucson shooting and the political upheaval in the Middle East and North Africa region (MENA).

Both were unexpected. Despite the fact that weapons are ubiquitous in the US, particularly in certain parts of the country, mass shootings remain rare and are mostly limited to folks unhappy with their ex-employers often and going back to shoot ex-colleagues randomly. The random nature is always what makes those events so extraordinarily upsetting to most. You hate your old boss and get to the point where you want to kill him or her. Well, shoot the bastard and go to jail for life – but why shoot the folks around him/her? The Tucson shooting was a huge shock in the US because of the consensual figure of Gabrielle Giffords and of the increasing polarization of the political debate in the country. Without implying that the shooter was inspired by some extreme rhetoric he heard on TV – and Obama refused to go there in all his comments, including in his landmark speech at the victims’ funeral service – there is a broad consensus that the level of anger and aggressiveness in US politics is near or at an all-time high, at least considering the last 40 to 50 years.

In America, people strongly relate to individual stories, so with the media massively reporting on the stories of those who died in Tucson (the young girl, the legislative aide, the judge, etc.), the tragedy was perceived as even more dramatic. And there were the heroes too, the one who saved Giffords by attending to her wounds right away or those who somehow tackled the shooter and managed to get him to stop shooting.

Individual stories are also what made last year’s contestation in Iran so striking, particularly for the millions who saw the young woman Neda that was shot during a demonstration die on camera. It is also how the Jasmine Revolution started in Tunisia. A young street vendor who was asked to leave his usual spot by the police for no good reason chose instead to die by immolation (he burned himself alive).

The Middle East has been characterized by strong regimes and is the region in the world where democracy is most lacking. Lebanon is the only country in the region (outside Israel) where there is a regular election cycle and a true multi-party system. Masses in MENA lack a voice (how to express discontent in a country where strong rulers see dissent as a risk to their own power) and lack economic opportunities (there are huge disparities between the rich and the poor and the fruits of economic growth continue to be very unevenly distributed). This is the best recipe to create a generation (two generations by now) of disenfranchised, angry, and disheartened folks, especially young people.

Finally Tunisia’s people took the matter in its own hands and said to its ruler who had enjoyed tremendous political and economic power that it was not going to take it anymore. Ben Ali and his partner Trabelsi controlled the majority of the Tunisian economy and had stakes in all the ventures of importance. Their extended families largely benefited from that incredible position of power.

In Egypt the rise in food staple prices was the trigger for the protests – there had been protests in late 2010 already. As is the case in Tunisia, nothing significant economically could happen in Egypt without Mubarak clan’s involvement. The political opposition did not have a proper voice either.

Western countries have played a controversial role over the past 30 years, not doing much to promote democracy with dictatorial regimes such as Tunisia and Egypt because those countries were stable and considered a “line of defense” against Islamic extremism. Western nations’ nightmare came to reality in 1992 when Islamic extremists won the elections in Algeria – the then regime preferred to cancel the elections and stage an actual coup all the while Western nations stayed put for the most part. A bloody 10+-year civil war ensued.

The fear of the rise of an Islamist regime among Western nations and in Israel remains today. And their concern is not unfounded. But the current situation also presents an amazing opportunity for those nations. They should:

-- Provide whatever assistance that Tunisia and Egypt’s new governments and others in the region will request to carry out more equitable economic programs, and

-- Stay vigilant that aspirations to democracy expressed by the people are not ignored while admitting that a transition to democracy may not be immediate and easy.

2011, Year of Liberation.

WikiLeaks and the Fight for Democracy

WikiLeaks is under siege in the US. Not only has the web site become an “enemy of the state”, which is not surprising given the series of punches that WikiLeaks has been throwing at the US government, but the public opinion seems to have turned against the web site. The major mistake that WikiLeaks made was to divulge the names of Afghan informants who chose to work with the Americans and other foreign forces there, making those people immediate targets for the Taliban and their friends. I don’t know frankly how democracy or transparency benefited from the release of those names and as such I believe it was a very unfortunate move.

That being said, the founding principle of WikiLeaks that receives information from insiders who often take immense risks to be whistleblowers and releases it through highly respected media outlets such as the New York Times, Der Spiegel or Le Monde remains extremely valuable in my eyes as it will bring more transparency to actions of corporations and governments that find themselves under pressure because of the risk that WikiLeaks will release details of their covert actions to the outside world.

That is why I found really shocking that the likes of amazon, eBay, or Mastecard took repressive actions against WikiLeaks in order to limit its ability to operate. The closest thing in recent years to what happened this week to WikiLeaks is the freezing of Osama Bin-Laden’s bank accounts and assets… Is WikiLeaks such a threat to our world? I don’t think so.

The personality of Julian Assange, WikiLeaks’ founder, has become a lighting rod for those who have come to hate the web site. Accused of sex crime in Sweden Assange has become a pariah in the US public opinion that has a long history of having banned celebrities that had committed repressible sex-related crimes or engaged in so-called immoral behaviors or were accused to have done so. The list includes Roman Polanski, Charlie Chaplin, and Woody Allen who is now viewed by most Americans as the worst pervert for having married his ex-wife’s adoptive daughter.

Assange has been heavily criticized by some of WikiLeaks’ early followers, partly around the decision to divulge Afghan informants’ names but also for its egomaniac and dismissive attitude towards others.

He will have to be replaced at the helm of WikiLeaks for the organization to continue to thrive. For the time being, we don’t know what is going to happen to him as he is now jailed in Britain. But I am concerned rather about WikiLeaks’ ability to continue to do its job as a news organization. If it is sticks to its original mission and avoids Afghan informant-type mistakes WikiLeaks does have an extremely valuable role to play in our world.

Story-telling at the EVPA Conference

The EVPA conference had three outstanding featured speakers. I have to admit that I am not a sucker for plenary sessions and guest speakers usually as I tend to get bored quickly during those. Jacqueline Novogratz, the founder and CEO of Acumen Fund, Percy Barnevik, ex-CEO of Swedish giant ABB and founder of Hand in Hand, and Sir Ronald Cohen, founder of European PE pioneer Apax Partners and social investor with BridgesVentures, were the featured speakers. They are pretty extraordinary individuals and each talked about his/her own organization that occupies a specific segment in the broader venture philanthropy and social investing universe.

It was quite interesting to hear how differently the three conveyed their message to the audience. Jacqueline and Percy mainly used story-telling while Sir Ronald was much more fact-based. Jacqueline told her usual Blue Sweater story which is her life story really as it starts in her early childhood. Barnevik did the same though he did not go as far back as Jacqueline did and started with his corporate days. Sir Ronald told us about his background growing up in Egypt and having to flee the country with his family after the Suez Canal crisis but the rest of his presentation focused on his last 10 years in the social sector trying to develop hybrid business models and, more recently, financial products targeting the social sector (social bonds).

All three got a pretty enthusiastic response though I felt (but I may be biased) that Cohen was the one best received. Also, I am used to seeing a much more emotional response to Jacqueline’s speeches across the pond in the US where it is not rare to see standing ovations and teary eyes among audience members after she has told her story.

The art of story-telling is based on the premise that the listener will come up with his/her own interpretations and draw conclusions and implications of what s/he hears. In contrast, the more factual presentation feeds information to an audience, thus lending itself to more limited interpretation. Also, personal stories in particular draw on others’ empathy. We tend to put ourselves in the shoes of the one telling his/her story. By eliciting our emotions the one relating her story will seek to compel us, to draw us to her, and also to possibly make us experience a a-ha moment of sort.

Therefore, there is much more processing going on with story-telling and that processing is often done through a very personal and subjective filter, especially when a personal story is involved. The audience has to work harder and the range of lessons and conclusions drawn will be wider than in the case of a factual presentation. But in the end listeners will be more engaged if they feel resonance with the story that they have been told. However, if they do not connect with the story the rest of the process, i.e. drawing lessons and conclusions and possibly experiencing personal growth thanks to a light bulb moment, will not happen.

Convergence around Social Investing at SOCAP10 and EVPA Conference

I attended SOCAP10, the conference on social capital markets (“at the intersection of money and meaning”), last month in San Francisco and the annual EVPA conference (European Venture Philanthropy Association) last week in Luxembourg. Reflecting its membership the EVPA conference was mostly attended by intermediaries (on the financial / grant-making and advisory fronts) whereas in San Francisco there were also a number of social entrepreneurs.

Coincidentally, social investing was this year’s topic at the EVPA conference. It is a sign of how lines are blurring ever more between grant-making and investing in this increasingly populated pond between charity gifts and traditional investments seeking maximum financial returns.

It is actually ironic to think that impact investing is a relatively new notion for EVPA that happens to have been founded by veterans of the private equity industry in Europe, thus folks who lived and breathed investing for most of their careers but who have defined their involvement in the social sector in the form of philanthropy. I don’t know whether they will be interested to go back to investing – albeit of social nature – and, if so, how big an adjustment this will constitute for them.

Jean-Marc Borello, the CEO of Groupe SOS, was one of the rare social entrepreneurs present in Luxembourg but that may change if social investing becomes a significant area of interest for EVPA members. I frankly find it much more compelling to hear about an entrepreneur’s (or grantee’s) adventure related by him/herself than “derivative” stories told by funders or investors about their beneficiaries’ experiences in the trenches – but one degree removed from the action.

Thus, EVPA will probably have to strike a better balance as far as opening the floor to investors / funders vs. investees / beneficiaries.

Another major difference that I saw between the two conferences was the geographic scope of the actions that were presented. Whereas most of those who attended SOCAP seemed to be working on projects or ventures focusing on emerging markets / developing countries EVPA members have kept a domestic focus, thereby reflecting their geographic preferences historically. But this is changing – Jacana Venture Partnership is a case in point. Jacana’s objective is to promote the emergence of private equity fund managers in Sub-Saharan Africa. Its co-founder Stephen Dawson is the former chairman of London-based Impetus Trust, one of Europe’s premier venture philanthropy funds and one that focuses just on Britain.

Talking about emerging markets and developing countries, it struck me how little those regions were represented at both conferences. Granted, it is expensive for folks to travel from Asia, Africa, and Latin America to Europe or North America and also, a lot of ventures focusing on those areas that I heard about at SOCAP are based in the US or Europe – which itself poses a question.

But a higher representation is needed (through invitations or sponsored participations) for northern countries’ people to hear a different perspective (even for those working in emerging markets / developing countries) and to make sure that conferences in glitzy San Francisco or Luxembourg do not become private club-like gatherings happening behind closed doors.

There was little reference in Luxembourg to a topic that was very present at SOCAP, i.e. current efforts revolving around building the enabling context for the social investing sector. B Corp, an innovative kind of company focused on doing both well and good, was recently created by B Lab and new reporting standards are being developed by GIIRS (Global Impact Investing Rating System), another creation of B Lab, and by IRIS (Impact Reporting and Investment Standards), a project of GIIN (Global Impact Investing Network – a network of social investors). The two sets of measurement systems and standards have different purposes, one (GIIRS) centering on social investing per se while the other one (IRIS) aims to come up with a common language for describing social and environmental performance in general for any organization.

Putting together a robust enabling context is the prerequisite for significant financial resources currently invested in other asset categories to flow towards the hybrid sector between traditional grant-making and investing. It is great that things are moving forward in the US - and the impact of those actions intends to be global (the G in GIIR and GIIN). But Europe has to take notice and be aware of what is going on across the pond.

The upcoming SOCAP Europe in Amsterdam in early May will be a good opportunity to bring the two continents together and I know that the EVPA folks have already started talking with the SOCAP organization about how to collaborate best for that event and beyond.

Chile: Proud Miners and Populist President

It is fascinating to see how the odyssey of the Chilean miners has captured the world’s attention for several weeks and how their rescue conveyed a message of hope – mining accidents do not end well in general as the most recent ones including in the US (in West Virginia last summer) constituted a painful reminder. Especially after the earthquake that struck their country in early 2010 this victory over fate is what Chileans needed the most.

I lived in Northern Chile for nearly two years – not that far from Copiapo and the location of that mine. I saw every day the faces of those folks from the North, the so-called Nortinos (Northerners), who for the most part have a mixed European and Indian (Native American) background. Despite Chile’s economic takeoff since the early 80’s and continued economic progress since the return of democracy the Northern provinces (Chile’s First and Second Regions) are still populated by mostly poor people. So, the mining industry in spite of its very tough labor conditions that still result in shorter than average life expectancy, continues to represent a major draw for the population as salaries paid tend to be higher than average.

Also, the mining industry that remains the main production of the country is an immense source of pride for all Chileans. Ironically enough, beside state-owned Codelco most mines belong to foreign interests but Chile is proud to be the world’s largest copper exporter.

The national sentiment and love for the flag (there is a holiday called Day of the Flag - “Día de la Bandera” – in Chile and elsewhere in the region) run deep in Latin America. Chile in particular – and you will excuse the generalization here – has always suffered from some inferiority complex towards its bigger and more buoyant neighbors, mainly Argentina and Brazil. This is partly due to Chile’s long isolation – the long strip of land by the Pacific Ocean near the tip of the continent was not an obvious destination for world travelers for a very long time.

Today, while keeping some of that low-key national character and inferiority complex, the country is mightily proud of its economic successes (at least compared to those of its neighbors and case in point of Argentina, the land of booms and busts - for instance the country’s national airline company Lan and its retail giants have expanded throughout the continent), its mining industry’s world leadership, and its political stability since the fall of Pinochet.

All of this explains why Chileans remained riveted by this story for weeks, why soon after the miners were found to be alive spontaneous celebrations erupted akin to those only seen after la Roja (Chile’s soccer national team) victories, and why the country literally exploded in joy, emotion, and pride when all the miners were brought back to the surface alive and well.

In the process, Chilean President Piñera demonstrated how he has understood Chile’s soul as he got extremely involved in the rescue efforts. First – and to his credit – he held himself accountable by saying soon after the accident that those guys would not be abandoned under his watch but then when the happy outcome was soon to become a reality insisted to be there in person for days on end and was the first in line to greet each one of the rescued miners (even the young Bolivian guy… inside joke for those who know about the acrimonious history between Chile and Bolivia).

Piñera acted as a big-time populist here. He is no Chavez and no Castro – his politics or rather his economics are exactly the opposite of his Venezuelan and Cuban counterparts’ but my god, did he force himself on the media stage – prime time, national TV, the country’s hero in short (“Heroe de la Nación”).

He has bought himself enough political credit to withstand whatever crises (economic or political) may strike the country in the next 2-3 years…

Kudos to Piñera for standing up and putting his rear end on the line as he did – but let’s also recognize how he chose to politicize the miners’ rescue.

Good Hair Day

On my way back from Asia the other day I watched Chris Rock’s documentary Good Hair (see wikipedia page) that depicts the obsession of a lot of African American women about having “good hair”. Good hair means straight hair basically and the film does an excellent job of describing everything that so many women are willing and ready to suffer though to get their hair as straight as possible. Chris Rock has that charisma, charm, and instant connection and chemistry with folks so that he manages to get both women and men, as well as celebrities and no-name people in the movie to speak with their hearts about what “good hair” means to them – those comments are both funny and moving.

Incredible coincidence - my neighbor actually works for one of those LA-based human hair (from India!!) wholesalers. What were the odds, right? He said that the movie was quite accurate – so great job, Chris Rock, and a shout to my neighbor’s company…

Rent or borrow this move if you can. It says so much about the American psyche and about the complexity of social justice, i.e. the fascination of those African American women for straight (in other words Caucasian-looking) hair.