’NextThought Monday’: Lisa Simpson, Carl Schramm and Skepticism
NextThought Monday is a new feature I’m starting at here NextBillion. Each Monday, I hope to be introducing a new idea, point of view, or simply a guide to help you chart out the week ahead in the BoP space. I look forward to your feedback.
In a recent episode of “The Simpsons” the always socially conscious Lisa Simpson receives a $50 early inheritance from her still-living grandfather. Inspired by microfinance guru, Dr. Muhammad Yunus, Lisa quickly taps on her computer to convert her $50 into a microloan with hopes of helping an impoverished family farm. Yet, who is the recipient of her good deed? As Lisa learns through a web video thanking his anonymous benefactor, it’s none other than the schoolyard bully, Nelson Muntz. While Nelson is reasonably needy by U.S. standards, his startup isn’t exactly the enterprise Lisa had in mind for her recent windfall. (Nelson uses Lisa’s investment to customize, or in the urban lexicon, “pimp,” the bicycles of local kids and even a few adults).
This is more than a cute case of art imitating global economic life. (If you’re interested, you can see the entire episode here, the Yunus segment is about 9 minutes, 20 seconds in). In many ways, Lisa’s MO represents what economist Carl Schramm finds objectionable about microfinance in particular and international development in general: How do you know how much good you’re doing, or conversely, how much bad?
According to Schramm, who was a keynote speaker at the 2010 Aspen Network of Development Entrepreneurs (ANDE) Conference, you don’t – and furthermore, the models in place for gauging impact aren’t calibrated properly. Schramm is President and CEO of the Ewing Marion Kauffman Foundation, Johns Hopkins University health finance and policy professor, and unabashed skeptic of a great many entrepreneurial programs, micro lending institutions and public agencies focused on the developing world. Schramm said there are very few ways to know how much good versus how much bad the international development foot soldiers actually are doing because most of capitalism is “messy capitalism” – or extremely difficult to define in terms of the real drivers of new business formation.
“Messy capitalism says to you, ’I can’t give you an answer.’ Messy capitalism by itself is the answer,” he said in response to a question on how to track economic development efforts. “What it says is, this is a lot of about social networking – people testing quickly ideas, failing quickly, getting up and doing it again.”
The reason universities, international economic organizations and others don’t know how to measure success is because they aren’t in the business of creating new high-growth firms, which Schramm argues is the main reason why the U.S. has sustained, on average, 3 percent GDP growth for more than 50 years.
“They don’t know, they patently don’t know,” he told the ANDE audience. “Where do your entrepreneurs come from? ’Oh the business school.’ Baloney, they do. They come from your engineering schools, by about six magnitudes more. … So it’s a messy system.
“What I’m propagating here is a view that development ought to be singularly focused on the environment you create for individual human beings and it should be growth,” he went on to say.
Randall Kempner, Executive Director-ANDE, pressed Schramm by saying the ANDE audience was actually with him on a pro-growth agenda. But Schramm was unconvinced.
“You can’t microfinance a society into a place that’s going to have a modern hospital or a modern university,” he said. “When we go into a country after a conflict or after a disaster, our focal point has to be getting firms established that are going to be high-growth firms. That is actually discordant with micro-enterprise.”
Certainly that’s debatable and was heavily debated at ANDE Conference. Many people I spoke with said they didn’t feel as though Schramm completely knew his audience. After all, the crowd consisted mostly of impact-focused researchers, metrics-minded fund managers and risk-takers, rather than business-as-usual government bureaucrats. I’d also wager that this discussion was hung up on semantics. What is high-growth to Schramm may not be high-growth to many others in the sector.
Metrics and impact assessment consumes a large amount of space on this site and will continue to be one of our core focuses as evidenced here, here and here. And the nuances of metrics do not easily lend themselves to black and white conclusions, especially as we look to models that combine and refine various assessment tools.
Schramm is good to be skeptical and he represents a larger attitude that is important to keep in the back of our collective minds. But as a sector, the mission of informing, debating and ultimately convincing the Schramms of the world that the data is driving decision-making at the investment, TA and entrepreneurial level is critical.
Let’s keep the conversation going; how can we best persuade the skeptics?