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22 posts from June 2006

June 30, 2006

Service and Resilience

The winners of a British "manufacturing excellence" competition were recently announced. An article in yesterday's Financial Times examines the characteristics that make the winners excellent. The headline for the article is telling -- "The masters of good service," By Peter Marsh. Remember, the award was for manufacturing, not service. Economists have argued for decades that most developed states are moving from manufacturing to service economies. It should come as no surprise, therefore, that successful manufacturers have learned to be good service providers. Marsh's opening line is also telling: "How does a business make itself “China-proof”?

China is perceived as the next manufacturing powerhouse, primarily because it appears to have an inexhaustible supply of cheap labor. An article in today's New York Times, however, is intended to put that myth to rest ["As China Ages, a Shortage of Cheap Labor Looms," by Howard W. French].

The world's most populous nation, which has built its economic strength on seemingly endless supplies of cheap labor, China may soon face manpower shortages. An aging population also poses difficult political issues for the Communist government, which first encouraged a population explosion in the 1950's and then reversed course and introduced the so-called one-child policy a few years after the death of Mao in 1976. That measure has spared the country an estimated 390 million births but may ultimately prove to be another monumental demographic mistake. With China's breathtaking rise toward affluence, most people live longer and have fewer children, mirroring trends seen around the world. Those trends and the extraordinarily low birth rate have combined to create a stark imbalance between young and old. That threatens the nation's rickety pension system, which already runs large deficits even with the 4-to-1 ratio of workers to retirees that it was designed for. Demographers also expect strains on the household registration system, which restricts internal migration. The system prevents young workers from migrating to urban areas to relieve labor shortages, but officials fear that abolishing it could release a flood of humanity that would swamp the cities. As workers become scarcer and more expensive in the increasingly affluent cities along China's eastern seaboard, the country will face growing economic pressures to move out of assembly work and other labor-intensive manufacturing, which will be taken up by poorer economies in Asia and beyond, and into service and information-based industries.

China will move into and out of the industrial age faster than any other great power has ever done. Of course, becoming a service economy state doesn't mean that manufacturing doesn't exist. The point of the British competition was to find out what makes a successful manufacturer in a service economy. The answer, apparently, is service!

In this competitive battle, companies have adopted a number of strategies. Some have concentrated on narrow product niches that few others can match, or have invested in highly productive automated machinery that reduces the disadvantages of high labour costs. Others have added a “service” component to their product, tethering supplier to customer through an intangible benefit – the nature of which is often defined only after intensive discussion between customer and supplier – that a rival in China would find difficult to reproduce. A manufacturer becomes, in effect, a chameleon. It is likely to take on at least one of these roles: consultant, requiring it to play a part in specifying the product that the customer needs, and maintaining the product once in service; distributor, giving it responsibility for “just-in-time” delivery; accountant, since the manufacturer has a key role on pricing; and designer, taking on the development of new products.

As an entrepreneur starting a new company, one of my greatest challenges has been trying to explain what Enterra Solutions does. While that seems like an easy task, when you are marking a new trail in territory where no map exists, there is nothing you can point to that makes people easily understand what you are describing. Enterra, like many of the winners of the British competition, is a hybrid company. Trying to describe such a company is like trying to describe cleverly manipulated pictures of mixed birds & animals from Worth1000.com that someone recently forwarded to me (click to enlarge). 

Fox_bird The Financial Times article ends by providing a few characteristics of "service-based manufacturing."

Several popular approaches to service-based manufacturing are exemplified by the winners of a competition organised by the UK’s Institution of Mechanical Engineers:

Consultancy. Manufacturers can benefit from helping customers specify the products they need and providing after-care and technical updates. AES Engineering helps its customers specify seals from up to 20m variants.

Alliances. Producers of standardised goods can steal a march over far-flung rivals by providing carefully chosen customers with higher levels of service. Power Panels, a distributor of cabling systems, offers a just-in-time service for companies with variable production schedules.

Technology. Companies can use internet-based systems and design technology to reduce turnround time for new products. Protomold, a plastic products maker, uses its software expertise to offer costing and delivery schedules for complex orders within hours of receiving them.

Design. Higher investment in design and development can help manufacturers dominate less inventive rivals. Wrightbus, maker of bus bodies, has exploited its design nous to sell buses around the world, including in Hong Kong.

Flexibile and adaptable companies will continue to thrive in the future, while less resilient companies will fail. I believe that Resilient Enterprises will successfully manage the balance between people, processes, and resources. Processes will be automated, whenever possible; decision makers will be provided real-time updates of important information so they can intervene when necessary; employees will be empowered by the tools they command; and resources will be more efficiently used because they will be committed based on better information than historical demand. Service is an integral part of the globally integrated enterprise about which IBM's chairman and CEO, Samuel Palmisano, often speaks. One need only look at recent changes in IBM's business plan to see how it has changed from a manufacturing to a more service-based enterprise. Hybrid companies are more resilient and will more and more come to define the future of business.

June 29, 2006

Public-Private Partnerships

Even though public-private partnerships have been around for hundreds of years, many such relationships were exploitative (think about the role of the British and Dutch East India Companies in carrying out their respective governments' colonial foreign policies in return for trade monopolies). Slowly corporations have come around to the idea that partnering with governments in a socially responsible way also makes good business sense. I recently posted a blog about the letter to the editor of the Financial Times written by Samuel Palmisano, Chairman/CEO of IBM, [Globalization and Resilient Enterprises] in which he discusses the need for multinational corporations to transform into globally integrated enterprises which help strengthen the nations in which they operate.

An article in today's New York Times, discusses why companies are helping developing nations deal with their malaria problems ["Business Joins African Effort to Cut Malaria," by Sharon LaFraniere]. While there is certainly some altruism involved, there are also good business reasons:

With malaria spread across southern Mozambique, executives at the international mining company Billiton expected some workers to call in sick as it began building a massive new aluminum smelter amid the cornfields here. What they did not expect was that nearly one in three employees would fall ill — 6,600 cases in just two years. And they certainly did not expect 13 deaths, not after the company had built a medical clinic, doused the construction site with pesticides and handed out bed nets to thwart malaria-carrying mosquitoes. "You can imagine, it was a huge disaster," said Carlos Mesquita, the general manager. "We could not deal with that level of absenteeism, and we would have had more fatalities. If we didn't treat malaria we could not operate."

With over a billion dollars of investment on the line, the company realized that its efforts could not be confined to prophylactic efforts inside of its fences. Working beyond its boundaries, however, required the approval and cooperation of the government.

And so one of the world's biggest aluminum producers joined in an exceptional partnership with the governments of three countries and with other businesses to take on malaria systematically across a broad region. Six years later, the scorecard is in. Amazingly, malaria is losing. Wielding a combination of new medicines, better bed nets, old-fashioned pesticides and computer analysis to clean up the most afflicted areas, the smelter and its partners in business and government have turned malaria in one of its former hot spots into a manageable threat. The results are a rare bright spot in fighting a parasitic killer that has thrived in the face of flawed, inadequate programs by African nations and international organizations.

Yesterday I mentioned efforts in this area by the Bill and Melinda Gates Foundation and how communities of practice, supported by a Development-in-a-Box approach, can start to make a difference without having to create some large, ineffective oversight group. Some companies caught the vision of socially responsible public-private partnerships early on. For example, I have mentioned Timberland before. I noted that the company has tried to reduce its "carbon footprint" by strategic use of alternative futures and by changing the feed used by cattle (whose hides are used to make Timberland boots) so that they release less methane (we're all grateful!) Timberland has been around for 30 years and its executives believe that being socially responsible is good for business as well as good for society.

Timberland allows workers to take a full week off each year, with pay, to help local charities. It also offers four paid sabbaticals each year to workers who agree to work full-time for up to six months at a nonprofit. And it shuts down operations for a day each year so its 5,400 workers can take part in various company-sponsored philanthropic projects. ["Doing Good and Doing Well at Timberland," by Joseph Pereira, Wall Street Journal, 9 September 2003]

Timberland executives believe they have been able to retain good employees because they are not asked to leave their ideals at the door. Getting workers involved wasn't as easy as one might think. Employees were concerned those who volunteered would be perceived as employees with too little to keep them busy and, thus, prime targets for being made redundant. To counter this perception, the company established a "community enterprise" department to find appropriate projects that would appeal to workers and to stress the company's sincerity about wanting its employees to get involved in the community. It worked. A 2003 company indicated that more than half of its employees indicated that community service opportunities was the main reason they worked there. Timberland, of course, operates in Boston not Botswana. The question is whether this model can be used in the developing world as well.

A December 2002 Harvard Business Review article by Michael Porter and Mark Kramer ["The Competitive Advantage of Corporate Philanthropy"], notes that "executives find it hard, if not impossible, to justify charitable expenditures in terms of bottom-line benefit." Therefore, the article reports, companies look for "strategic philanthropy" opportunities. Porter and Kramer assert, however:

What passes for "strategic philanthropy" today is almost never truly strategic, and often it isn't even particularly effective as philanthropy. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image or brand through cause-related marketing or other high-profile sponsorships.

They talk about Phillip Morris who made $75 million in charitable contributions in 1999 and then spent $100 million in advertising patting themselves on the back for their charitable contributions. Porter and Kramer were trying to persuade the corporate world that socially responsible public-private partnerships are indeed good for business. The logic of that premise is not clear to everyone. Porter and Kramer point to the comments by the respected economist Milton Friedman that the only "social responsibility of business" is to "increase its profits." Friedman's argument was that shareholders should be able to decide how to spend profits not corporate executives. Porter and Kramer attack two underlying assumptions they believe motivate corporate decisions about philanthropy:

The first is that social and economic objectives are separate and distinct, so that a corporation's social spending comes at the expense of its economic results. The second is the assumption that corporations, when they address social objectives, provide no greater benefit than is provided by individual donors.

The article that started this post shows pretty conclusively that social spending and economic results are often intimately linked. As Porter and Kramer put it:

Corporations can use their charitable efforts to improve their competitive context -- the quality of the business environment in the location or locations they operate. Using philanthropy to enhance context brings social and economic goals into alignment and improves a company's long-term business prospects. ... In addition, addressing context enables a company not only to give money but also to leverage its capabilities and relationships in support of charitable causes. ... Philanthropy can often be the most cost-effective way for a company to improve its competitive context, enabling companies to leverage the efforts and infrastructure of nonprofits and other institutions.

Leveraging "capabilities and relationships" sounds suspiciously like employing communities of practice to obtain the greatest impact. As for the second assumption, I think Warren Buffet's comments about why he waited to give away his money are pertinent here. Basically he said that if had decided to give away his money 10 or 20 years ago, charity would have received millions of dollars, by waiting they are going to receive billions of dollars. By allowing stock holders to decide whether or not to make personal charitable contributions, the beneficial effects of such giving are diluted. I don't want to leave the impression that corporations aren't giving, some are. Forbes provides a list of the most generous corporate givers [Forbes table].

I want to get back to the question of whether public-private partnerships can work in the developing world. Porter and Kramer provide some answers. They talk about how philanthropy can influence competitive context by addressing "factor conditions" and "demand conditions." In their discussion of factor conditions, they write:

Achieving high levels of production depends on the presence of trained workers, high-quality scientific and technological institutions, adequate physical infrastructure, transparent and efficient administrative processes (such as company registration or permit requirements), and available natural resources. All are areas that philanthropy can influence. ... Philanthropic initiatives can also improve the local quality of life, which benefits all citizens but is increasingly necessary to attract mobile employees with specialized talents. ... Philanthropy can also improve inputs other than labor, through enhancements in, say, the quality of of local research and development institutions, the effectiveness of administrative institutions such as the legal system, the quality of physical infrastructure, or the sustainable development of natural resources.

For example, a company that improves roads to facilitate the transportation of its products has concomitant beneficial effects. Partnering with the local government could make such projects cheaper and easier. As for demand conditions, Porter and Kramer write:

Demand conditions in a nation or region include the size of the local market, the appropriateness of product standards, and the sophistication of local customers. Sophisticated local customers enhance the region's competitiveness by providing companies with with insight into emerging customer needs and applying pressure for innovation. ... Philanthropy can influence both the size and quality of the local market.

Porter and Kramer tacitly support a Development-in-a-Box approach by noting:

The rules, incentives, and norms governing competition in a nation or region have a fundamental influence on productivity. Policies that encourage investment, protect intellectual property, open local markets to trade, break up or prevent the formation of cartels and monopolies and reduce corruption make a location a more attractive place to do business. Philanthropy can have a strong influence on creating a more productive and transparent environment for competition.

In other words, a standards-based approach to development can benefit from corporate philanthropy. They go on to say, "Corporate philanthropy is ripe for collective activity. By sharing the costs with other companies in its cluster, including competitors, a company can greatly diminish the free rider problem." Development-in-a-Box is offers a way for competitors to join with others to make a difference. Porter and Kramer assert:

The greater advances come not from incremental improvements in efficiency but from new and better approaches. The most powerful way to create social value, therefore, is by developing new means to address social problems and putting them into widespread practice. The expertise, research capacity, and reach that companies bring to philanthropy can help nonprofits create new solutions that they could never afford to develop on their own. ... Just as important as the creation of new knowledge is its adoption and practice. The know-how of corporate leaders, their clout and connections, and their presence in communities around the world create powerful networks for the dissemination of new ideas for addressing problems. Corporations can facilitate global knowledge transfer and coordinated multisite implementation of new social initiatives with a proficiency that is unequaled by most other donors.

Sounds to me like they are describing Development-in-a-Box supported communities of practice. I close with two further comments by Porter and Kramer:

As long as companies remain focused on the public relations benefit of their contributions, they will sacrifice opportunities to create social value. ...There is no inherent contradiction between improving competitive context and making a sincere commitment to bettering society.

June 28, 2006

Hurricane Katrina Fraud & Connecting the Dots

There has been a lot of coverage recently concerning alleged fraud connected with assistance provided in the wake of Hurricane Katrina. For example, an MSNBC report [Audits: Millions of dollars in Katrina aid wasted]:

Two audits found that up to 900,000 of the 2.5 million applicants who received aid under FEMA’s emergency cash assistance program — which included the $2,000 debit cards given to evacuees — were based on duplicate or invalid Social Security numbers, or false addresses and names.

The challenge for the government, of course, was enormous. Millions of people displaced from the their homes with information about their whereabouts being gathered and stored by disparate groups. No system was in place that could "connect the dots," cross check applications, verify Social Security Numbers, compare locations, etc. Such a system would have saved millions of dollars in fraud and waste. I know such a system can be put in place because it would use basically the same architecture Enterra Solutions uses to help companies deal with regulatory compliance. The system can automatically check and compare data bases, alert decision makers to possible discrepancies, and provides a complete audit trail for all transactions. Almost every case of fraud and abuse that I've read about could have uncovered had such a system been in place.

The massive abuse that has been discovered may well affect the generosity of taxpayers when the next disaster strikes. That would be tragic since it would punish the innocent for the crimes of the guilty. Nobody appreciates their tax money being given to crooks, but taxpayers also expect their taxes to be used to care for the those who can't help themselves. Every ethical society deals compassionately with those in need. Implementing a system that increases effectiveness and decreases abuse would be a sound investment for the future -- especially since most meteorologists predict a continued cycle of abnormal weather.

I'm not sure how much such a system would cost, but I know it would be pennies on the dollar when compared to the abuse it would prevent. The numbers from Katrina are pretty staggering. The USA Today reports an estimated billion dollars in fraud (out of a total of nearly $85 billion) has been discovered to date. ["FEMA lost $1B to fraud, errors," by Mimi Hall, 14 June 2006] Among the many examples of waste and fraud cited in a government] report, the article notes:

• Roughly $5.3 million was paid to people who gave only post office boxes as their address. In one case, FEMA sent $2,358 to someone who claimed a damaged house in a New Orleans cemetery; in another, FEMA sent $4,358 to someone who listed his residence as a UPS store.

• Millions more was sent to more than 1,000 people who used names and Social Security numbers of inmates in prisons along the Gulf Coast and across the country. In one case, FEMA sent $4,358 to a Mississippi prisoner who gave officials his correct mailing address — at the prison where he'd been locked up since 2004.

• FEMA reimbursed people for rent at the same time it was paying for them to stay in a hotel. For example, the agency paid $8,000 for someone to stay in a California hotel for five months and also sent that person $6,700 in rental assistance for the same period.

• One person received 26 FEMA payments totaling $139,000 using 13 different Social Security numbers and 13 addresses, eight of which did not exist.

These latest lessons learned from Katrina have to deal with follow-up. In an earlier paper, I wrote about what Katrina taught us about preparation [City of New Orleans: What Hurricane Katrina Can Teach Us About Resilience] A resilient system becomes resilient because it responds appropriately before, during, and after a catastrophic event. I'm sure we'll continue to learn lessons, but we need to start implementing lessons already learned before we get overwhelmed with a series of natural or man-made disasters.

June 27, 2006

Communities of Practice and Development-in-a-Box

Stephen Colbert on his Comedy Central show "The Colbert Report," said, "Warren Buffett is so rich he just hired Bill Gates to spend his money. It's a great day for capitalism!" That's a funny line, but it also reflects reality. During a press conference following the announcement of Buffet's gift, Bill Gates said, "It's scary. If I make a mistake with my own money, it isn't as big as making a mistake with Warren's money." To which Mr. Buffett replied: "I won't grade you more often than daily." ["Buffett's Billions Will Aid Fight Against Disease," by Donald G. McNeil, Jr., and Rick Lyman, New York Times, 27 June 2006] The combined totals of Gates' and Buffet's philanthropy is truly staggering, but, even with that much money, doing the right thing (i.e., spending it to achieve the greatest impact) is still difficult.

"It's incredibly difficult to give this much money away well," said Jean Strouse, a biographer who has compiled an oral history project on the Gates Foundation. "And giving it away to people who can use it well, especially in places where poverty is so overwhelming, where there's not much real infrastructure."

Strouse hit the nail on the head. You can't parse development into its separate parts and expect to achieve societal transformation. It was recognition of that point that caused Tom Barnett and me to come up with the concept of Development-in-a-Box. Our concept takes an holistic approach to development. Medical advances, the area in which Bill & Melinda Gates Foundation has concentrated much of its time and effort, will never reach those who need them without a sustainable infrastructure to make that happen. The Gates and Buffet would be wise to invest in medical schools and healthcare training as well as in research & development of critically needed medicines. The World Health Organization estimates there is a shortage of 4 million healthcare workers in developing nations. ["Doctor shortage critical in developing world: WHO," by Shapi Shacinda, The Namibian, 06 April 2006] By tying scholarships to commitments to remain in the developed world, their efforts would achieve the greatest effects. Currently about 25 percent of doctors and nurses from Gap countries practice in Core nations.

Zambian Vice President Lupando Mwape, speaking at an event marking World Health Day in Lusaka on Friday, said the shortage of doctors and nurses was sending many Africans to their graves. "The shortage of medical personnel has now reached its peak and this is resulting in many deaths which could otherwise be avoided," Mwape said. "About 600 000 people in Sub-Saharan Africa die from tuberculosis annually while 800 000 children die from communicable diseases," he said. British-based charity Oxfam says there is one doctor per 14 000 people in Zambia compared with the ratio of 1 to 600 in Britain.

Shacinda's article underscores why an holistic approach is necessary. He notes that NGOs blame the IMF for the healthcare crisis, because the IMF restricts how much nations can spend on healthcare and still qualify for assistance. One of the things that Bono is trying to achieve with his celebrity is bringing nation-states, international organizations, and NGOs together in some systematic way to address poverty and disease in the developing world. Unfortunately, he lacks a framework, which is a gap that Tom and I believe Development-in-a-Box fills.

One of the arguments we hear against this approach that is that there is no one in charge to make this happen. The UN has become nearly impotent (and Congress would never let it be in charge), the rest of the world has become skepitcal of U.S. intentions, and no other nation or group has the capacity or will to lead such an effort (even if they could get a mandate to do so). That leaves what is known in security circles as "coalitions of the willing." I prefer the term "communities of practice." There is Web site devoted to the topic [Communities of Practice and Community-enabled Strategic Results from Self-Organisation] and I really like its full title. Community-enabled Strategic Results from Self-Organization is exactly what Development-in-a-Box is trying to achieve. The reason that we stress that Development-in-a-Box is a standards-based approach is because we know that "results" must be measured in order to determine progress and to permit one to make necessary course corrections. One of the chief proponents of this approach, Etienne Wegner, wrote some 8 years ago [Communities of Practice: Learning as a Social System]:

We now recognize knowledge as a key source of competitive advantage in the business world, but we still have little understanding of how to create and leverage it in practice. Traditional knowledge management approaches attempt to capture existing knowledge within formal systems, such as databases. Yet systematically addressing the kind of dynamic "knowing" that makes a difference in practice requires the participation of people who are fully engaged in the process of creating, refining, communicating, and using knowledge. We frequently say that people are an organization's most important resource. Yet we seldom understand this truism in terms of the communities through which individuals develop and share the capacity to create and use knowledge. Even when people work for large organizations, they learn through their participation in more specific communities made up of people with whom they interact on a regular basis. These "communities of practice" are mostly informal and distinct from organizational units.

The aims of Development-in-a-Box are not just setting up infrastructure, automating processes, and establishing standards, they also include investing heavily in indigenous human capital. That means that local populations become an intimate part of the community of practice associated with Development-in-a-Box. Wegner defines a community of practice this way:

Members of a community are informally bound by what they do together–from engaging in lunchtime discussions to solving difficult problems–and by what they have learned through their mutual engagement in these activities. A community of practice is thus different from a community of interest or a geographical community, neither of which implies a shared practice. A community of practice defines itself along three dimensions:

    • What it is about – its a joint enterprise as understood and continually renegotiated by its members
    • How it functions - mutual engagement that bind members together into a social entity
    • What capability it has produced – the shared repertoire of communal resources (routines, sensibilities, artifacts, vocabulary, styles, etc.) that members have developed over time.

Communities of practice also move through various stages of development characterized by different levels of interaction among the members and different kinds of activities.

I would add "standards" to the capabilities portion of that definition. One of the reasons that communties of practice and Development-in-a-Box are so complementary is that a standards-based approach permits the kind of plug-and-play voluntary participation that such communities require. The reason that any successful approach will have to be plug-and-play is that progress in different sectors will vary. Some goals will be achieved before others. Wegner believes that communities of practice go through various stages that demonstrate how they get together and why they dissolve. Those stages are depicted in the following figure (click to enlarge).

Copdevstages Another important characteristic of communities of practice is that they can work using a variety of different relationships. The Gates Foundation doesn't have to maintain a formal relationship with Doctors Without Borders, for example, in order for them to be working on achieving the same goal. They can, however, recognize the same reporting standards so that they can talk with one another about progress their various programs are making. Wegner defines communites of practice relationships this way when they are found within an organization:

Relationship          Definition                                 Challenges typical of the relationship

Bootlegged

Only visible informally to a circle of people in the know

Getting resources, having an impact, keeping hidden

Legitimized

Officially sanctioned as a valuable entity

Scrutiny, over-management, new demands

Strategic

Widely recognized as central to the organization's success

Short-term pressures, blindness of success, smugness, elitism, exclusion

Transformative

Capable of redefining its environment and the direction of the organization

Relating to the rest of the organization, acceptance, managing boundaries

One can imagine that such relationships would be similarly defined when communities of practice exist between organizations. The kind of relationships we are most interested in forming as part of the Development-in-a-Box approach are the strategic and transformative relationships. I believe that groups who sincerely believe the world can become a better place will be able to achieve "Strategic Results from Self-Organization." It's certainly something worth talking more about.

June 26, 2006

Civic Engagements, Social Capital, and Resilience

Sebastion Mallaby, in his Washington Post column ["Why So Lonesome," 26 June 2006], explores the interesting subject of personal connections -- what Robert D. Putnam refers to as civic engagement and social capital. Putnam brought current social trends to light in his best-selling book, Bowling Alone: The Collapse and Revival of American Community (Simon & Schuster, 2000). Why, you might ask, would I discuss such a topic in a blog about resilience? I believe that dense (i.e., strong) civic engagement and social capital are as important to making societies and businesses resilient as are dense IT connections. As President and CEO of a company with dispersed employees, this subject is important to me. Individuals are also more resilient when they are surrounded by family and friends. The medical community, for example, is always commenting on how important "support systems" are for helping people recover from everything from addictions to cancer. The fact that we know having friends is important to our physical and emotional well-being, but do little to nourish such friendships, is the grist for Mallaby's column.

This is the age of Oprah and MySpace, of public emoting on television and the Web. Apparently people watch "Friends" but don't actually have many. When the new loneliness numbers appeared Friday [23 June 2006] in the American Sociological Review, some experts cautioned that the problem can be overstated. Americans say they feel close to an average of 15 others, according to Barry Wellman and Jeffrey Boase of the University of Toronto. But there's a difference between extensive networks and deep ones.

Mallaby notes that the decline in friendships has been mirrored by a rise in emotional problems -- "the prevalence of unipolar depression in affluent countries has jumped tenfold." He continues:

People's myopia on friendship is like their myopia on saving. They know that jobs are insecure, that a health problem can cause bankruptcy, that retirement is fabulously expensive; but the household savings rate has fallen below zero. Equally, people know that spouses aren't immortal and that divorce is common. But nearly one in 10 -- a much higher share than in 1985 -- reports that their husband or wife is the only person they confide in. People are taking these financial and emotional risks even as they neurotically avoid other risks.

Mallaby points out that society has facilitated the decline in deep relationships by increasing the ease with which casual relationships can be maintained through email, instant messaging, and social-networking Web sites like MySpace.com. I would like to add text messaging to Mallaby's list of tools that foster casual but discourage deep relationships -- they are simply emails using another media. I recall reading a study a few years ago that lamented the lack of face-to-face contact in business with the rise of email exchanges. The study indicated, as I recall, that many emails are misinterpreted. People try to read between the lines of cryptic notes trying to detect emotions and generally get it wrong. It takes more time trying to sort out that kind of miscommunication than a telephone call or face-to-face meeting would have taken. The benefit of emails, of course, is that it doesn't take a same time/same place or same time/different place meeting. Email fosters a different time/different place exchange -- which can save time and improve efficiency if an emotional investment is not required. Too often, however, an emotional investment is required.

Mallaby indicates that the reason people don't make and keep more friends is that they make choices whose logical outcomes inevitably lead them to that result. In other words, path dependency of people's choices is what makes fostering deep civic engagements so difficult.

The biggest reason for American loneliness, and perhaps the clue to some kind of cure, lies in path dependency. People know that tending to friendship is important, but their behavior follows the path created by countless other decisions -- and friendship is neglected. Social science experiments reveal lots of behavior of this kind. People who agree with their doctors that they need hip replacements seldom get around to having the procedure. There are ways to beat path dependency, however. Another experiment has shown how undergraduates who agree to get a tetanus shot seldom actually do so, but if you make them an appointment and hand them a map to the clinic, the odds that they'll comply leap tenfold. Savings habits are equally sensitive to slight tweaks in incentives. Invite workers to sign up for 401(k) pensions and many will procrastinate. Tell workers they are part of the program unless they opt out and the participation rate rockets.

Mallaby asks, "Can Americans be prodded to invest more in friendships?" He really doesn't offer many answers, but does make this interesting observation:

But there's one antidote to loneliness that is at least intriguing. In an experiment in Austin, Princeton's Daniel Kahneman found that commuting -- generally alone, and generally by car -- is rated the least enjoyable daily activity, but commuting by car pool is reasonably pleasant. Measures that promote car pooling could make Americans less isolated and healthier.

Although I'm not a sociologist, I'd be willing to bet that using public transportation in lieu of car pooling doesn't result in the same "reasonably pleasant" solution. That's because car pools usually involve people from the same neighborhood, who know one another (at least casually) before joining the car pool, and they self-select their companions. The intimate confines of a car also encourage social discourse.

As I noted earlier, my company's employees are widely disbursed. They live from New England to Florida and from the East Coast to the West Coast -- with Tom Barnett in between! Much of our internal business is done via email (with all of the challenges I noted above). To overcome that enormous, I travel to meet with them and ask that they travel to meet with me. When that can't happen we have teleconferences or personal telephone calls. I also host occasional socials to foster the face-to-face time that is essential to create a camaraderie that can't be established via email. I know that some of my employees use Skype (with its video capability) to keep in touch with their families who are also spread across the country.

The cell phone is one new technology that has helped deepen civic engagements (with the exception of the text message capability for reasons addressed above). One company, Helio LLC, is marketing a new $250 ultra-high-tech cell phone and is targeting three interesting groups: "spoiled teens, tech geeks and Korean Americans." ["Cellphone Company Makes A Call: Korean Americans -- Firm Targets Tech-Savvy Population," by Sara Kehaulani, Washington Post, 26 June 2006] The most interesting of these groups for the topic at hand is the latter -- Korean Americans. The article points out that most people with Korean ancestry living in America weren't born here, which means they have strong ties back to Korea. It also points out that Korea is one of the most tech savvy populations in the world.

"When I was in Korea, I went through so many demos about what they're using [cellphones for], from monitoring your dog's food and water to the electronic wallet," said Gary D. Forsee, chief executive of Sprint Nextel Corp., which has allowed Helio to piggyback on its network for a fee. The possible applications in the United States, he said, are "almost unimaginable."

Helio is banking on attracting customers by offering unlimited text messaging (a medium widely used in Korea), but they hope to make a profit selling long distance minutes, which is really how deep relationships are sustained. They may be on to something.

Another interesting article on mobile phones, if off the subject a bit, talked about Iridium Satellite LLC ["Satellite Phone Firm Focuses on Crisis Network," by Chris Kirkham, Washington Post, 26 June 2006]. The company has emerged from bankruptcy and posted five straight quarters of profit. Originally, the company had targeted frequent travelers and people living in remote areas for their service, but cost and the size of their handsets made those groups uninterested. Recent disasters from earthquakes to 9/11 to Hurricane Katrina have shown the unreliability of cell phones and so the company is moving into the crisis arena looking for business.

The company sent thousands of its phones to the Gulf Coast after Hurricane Katrina, when satellite phone traffic surged and federal officials called for creation of a system that would allow emergency workers to more dependably communicate during severe crises. "What this hurricane proved to everyone is that there are more extreme elements out there than most people wanted to believe or were willing to believe," said Greg Ewert, an executive vice president of Iridium Satellite. "Most people are racing back to review disaster recovery plans, and this marketplace has now opened up to us."

The article points out that the service is still expensive, but when communications are critical reliability is more important than cost -- especially when lives are at stake. The company got back on its feet with a large contract from the Department of Defense (which makes sense), but now 70 percent of its business is from the commercial sector that requires reliable communication even during disasters. Communications is all about resiliency and face-to-face communications (i.e., mouth-to-ear) is still the best way to foster sustainable relationships.

June 23, 2006

Applying Maslow to Development-in-a-Box

An article in today's New York Times ["In Congo, Hunger and Disease Erode Democracy," by Lydia Polgreen], talks about the terrible conditions that continue to plague the Democratic Republic of the Congo. As I read it, I couldn't help but reflect on the hierarchy of needs introduced by Abraham Maslow some 50 years ago. Like most brilliant ideas that make you slap your forehead and say, "Why didn't I think of that -- it's so obvious," Maslow's hierarchy of needs makes the simple observation that a drowning man is thinking about his next breath and little else. Maslow's pyramid is normally represented in a pyramid like the image showed below (click to enlarge it). Starting at the bottom of the pyramid, the layers represent the following needs:

Maslow_hierarchy

1. Physiological
2. Safety
3. Love/Belonging
4. Esteem
5. Actualization

Let's return to the article on the Congo, where elections are slated to be held in July. Most of the people there are living existence at the first two levels - physiological and safety. I'm not exactly sure on which level I'd put elections, but I know they are above the first two levels. As the article notes:

In less than a decade, an estimated four million people have died, mostly of hunger and disease caused by the fighting. It has been the deadliest conflict since World War II, with more than 1,000 people still dying each day. For many here, survival, not elections, is the milestone.

Our Development-in-a-Box approach applies a flexible framework that takes into consideration Maslow's hierarchy. Development-in-a-Box is standards-based, which means learning curves are steep, implementation is quicker, and, therefore, people can start moving up the hierarchy of needs at a quickened pace. The world is getting better at delivering food and health assistance, but situations in places like Afghanistan, Iraq, Sudan, and Congo demonstrate that we have a long way to go when it comes to security. As the New York Times article underscores, however, basic needs and security cannot be separated. For decades, the military was anathema to non-governmental organizations. They shunned any association with the military. Although there are good reasons for maintaining a distance and distinction between humanitarian groups and the military, over the past decade a healthier appreciation for each other's roles has emerged.

Development-in-a-Box begins with security, but encourages a transition from military to civil police as quickly as possible. In places like the Congo, however, civil police are simply insufficient. There both militias and government troops have been accused of looting villages and raping women (which has also happened in far too many UN peacekeeping operations). In this area, as in all others, standards must be defined and enforced. This didn't happen in the Congo.

Ill discipline in the army, an amalgam of former rebels and government soldiers fused into a national force under the peace agreement, has been another problem. Their official salary is less than a dollar a day, and even that does not come regularly. Long accustomed to living off loot, government soldiers are frequently accused of human rights violations, including rape and murder.

The purpose of Development-in-a-Box is to move people quickly beyond living at the lower deficiency needs levels of Maslow's hierarchy so that they can enjoy a more satisfying and joyful life. Elections are fine, but peace and security must come first. That's a lesson that has been learned and quickly forgotten in every complex emergency of the past twenty years. The article ends with a plea:

"We have never suffered like this," said Djimo Charles Kanoya, a member of the family. "We spent one month in the bush. The children are hungry and they are so cold." Even more than food, the people need blankets and plastic tarpaulins to shelter them from the cold mountain air at night. At the hospital in Geti, Ngele Anyodi, a nurse, said children were dying of disease and malnutrition every day because they could not get to a better equipped hospital. "This place was looted in the fighting," he explained, showing the ransacked offices, laboratory and pharmacy, stripped clean of microscopes, medicines and medical equipment. "We cannot care for the sickest people here. We don't have the means." Indeed, the nurse in charge — there are no doctors here — was also a patient, sick with malaria. An election may be around the corner, but voting, he said, is the last thing from his mind. Dead people, he said, cannot vote.

"We need help," Mr. Anyodi pleaded. "We need to survive first."

Enterra's Senior Managing Director, Tom Barnett, continues to expound his vision of "shrinking the Gap." It's not a quick fix, but a long-term vision. Development-in-a-Box is a new tool in the kit for helping achieve it.

June 22, 2006

Investment, Development, & Resilience

Over the past few days there have a number of interesting articles that in one way or another discuss the importance of investment, development, and interdependence. The first article is from the Financial Times ["Brussels decries US protectionism," by Wolfgang Proissl and Fidelius Schmid in Brussels and Daniel Dombey in London, 20 June 2006]. That is an amazing headline considering that America's foreign policy for decades (including both democratic and republican administrations) has included spreading democracy and expanding free markets. For example, President Bush, in his 2002 National Security Strategy, wrote:

The United States will use this moment of opportunity to extend the benefits of freedom across the globe.We will actively work to bring the hope of democracy, development, free markets, and free trade to every corner of the world.

How do you get from that statement about spreading free markets and free trade to the point where the president of the European Commission, as reported by the Financial Times, has felt compelled to speak several times with President Bush "about the risk of introducing new barriers on investment because of worries about globalisation or terrorism"? The short answer is Congress. Although the President approves the National Security Strategy, the laws José Manuel Barroso is worried about are passed by Congress. Of course, the President has a veto, but this president has yet to use that device.

Barroso said, “We deplore all decisions when there is – because of a security concern – the restriction of the free flow of capital . . . It’s negative for all of us. We believe it’s important to have more cross-border investment.” Barroso, of course, is correct -- it is important. Globalization can only advance when there is a relatively free movement of resources, people, and capital. Congress knows that as well. As Barroso noted, "a backlash against globalisation was also stoking 'protectionist tendencies' in the US. and elsewhere." The Financial Times article provided a couple of examples that concern Europeans:

EU officials believe the failure of Dubai Ports World’s attempt to buy US ports this year showed a willingness by Congress to block foreign investment on grounds unrelated to economic criteria. ... Mr Barroso is also worried about Washington’s refusal to grant visa-free access to the US to citizens of “new” EU member states, and the Commission has struggled to meet US demands to provide details of transatlantic air passengers in a way that is compatible with EU law.

Frankly, the conservatives pushing an anti-globalization agenda, don't care what foreigners think. They should. Congress continues to support staggering deficits and that debt is being bought by foreigners in the form of bonds. In other words, those foreigners whom Congress prefers to ignore is funding the wars in Afghanistan and Iraq, the clean-up of Hurricane Katrina, etc. They are not doing this because they necessarily support the U.S. position about the war or because they are making loads of money from the deal or because they want to gain some strategic advantage over the U.S. They buy U.S. debt because they know that if the U.S. economy collapses, their economies are likely to follow.

Former Treasury Secretary Larry Summers has pointed out that developing countries would be better served to avoid buying U.S. Treasurys ["Advice to Invest Less in U.S. Bonds: Foreigners Can Do Better, Summers Says," by Paul Blustein, Washington Post, 22 June 2006]. As the article reports:

Lawrence H. Summers, who headed the Treasury in the last 18 months of the Clinton administration, has argued in recent speeches that developing countries in Asia, Eastern Europe, Latin America and Africa should put much of their excess funds into stocks. Too often, he contends, the central banks of those countries invest their hoards of foreign securities -- now totaling several trillion dollars -- in safe but low-yielding U.S. Treasurys. The return "will be zero" on those Treasurys after inflation and currency changes are factored in, Summers said in a lecture last week at the Center for Global Development, a Washington think tank. Meanwhile, he said, the developing countries are passing up much more lucrative investments -- "this, in societies where hundreds of millions of people are still desperately poor." In another speech, this one in Bombay a few weeks ago, he said, "It is striking to estimate the cost to developing countries" of their Treasury-heavy portfolios.

Asked if this wasn't an ironic position for someone to take who used to be in charge of selling U.S. Treasurys, Summers said, "he saw no incongruity in his position, because he is not urging wholesale dumping. He said central banks around the world must keep 'large volumes' of their money in super-safe assets such as Treasury bills. And 'any diversification' into riskier investments such as stocks 'is not likely to be rapid, in ways that would affect' the Treasury's ability to borrow at affordable interest rates." There is a bigger concern for Summers, however, than who buys U.S. debt. As the article goes on to report:

Summers's proposal is based on fundamental shifts in the global financial system that arose well after he left office -- in particular, an immense buildup in the reserves of foreign exchange held by developing countries' central banks. Those reserves have grown as the United States, with its burgeoning trade deficit, imports goods from abroad. The dollars Americans spend on foreign products eventually end up in the hands of central banks overseas, and the central banks invest the proceeds largely in U.S. government securities. They do so in part because they want to protect themselves against financial crises of the sort that struck Thailand, Indonesia, South Korea, Russia, Brazil and Argentina a few years ago. For a developing country, accumulating a big war chest of dollars can help discourage speculators from trying to drive down the value of its currency. But the upshot, in Summers's view, is "the central, global financial irony of our times": Countries that need capital to finance rapid development are shipping more money to the United States than is flowing in the opposite direction -- and it is their official policies to do so.

The paradox of these articles is that the U.S. is discouraging investment from developed countries at the same time it is selling its debt to developing countries who are desperate for investment. A point that Tom Barnett likes to make when he discusses globalization is that foreign direct investment is much more important for helping bring an underdeveloped nation out of poverty than official development assistance (foreign aid). In a recent column ["Foreign Aid Has Flaws. So What?" New York Times, 22 June 2006], Nicholas Kristof makes the point that ODA still has a place. He begins, however, by admitting that ODA has problems.

Don't tell anyone, but a dirty little secret within the foreign aid world is that aid often doesn't work very well. Now that truth has been aired (and sometimes exaggerated) in a provocative new book by William Easterly, "The White Man's Burden." Mr. Easterly, a former World Bank official who is now an economics professor at New York University, has tossed a hand grenade at the world's bleeding hearts — and, worst of all, he makes some valid points. Let me say right off that stingy Republicans should not read this book. It might inflame their worst suspicions. But the rest of us should read it, because there is a growing constituency for fighting global poverty, and we need to figure out how to make that money more effective.

Kristof's surly comment about Republicans aside, he's right that we need to make sure that development assistance is more effective. My involvement with the Development-in-a-Box, standards-based approach aims for exactly that goal. Kristof continues his column by noting that helping people is difficult. More than mere altruism is required to make it effective.

I disagree with many of Professor Easterly's arguments, but he's right about one central reality: helping people can be much harder than it looks. When people are chronically hungry, for example, shipping in food can actually make things worse, because the imported food lowers prices and thus discourages farmers from planting in the next season. (That's why the United Nations, when spending aid money, tries to buy food in the region rather than import it.) ... It's well-known that the countries that have succeeded best in lifting people out of poverty (China, Singapore, Malaysia) have received minimal aid, while many that have been flooded with aid (Niger, Togo, Zambia) have ended up poorer. Thus many economists accept that aid doesn't generally help poor countries grow, but argue that it does stimulate growth in poor countries with good governance. That was the conclusion of a study in 2000 by Craig Burnside and David Dollar. Professor Easterly repeated that study, using a larger pool of data, and — alas — found no improvement even in countries with good governance. Saddest of all, Raghuram Rajan and Arvind Subramanian of the International Monetary Fund have found that "aid inflows have systematic adverse effects on a country's competitiveness." One problem is that aid pushes up the local exchange rate, discouraging local manufacturing. Mr. Subramanian also argues that aid income can create the same kinds of problems as oil income — that famous "oil curse" — by breeding dependency and undermining local institutions.

Nothing new here and Kristof doesn't try to argue that ODA can lift a nation out of poverty. Where he believes that ODA is best invested is in social programs rather than economic programs. Social services are usually the last programs developed when a country emerges from poverty and the first to disappear when a country sinks into chaos. FDI can jump-start the economy, but Kristof argues that ODA can jump-start social services:

All these findings can be pretty shattering to a bleeding-heart American. But cheer up. Some other studies indicate that aid does improve growth (economists don't agree about this any more than they agree about anything else). And whatever the impact on economic growth rates, aid definitely does something far more important: it saves lives. For pennies, you can vaccinate a child and save his or her life. For $5 you can buy a family a large mosquito net and save several people from malaria. For $250, you can repair a teenage girl's fistula, a common childbirth injury, and give her a life again. The Center for Global Development, a Washington think tank, has published a terrific book, "Millions Saved," demonstrating how health projects have saved lives. Eradicating smallpox and reducing river blindness have improved the lives of more people for less money than almost any investment imaginable. So let's not shy away from a conversation about the effectiveness of aid. The problems are real, but so are the millions of people alive today who wouldn't be if not for aid. In the end, if we have tough conversations about foreign aid, then I believe Americans will acknowledge the challenges — and then, clear-eyed, agree to dig more deeply than ever, for that is simply the best way we have of asserting our own humanity.

I certainly agree with the thrust of Kristof's compassion, but I also think his column underscores the importance of pursuing a broader goal of economic development that requires public/private partnerships, foreign direct investment, and economic success built on a foundation of job creation. A column by Tom Friedman ["Latin America's Choice," New York Times, 21 June 2006] examines the stark differences between maintaining an economy based on exporting resources (and remaining an underdeveloped country) and building an economy based on job development (and joining the developed world).

I would describe the big question facing Latin Americans this way: Are they going to emulate India or get addicted to China? ... [Latin America] has always been better at mining its resources than mining its people.

Friedman discusses an Indian company trying to invest in Latin America. The company, Tata Consultancy Services of Mumbai, hires "programmers, trained and directed by Indians, [who] are writing code and running the computer systems for companies all across this continent. They are backed up by Tata engineers in India, Hungary, China, Brazil, Chile, Mexico and Argentina. India now thinks Latin America is its backyard, too." In other words, through foreign direct investment from India, jobs are being created in Latin America. Friedman says that China thinks of Latin America as its backyard as well, but for different reasons:

China, though, is almost exclusively focused here on extracting natural resources — timber, iron, soybeans, minerals, gas, fish meal — to feed its voracious appetite and keep jobs and factories humming in China. There is nothing wrong about that. America and Spain did the same for years — and often rapaciously. Today, China's appetite is helping to fuel a worldwide boom in commodity prices that is enabling a poor, low-industrialized country like Peru to grow at 5 percent. But countries that get addicted to selling their natural resources rarely develop their human resources and the educational institutions and innovative companies that go with that. So after the ore has been mined, the trees cut and the oil pumped, their people are actually even more behind.

The Latin American head of Tata Consultancy Services, a Uruguayan Jew with Hungarian roots who was educated in America and lives in Peru (how's that for globalization), laments the fact that he has 500 jobs available but no suitable candidates to fill them. He believes he could eventually create 100,000 jobs in Latin America, but that won't happen without educational reform -- something I previously blogged that the United States needs as well. Friedman concludes:

Latin Americans may think that their big choice is between two models of Western capitalism — a European welfare state model and a hyper-competitive U.S. model. But before they divide their pie, they need to expand it — and here their most important choice is between an India example that focuses on developing human resources and a China syndrome that focuses on selling natural resources. Since countries tend to do either one or the other, here's hoping that Latin America discovers India before it gets hooked on China.

When I talk about a flexible framework within which the Development-in-a-Box approach operates, I talk about the need to set standards (to attract investment), educate people (to fill jobs and create a sustainable middle class),  and automate processes where possible (to jump-start economic and regulatory processes). It is the blending of people, processes, and resources that will help nations emerge from poverty.

June 21, 2006

Land Policy & Resilience

Bolivia, under the left-leaning leadership of Evo Morales, is making another attempt at land reform. An article in the Washington Post ["Two Views of Justice Fuel Bolivian Land Battle: Owners Dig In to Protect Turf as Peasants Push to Benefit From Reforms," by Monte Reel, 20 June 2006], explores both the necessity and complexity of such reforms. According to the article:

The conflict in Bolivia is firmly rooted in the stark inequities that President Evo Morales says his "agrarian revolution" is designed to correct. About 90 percent of Bolivian land is owned by the wealthiest 7 percent of the population. Imbalances like that have helped make Bolivia South America's poorest nation: About 63 percent of its citizens -- and nearly 80 percent of its rural population -- live in poverty.

The article discusses the plight of a Japanese immigrant who bought 1400 acres for $80,000 shortly after the Second World War. His land has been targeted by landless peasants for takeover (with nearly a quarter of his land already occupied by squatters). Prevented by the government from protecting it by use of arms, he sleeps with a pistol under his pillow and a shotgun near the door fearing for his very life. The problem with most reform efforts is that land redistribution often ends up destroying one of the bedrocks of society needed to attract foreign direct investment -- property rights. Done right, land reform must be viewed as fair (offering fair market value for seized lands), legal (proper titles registered, liens cleared, etc.), and sustainable (new landowners must be capable of properly using the land). All this takes money, which is often the long pole in the tent when it comes to land reform.

Large-scale land reform has been tried in the past in Bolivia, and it failed miserably because of a lack of resources and political will. The country's first agrarian reform plan was passed in 1953, and another was tried in 1996. After nearly $100 million was spent in an attempt to redistribute 250 million acres during the past 10 years, only 17 percent of the target areas changed hands. Venezuelan President Hugo Chavez -- an ideological ally of Morales who has promoted smaller-scale land reform in his country -- has pledged financial support. But Bolivia will have to find a lot more money to keep the current effort from joining the long list of failed agrarian reforms in Latin America.

The article points out that even if land is successfully and legally transferred, the new landowner needs money for a home, equipment, seeds, animals, and sufficient credit to get him or her through the growing season and harvest. Without proper initial investment, the old landowner often buys back his lost property at a reduced price; resulting in nothing changed except that the rich landowner is richer and the poor peasant is more depressed. Land reform and financial reform must go hand in hand. The disaster created by Robert Mugabe's land reform should be a warning to any government attempting massive land reform. A New York Times article, written two years after Mugabe's plan went into effect, detailed the problems ["After Zimbabwe's Land Revolution, New Farmers Struggle and Starve," by Rachel L. Swarns, 26 December 2002].

Another trend that could help make land reform successful is a willingness by some large corporations to pay a premium for certain crops. According to a Washington Post article ["For Wal-Mart, Fair Trade May Be More Than a Hill of Beans," by Ylan Q. Mui, 12 June 2006], Wal-Mart, the 800-pound gorilla in the retailing sector, may join this movement.

Wal-Mart is in the midst of overhauling its tightfisted image to win over shoppers searching for more than low prices. That effort has taken the company that built an empire on the principle of high volume and low costs into previously uncharted territory, into the realm of trendy apparel and organic food.

The story focuses on a Brazilian co-op farmer named Rosevaldo Jose Pereira, who lovingly tends to six acres of coffee plants.

Pereira gets a premium for his harvest. His co-op is one of only seven in the country that is fair-trade certified, charging above-market price for beans because it meets certain social and environmental standards.

Wal-Mart, which, the article points out, is famous for squeezing suppliers for every penny, hardly seems the poster child for fair practices. As the article reports:

Supporting fair trade presents a paradox for Wal-Mart. It is a tacit admission that there is a point at which no more efficiencies can be squeezed out of the system without harming the people who make it work. Fair-trade beans are sold at a minimum of $1.26 per pound, compared with the world average last month of 90 cents. But Wal-Mart is still determined not to pay more than it must. The company has forged partnerships with hundreds of social and environmental groups to develop sustainability initiatives. TransFair USA, which certifies farms as fair trade, is working with it on Pereira's coffee. The Rocky Mountain Institute is helping reduce the fuel consumption of its trucking fleet.

The article lists a litany of complaints that still remain against Wal-Mart, but for Pereira times are flush. He lives in a new home with tile floors and a spacious kitchen (his old house was converted into a storage shed for fertilizer). He watches TV, owns a cell phone, and can afford dental work for his daughter.

Over the past two years, the government has redistributed nearly all of the country's white-owned farmland to about 300,000 poor black families and 50,000 aspiring black commercial farmers. Of the 4,500 white commercial farmers who once powered the economy by producing tobacco and wheat, about 600 are still trying to farm, mostly on smaller holdings. Mr. Mugabe, who has led this country since white rule ended in 1980, has hailed the sweeping change as the fulfillment of the black struggle for liberation in Zimbabwe. Many Africans praise him for undoing the legacy of British colonialism, which left a tiny white minority -- less than 1 percent of the population -- with more than half of the country's fertile land. But the government's chaotic and violent seizure of white-owned farms has come at a price. The economy is collapsing. The land program, coupled with severe drought, has left half the population in need of emergency food. And so far, Mr. Mugabe has failed to transform the agricultural sector into a viable system that can feed the nation and drive the economy. Vast stretches of previously productive farmland are no longer in use because about half of the aspiring black commercial farmers have failed to take up their allotted farms since August, when most white farmers were told to leave. The government, which seized the farms without compensation, still lacks title to most of the land. Many prospective black farmers are reluctant to occupy farms without title deeds because it is nearly impossible to get loans without them. Meanwhile, thousands of impoverished, resettled farmers are struggling to survive without seed, fertilizer, irrigation and plowing assistance, basic services that the government has promised. The United Nations says that more than half of the government's tractor fleet -- which was meant to plow fields for the poor -- is out of service because of shortages of spare parts and fuel. Officials are so short of seed and fertilizer that many small farmers are sitting idle on plots of land they cannot plant. In Manicaland Province, only about 10 percent of resettled farmers have seed and 17 percent have fertilizer. When seeds are available, the government often provides unsuitable varieties.

Now, four years later, things haven't improved much. Zimbabwe, once able to grow food sufficient for its own needs with enough left over to export, still suffers from famine. There have even been calls to give land back to white farmers to break this chronic crisis. South Africa, which has pledged to raise black ownership of farms from 4 to 30 percent by 2014 is finding out just how difficult land reform can be. A New York Times article last year ["South Africa To Take Farm From a White," by Michael Wines, 27 September 2005] described the challenges that country is facing.

Many experts here say the prevailing approach to land redistribution, in which whites sell their farms to the government and the government subsidizes resale to blacks, has failed. In July the nation's deputy president, Phumzile Mlambo-Ngcuka, said at a national meeting on land distribution that the government was at risk of being exploited by white landowners seeking to reap a profit.

Exploitation, it seems, is in the eye of the beholder. The farmer who is the focus of this article refused to sell his two farms (a total of 1275 acres) and a meat plant he had built on one for the $275,000 the government offered. A price he thought was way too low -- in other words, he thought he was being exploited by the government. Similar problems have plagued land reform in Namibia ["Tensions Simmer as Namibia Divides Its Farmland," by Sharon LaFraniere, New York Times, 25 December 2004] and Venezuela ["Venezuela Land Reform Looks to Seize Idle Farmland," by Juan Forero, New York Times, 30 January 2005]. This appears to be an area ripe for a Development-in-a-Box, standards-based approach. Everything from property laws to land titles to estimating fair market value to microfinancing to credit availability to basic agricultural materiel requirements can be standardized and adapted to local conditions. Much of the resentment and perception that the other side is trying to exploit the situation can be mitigated as a result. Without a breakthrough of some kind, chronic poverty and social unrest will remain throughout large parts of Africa and South America.

June 20, 2006

The Race to the Top

I remember the days when one of the starkest contrasts between capitalism and communism was that the former fostered an entrepreneurial spirit while the latter sapped the desire to work from its labor force. You know the last vestiges of communism are starting to crumble in China when the its leadership urges their people to be more innovative. Yesterday's Washington Post ran an article about just such a turn of events ["In China, Dreams of Bright Ideas: From Top Down, A Push to Innovate," by Edward Cody].

Instead of millions of Chinese youths assembling somebody else's inventions, the party leadership has concluded, the time is right for China to come up with its own ideas and sell them to everyone else. The question of whether China can pull off this transformation -- from workshop of the world to cradle of invention -- is key to the giant country's future. The answer will help determine whether a government anchored in 150-year-old Marxist ideology can pursue economic expansion, satisfy the needs of 1.3 billion people and take a place among global powers in an age when knowledge is the highest-earning product.

It's ironic that at the moment the world's most powerful capitalist nation spends most of its time complaining about the outsourcing of jobs, the world's most powerful communist nation sees its future creating jobs (not importing them). The key to such job generation, according to the article, is education -- "knowledge is the highest-earning product." There is no secret here. We pay lip service to education, job training, etc., but we have yet to bite the bullet as a nation and get serious about improving our educational system.

In April 2005, Tom Friedman wrote about this problem ["What, Me Worry?" The New York Times, 29 April 2005]. He had just listened to a speech by Bill Gates to America's governors. Here is some of what he wrote:

One of America's most important entrepreneurs recently gave a remarkable speech at a summit meeting of our nation's governors. Bill Gates minced no words. "American high schools are obsolete," he told the governors. "By obsolete, I don't just mean that our high schools are broken, flawed and underfunded. ... By obsolete, I mean that our high schools - even when they are working exactly as designed - cannot teach our kids what they need to know today. Training the work force of tomorrow with the high schools of today is like trying to teach kids about today's computers on a 50-year-old mainframe. ... Our high schools were designed 50 years ago to meet the needs of another age. Until we design them to meet the needs of the 21st century, we will keep limiting - even ruining - the lives of millions of Americans every year." Let me translate Mr. Gates's words: "If we don't fix American education, I will not be able to hire your kids."

As backward as some Americans think China and India are, they are rapidly overtaking the U.S. in the educational field. If America is to remain resilient, it needs to stop whining and start educating its future work force - its future innovators. Friedman continued by quoting from an interview he had with Harvard President, Larry Summers:

"For the first time in our history, we are going to face competition from low-way, high-human-capital communities, embedded within India, China and Asia," President Lawrence Summers of Harvard told me. In order to thrive, "it will not be enough for us to just leave no child behind. We also have to make sure that many more young Americans can get as far ahead as their potential will take them. How we meet this challenge is what will define our nation's political economy for the next several decades.

Friedman concluded his column by recommending a book whose contents seem to have been read by Chinese leadership:

Meeting this challenge requires a set of big ideas. If you want to grasp some of what is required, check out a smart new book by the strategists John Hagel III and John Seely Brown entitled "The Only Sustainable Edge." They argue that comparative advantage today is moving faster than ever from structural factors, like natural resources, to how quickly a country builds its distinctive talents for innovation and entrepreneurship - the only sustainable edge. Economics is not like war. It can always be win-win. "But some win more than others," Mr. Hagel said, and today it will be those countries that are best and fastest at building, attracting and holding talent. There is a real sense of urgency in India and China about "catching up" in talent-building. America, by contrast, has become rather complacent. "People go to Shanghai or Bangalore and they look around and say, 'They're still way behind us,' " Mr. Hagel said. "But it's not just about current capabilities. It's about the relative pace and trajectories of capability-building. "You have to look at where Shanghai was just three years ago, see where it is today and then extrapolate forward. Compare the pace and trajectory of talent-building within their population and businesses and the pace and trajectory here." India and China know they can't just depend on low wages, so they are racing us to the top, not the bottom. Producing a comprehensive U.S. response - encompassing immigration, intellectual property law and educational policy - to focus on developing our talent in a flat world is a big idea worthy of a presidency. But it would also require Mr. Bush to do something he has never done: ask Americans to do something hard.

Let's jump back to Cody's article in yesterday's New York Times:

Even while they enforce political conformity, President Hu Jintao and Premier Wen Jiabao rarely let a speech go by these days without urging their countrymen to think up new products. Most recently, Hu told scientists and engineers they must make China "a nation of innovation." "Innovation is an overall strategy for maintaining China's economic security," said Hu Shuhua, who heads the Product Innovation Management Center at Wuhan University of Technology. "Now should be the time for us to innovate," he added, pointing out that China has been importing other countries' know-how for the last 20 years. "Now we have the economic and technical base to do it."

Cody reports that Chinese leaders lament the fact that they have to travel on Boeing aircraft, log on to their computers using Microsoft software, and drive in cars built in partnership with foreign car manufacturers. That has a familiar ring to it doesn't it? China will get over its inferiority complex and soon realize that this global interconnectivity is good, not bad. They will welcome what IBM's Samuel Palmisano calls "globally integrated enterprises." Chinese leaders are hoping they can foster innovation in areas they desire, while preventing it in areas they perceive as threatening.

Even as President Hu was urging party members to "actively promote cultural innovation" in April, censors were ordering more than 20 paintings with political content pulled from an exhibition in Beijing's Dashanzi art colony. Similarly, in May, Premier Wen urged scientists to "raise the level of self-generated innovative ability" just as his government ordered a blackout on the film "Summer Palace," a Chinese production containing references to the 1989 student protest in Tiananmen Square that gained acclaim at this year's Cannes Film Festival.

They will learn -- and eventually accept as fact -- that once people taste a bit of freedom, obtain a little success, and connect with others, there is no going back. It's a Pandora's Box. Nicholas D. Kristof's column in today's New York Times underscores what I'm writing about. Kristof started two Chinese blogs to see how outrageous he could get before the censors shut him down. He learned he could be pretty outrageous.

China is not the police state that its leaders sometimes would like it to be; the Communist Party's monopoly on information is crumbling, and its monopoly on power will follow. The Internet is chipping away relentlessly at the Party, for even 30,000 censors can't keep up with 120 million Chinese Netizens. With the Internet, China is developing for the first time in 4,000 years of history a powerful independent institution that offers checks and balances on the emperors. It's not that President Hu Jintao grants these freedoms, for he has arrested dozens of cyberdissidents as well as journalists. But the Internet is just too big and complex for State Security to control, and so the Web is beginning to assume the watchdog role filled by the news media in freer countries. ... China's leaders decided years ago to accept technologies even if they are capable of subversive uses: photocopiers and fax machines at first, and now laptops and text messaging. The upshot is that China is much freer than its rulers would like. To me, this trend looks unstoppable. I don't see how the Communist Party dictatorship can long survive the Internet, at a time when a single blog can start a prairie fire.

These are all good signs for the advance of globalization and international peace, but they are also strong warning signs for the U.S. if it wants to stay in the race at the top. A freer, more competitive China will force the U.S. to reexamine how it educates and employs its work force. America will ignore these signs at its peril. The U.S. has rested on its laurels far too long and must once again get serious about education. The "greatest generation" returned from the Second World War eager to get educated and get to work -- and what miracles it wrought! It's time to work more miracles, by educating the next great generation and providing them with the necessary skills to excel in what promises to be a very interesting moment in history. We will be in a win-win situation only if we position ourselves for success. That's being resilient.

June 19, 2006

From Somalia to Svalbard

Two subjects over the past few days caught my eye: Somalia and food. Both topics touch on resilience, the first describes the importance of women in making societies resilient, the second explores how to provide food security against catastrophic extinction.

In an earlier blog (Out of Africa), I mentioned that an Islamic coalition had taken over Mogadishu, Somalia, and the area surrounding it. Saturday, in the first of three Washington Post articles by Craig Timberg ["Guns Finally Silent in Somalia's Capital"], he discusses the joy that most individuals feel now that their lives are not threatened on a daily basis.

The thugs manning the roadblocks are gone. The warlords are on the run. And the guns in a city long regarded as among the world's most heavily armed have fallen silent. Most, in fact, have disappeared from view. Since Islamic militias took control of this city last week, U.S. and other Western officials have worried that Mogadishu's new leaders will impose a severe, Taliban-style government and harbor terrorists. But after 15 years of deadly chaos, residents interviewed here expressed nothing short of jubilation that somebody has made their city safe and that, for now, the daily crackle of gunfire is finally gone.

The article in Sunday's Washington Post ["Gender-Based Violence Galvanized Warlords' Foes: Somali Women Gave Crucial Support for Islamic Militias"], described how Mogadishu's women rose up against the rape and violence carried out by warlord supporters. Girls as young as 4 and 5 were kidnapped and abused. As the article states,

An epidemic of sexual violence during 15 years of lawlessness in Somalia was among the factors that strengthened opposition to this city's notorious warlords, residents said. The Islamic militias who drove them out in months of recent fighting were embraced as keepers of public order, as a force strong enough and pious enough to keep Mogadishu's daughters safe. That helped the militias win the support of Mogadishu's increasingly influential women, who in recent years had joined the job market en masse to support their families in the midst of a collapsing economy. On streets throughout this ruined city, they sold vegetables, plastic jugs of gasoline and khat, a popular, addictive leaf chewed widely here.

It seems that men must constantly relearn the fact that women can be a powerful political force. Aristophanes wrote about it in his famous play Lysistrata and the warlords of Somalia know it today.

"Somalia was saved because of the Somali women," said Khadija O. Ali, 47, founder of a women's group here and a graduate student in conflict resolution at George Mason University. "I think it is even something that the men acknowledge now. Finally."

Somali women, however, are learning that a "peace at all costs," strategy does have a downside.

Ubah Mohamed, 34, a widow with seven children, was among the women who joined Mogadishu's workforce. But she said the beauty shop she opened a decade ago has been losing regular customers, from more than 300 to about one-third that number, as radical Islamic values appear to be gaining wider acceptance. "The militias patrol our areas looking to see if girls are going out with boys," she said. "So the girls don't come to beauty salons like ours." Mohamed, meanwhile, began wearing a black hijab to cover her own hair out of fear of what the newly powerful militias might do. In a city where residents report that public viewing of the World Cup has been curbed, she predicted that beauty shops, including hers, would be closed soon as well.

In final article in today's Washington Post ["In Mogadishu, a New Moral Code Emerges"], Timberg relates the story of a young Muslim couple that dreams of the security and freedom found in America, but they have learned that they must conform to a stricter Muslim law since they live in Mogadishu.

Many residents of Mogadishu have embraced the militias and their enforcement of Islamic law through neighborhood courts. But some young adults have bristled as their personal freedoms diminish. ... Supporters of the Islamic militias acknowledge that their leadership is divided between extremists and moderates, and few are willing to predict which will consolidate power in the weeks and months ahead.

It's fascinating that the Islamic Courts Union (the coalition of Islamic militias who seized Mogadishu) seems so quickly to have forgotten that it was the women who brought them to power. I believe those same women can find a way to outsmart the Islamic Courts Union as well. Their biggest challenge is facing the guns that still pervade the city.

To many young Somalis, the Islamic militias seem to bear an eerie resemblance to the old warlords. In many cases, they are in fact the same gunmen, carrying the same AK-47s while riding on the backs of the same pickup trucks, residents here said. As the secular warlords' grip weakened, many of the families controlling the gunmen simply ordered them to switch sides.

The fact that gunmen so easily switched sides indicates that their support of the Islamists is only as deep as their pockets. Find a secular, non-violent way for the families to employ their sons gainfully and Somali society will be transformed overnight -- and women will play a big role in that transformation.

Turning to the other subject -- food -- an article in today's Washington Post ["The World's Agricultural Legacy Gets A Safe Home," by Rick Weiss] discusses the fact that work has begun on a huge vault on the Norwegian island of Svalbard to house seeds from world's food producing plants. Although there are thousands of varieties for most of mankind's favorite crops, the number of those crops is relatively small. In his book Guns, Germs, and Steel, Jared Diamond notes that five of the world's leading crops (wheat, corn, rice, barley, and sorghum) account for "over half of all calories consumed by humans." Promoters of the seed vault believe that their project will protect the world from a natural or man-made catastrophe that could devastate these crops.

Crop seeds are the source of human sustenance, the product of 10,000 years of selective breeding dating to the dawn of agriculture. The "doomsday vault," as some have come to call it, is to be the ultimate backup in the event of a global catastrophe -- the go-to place after an asteroid hit or nuclear or biowarfare holocaust so that, difficult as those times would be, humankind would not have to start again from scratch.

Svalbard was selected as the site for the doomsday vault because it isolated, cold throughout most of the year (even if global warming continues), and is accessible (and would remain so even if a new ice age commenced). Scientists are taking advantage of the same kind of permafrost that the remains of woolly mammoths to help keep seeds viable for millennia. Seeds stored there must have proven to have an 85% germination rate.

Scientists estimate there are 2 million varieties of plants used for food and forage today. That includes an astonishing 100,000 varieties of rice, the major staple of the human diet, and more than 1,000 varieties of banana, a nutritious fruit of global importance. Seeds from these crops, which can be smaller than poppy seeds and as large as coconuts, are invaluable repositories of plant DNA. They are the raw material that farmers and researchers rely on to develop more productive and nutritious plants that can cope with climate change, new diseases or pests.

The connection between Somalia and Svalbard is a healthy mixture of realism and optimism -- with the optimists having the upper hand. The women of Mogadishu have carried on in the face of chaos and devastation. In some cases, they have thrived. They supported the Islamists in the short-run because they offered peace and stability. They move forward with some skepticism, but clearly with the hope that they can continue to make a difference in the society in which they live. The proponents of the doomsday vault fear a catastrophe that cripples the food chain, but express an ultimate faith that mankind will survive in order to take advantage of the precious seeds contained in the vault. That mixture of realism and optimism will be found in any resilient system.