Imagine you are walking along a wide sidewalk downtown Your City, USA. In front of you and to the left you spot a table. People are handing out vitamin supplement samples... for free. Do you take one?
A block later, you encounter another table set up. It's a different group, but also handing out vitamin supplements for a small fee - say $0.25 for a mini bottle. Do you buy one?
Now, guess which table was more successful at encouraging people to try vitamin supplements?
A recent Fast Company article citing a similar experiment conducted by J-PAL has created a bit of a stir in the social enterprise blogosphere this last week.
The Fast Company article concluded that J-PAL's experiment, which demonstrated that free mosquito nets were more widely adopted than paid-for nets, had proven false the widely-held belief that it's right to have the poor pay small fees for development-related goods and services because doing so encourages a sense of ownership. Really?
Hudnut's post makes the great point that, while it may not always be appropriate to have the poor pay, "charity doesn't scale." Noguera agrees that "free" sometimes is the best approach, even though market-based approached are generally preferable. He also remarks on how cross-subsidies can make the latter possible within a social enterprise model. Both make wonderful points.
But what about the simple fact that "free" is virtually ALWAYS going to be preferable to consumers! Especially when the alternative is a small fee. I haven't read the J-PAL study cited in the Fast Company article, but if it's as straightforward as it sounds, the outcome should be no surprise to anyone.
The real question is not, "To free or not to free?" The real question is, Do you measure success by how many mosquito nets you hand out? If so, maybe free is best. But I'd prefer to measure success based on what % of people are using their mosquito nets six months later. Or perhaps the % of mosquito nets that are still effective (i.e. in good shape) after 12 months. Or the change in the number of new malaria cases in the community after 3 years. If these are the outcomes you're trying to impact, maybe selling them a mosquito net at a small fee still is the best solution.
Which brings me to my real point here. Businesses frequently have to create markets and stimulate demand through consumer education and advertising (though internet startups are increasingly doing this through free). With effort, they get people to value their product enough to pay for it.
Should international development be any different?
I recently published a two-part series on SocialEarth called, "If you were the non-profit god, what would you fix?"
The series was well-received (woohoo!... Thank you!), so I thought it worth taking the time to point out one apparent inconsistency in my proposal. At least it's apparent to me; it hasn't seemed to bother anyone else.
If you haven't read the SocialEarth posts, go there first - Part I here, Part II here.
In Part I, I discuss a couple of the problems associated with the way non-profits have implemented the three-party market model. In that section, I include the issue of having to cater to multiple customers with sometimes disparate needs (donors vs. target populations). In doing so, I suggest that for-profit businesses who rely on the same model (radio stations, Google, Facebook, etc.) don't have this same problem.
This is of course not the case. Any business who serves multiple masters ultimately struggles to balance their interests. In fact, every business that receives third-party funding struggles with this same challenge, regardless of whether that funding is coming from donors, third-party customers, banks, or private investors.
The big difference is that in most of the for-profit world cases, effectively serving your primary customer also directly and positively impacts your secondary customers/funders. So, Google creating more and more free applications gives advertisers more and more opportunities to get in front of their target audiences. Likewise, as D.Light expands and becomes increasingly effective at providing affordable and energy efficient lighting solutions to the BOP, investors at the Acumen Fund will be rewarded for it. It's a win-win-win scenario.
In the non-profit world, however, when an organization improves its ability to serve its target population (something that is often hard to measure or prove), donors may receive more or better stories of good deeds and see more compelling impact numbers in the annual report, but they are still not likely to receive anything more tangible. That is, I think, the essence of what makes the non-profit model so much less sustainable.
Put a bit more conceptually (feel free to tune out here if you're not interested in the academic speak), we do not seem hard-wired to use optimal-decision making methods when it comes to altruism. We seem to be content knowing that our money is going to a "good cause" (or that we're getting a tax write-off), and few of us will take the time to look hard for better or "optimal" causes when it comes to how we invest our philanthropic dollars. So when it comes to giving, we're somewhat arbitrary and especially fickle.
Another way to think of it... if you're 401(k) or 403(b) was only returning 3% in a good economy, wouldn't you look to put your money somewhere else? Probably, and your fund managers know that. So you are, even without knowing it, putting pressure on your fund managers to maximize returns. On the other hand, if you're seeing regular returns of 20%, you're going to leave your money right where it is, and fund managers know that, too. Your decision is logical, predictable and, therefore, more sustainable.
But the same "you" may very well be sinking money into a non-profit that hasn't substantially improved its operations...well...ever. Do you care? Maybe. Maybe not if you just like the cause (or tax write-off). Either way, you are probably not putting much pressure on the non-profit's management to improve. At the same time, if another similar but seemingly more effective non-profit came along, would you move your money over? Maybe. Maybe not. Here, your decision is seemingly arbitrary, fickle, and much more difficult for the non-profit to predict and sustain.
There is much more to this whole conundrum, and this post is already giving me ideas for another post that might take a deeper look. But I'll leave it here for now. If you have any reactions or suggestions, please let me know!
I've been intrigued and, I guess, pleasantly surprised to read about the Amazon acquisition of Zappos. I've purchased from both companies and have been consistently happy with the experience, so kind of cool to see them come together. Two things, though, that I've found particularly noteworthy:
Simply, the way they've approached communicating the acquisition. Most mergers and acquisitions are communicated very formally through an intricate plan concocted by an expensive PR firm. What comes out is too often impersonal, full of business jargon, and seemingly disingenuous. In the case of Zappos and Amazon, I, presumably like many others, found out about the acquisition through a letter that was published on Tony Hsieh's blog and pushed out through @zappos on Twitter. The letter includes a YouTube video introducing Jeff Bezos, dressed in jeans and a casual button-down, talking about his values and telling stories about his early days as a bootstrapping entrepreneur. What a breath of fresh air!
Jeff Bezos's support for patient capital. While he doesn't come out in support of patient capital explicitly, Jeff is very clear that doing what is best for the customer often is not at first best for investors. It takes time and lots of hard work for customer-obsessed innovations to pay off. If that's not a full-throated endorsement of social entrepreneurship and patient capital, I just don't know what is. Listen for yourself.
Many years ago, I was driving through downtown Minneapolis with several younger cousins from Dallas, Texas. As we pulled up to a major intersection, we noticed a homeless man standing on the side of the road. He looked sad and desperate, wearing filthy clothes and holding a sign soliciting money from the passing vehicles.
As we passed the man, one of my cousins, who was perhaps six or seven years old at the time, leaned out the window and yelled, "Get a job!"
Undoubtedly, the United States is a "pick-yourself-up-by-your-bootstraps" society. We honor back-breaking work and private enterprise. When in trouble, we prefer to look to friends and neighbors, rather than ask the government for handouts and support.
We tend to have a love-hate relationship with this fact as a society. On the one hand, we hold dearly these values, which have been lauded by social thinkers like Max Weber and Alexis de Tocqueville as reason for America's rich civil society and strong culture of entrepreneurship. At the same time, our "bootstrapping" belief system and the associated American Dream often engender selfish behavior and harmful prejudices that none of us should be proud of. We evade taxes to protect our hard-earned money. We accept the inadequacy of our social safety net. And, like my cousin once did, we categorically blame the poor and homeless for their plight.
The random confluence of two interesting stories got me thinking about this topic last week, and how it has shaped our attitudes toward development.
One story was the outrage over Kiva's decision to begin offering micro-financing to entrepreneurs in the United States. (More on that here, here, and here.)
The second was a report I caught on Minnesota Public Radio on the 27 year old Loaves and Fishes program. The program was established as a temporary measure to feed the homeless and the poor after the Reagan administration cut back on welfare programs in the early eighties.
The Loaves and Fishes story represents how we have traditionally approached development within our own country. Development is all about job creation and entrepreneurship. It's about creating policies and institutions that stimulate private investment and create sustainable private sector employment. The role of aid and charity then (which are also largely private in the U.S.) has been to temporarily prop up those who are transitionally poor or provide longer-term support to those perfectly incapable of supporting themselves. It's a "tough love" approach to development that places emphasis on individual motivation, capacity, and dignity.
The Kiva story, on the other hand, places the "tough love" approach to development that we have applied within the U.S. in stark contrast to how we've approached development in the rest of the world. The American international aid establishment and American attitudes toward aid abroad have traditionally revolved around charity first, enterprise second. I don't know why this is. It's an utterly mind-boggling contradiction. But it was readily apparent in the Kiva story, where individuals who were staunch supporters of "interest-free" loans to entrepreneurs in other countries lashed out against the idea of providing the same kind of "charity" to poorer individuals at home. It's as though we believe people in the U.S. can and should be able to make it on their own, just like we did, while families abroad need our help and charity to get ahead. It's American Exceptionalism at it's finest.
This double-standard has failed us for too long. Which makes it that much more exciting to see how our attitudes toward development both at home and abroad are evolving. The role of poverty-focused non-profits in the U.S. can't simply be to plug holes in the social safety net. We're learning this. And the emphasis placed on entrepreneurship in international development efforts needs to be significantly greater. Every day, we're seeing more and more of this.
It's an exciting time to be in this field. I don't know about you, but (in typical American fashion) I'm optimistic for the future.
