Guest Speaker

Sasa Vucinic from Media Development Loan Fund. See him speak here.

We start with this video.

Only 18% of the world's population lives in countries with a free press. "Only 18% knows exactly what's going on, gets unfiltered views ..." Um, there went a big non sequiter? Are we going to talk about media failings in countries with freedom of the press?

Got financing from Soros in 1996. Financed 167 different projects worldwide with 70 teams in 23 countries. Current loan portfolio $23m with interest rate 2% to 10%, lowest rate to riskiest projects. Overall, 2.5% loss rate. One case of fraud, in Macedonia, involving imported chicken wings.

Funding is from large agencies, however they have inconsistent direction due to management turnover. Now offering bonds for individual investors.

How not to censor a radio station: send troops to confiscate the equipment. Very photogenic. How to censor: call the potential advertisers and threaten them.

Microcredit is the subject this week.

What is credit? Something you owe someone. That's credit. Are debt and credit the same thing? Lines of credit. "Credit is borrowed money". Grameen is not the first microcredit lender: ACCION and others came first. But Grameen had the best marketing.

Three C's of credit: Character, Capacity, Capital. Other kinds of microcredit: associations, bank guarantees, community banking, cooperatives, credit unions.

Microcredit as the goal: focus on providing credit to poor; the borrowers have to declare what they will do with it. If the borrower cannot look the lender in the face (c.f. cultural rule that women look down while speaking) and explain what the loan is for, the interview is over.

Microcredit plus: provide credit and training. Example: BRAC.

Microcredit as the means: example: Proshika.

As of February 2008, Grameen has 7.45 million borrowers, service in 97% of Bangladeshi villages.

Grameen's key feature: ultra-high level of contact between bank and borrower. Weekly loan repayment; followup in person one day after payment is missed. Borrowers must learn to sign their own names instead of making a thumbprint. Borrowers are required to use a small part of the loan as a group fund, as mandatory weekly saving, and as emergency fund deposits.

The Sixteen decisions, such as "We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest" and "We shall educate our children and ensure that they can earn to pay for their education."

Ten poverty indicators, such as "each member of the family is able to sleep on bed instead of on the floor" and "Family members have adequate clothing for every day use".

Despite a hands-off approach, the bank must intervene in some cases, for example, if everyone in a region is using their loan to weave baskets and the local demand for baskets is saturated. But Grameen still avoids telling borrowers what to do, in contrast to some other micro-finance institutions (MFIs).

Measuring success of MFI:

• Outreach (number of loans, growth rate of assets, etc)
• self-sustainability. profit, etc
• Subsidy dependency index: how much does the MFI depend on charity?

Joel's note: isn't poverty reduction the ultimate purpose of MFI? Why isn't it on the list?

Four decade history of MFI initiatives in India. Government project: SHG, vs Grameen-model MFIs. State government raided and shut down all MFIs in one district in March 2006

Related services offered via same channel: insurance, pension, etc.

Note to self: Need to grok the difference between Return on Assets and Return on Equity.

Our presentation

My teammate and I are presenting on the last case this week, Microfinance 2.0. We will go without powerpoint slides. But I haven't practiced my own presentation as much as I should have; I've practiced pieces out loud, but not the whole thing with a clock. My feeble excuse is that I will be flexible after hearing what our classmates do in the two preceding presentations. My rough topic outline:

• theory
  • What is poverty/what is money?
  • A working economy is dynamic: everybody has to dance at the same time
  • systems: capitalist/market; socialist
• How does microfinance help?
  • provide liquidity
  • provide motivation
• How should microfinance work?
  • Reach more people
  • make more changes in people being reached
• Should microfinance be capitalist or socialist?
  • Is there a third way?
  • What are examples of organizations that serve millions of people over a period of decades, but are neither governments nor for-profit businesses?
  • Indefinite charity? Mixed model?

After all the fuss of last week's guest and then the overloaded Global Issues class yesterday, today's Non-State Actors looms as an anti-climax. Plus it's raining, but more of a sullen wet than an exuberant storm.

Student Presentation

What is social enterprise? Joel's note: One of the key characteristics of private enterprise is the imperative for growth, which is so pervasive and intense that it appears to be reified as an end goal. I wonder whether, as social endeavors and civil society adopt more of the cladding of capitalism, they will also adopt the growth imperative.

Note that the PP5503 Baumgartner reading for this week dovetails nicely with today's class.

Should social enterprises have the same accountability as private actors? As government entities?

Joel's note: the professor is drawing a graph with X = social return and Y = economic return, making the point that there is an inverse relationship, and that it's curved, not linear. The professor, in referring to the graph, just referred to the economic return axis as "growth". hmmm.

Private enterprises which return lower than market rates on their capital are considered to be destroying wealth. Should social enterprises be expected to have higher SROI than government? That may be missing the point for neo-Gramscian-type civil societies, but could it be a good standard for neo-Tocquevillean entities?

Professor Presentation

Social enterprise and social entrepreneurship.

Joel's note: Wikipedia comes to the rescue to clarify the relationship between social enterprise and civil society: the former is a subset of the latter:

Social enterprises are generally held to comprise the more businesslike end of the spectrum of organisations that make up the third sector or social economy). A commonly-cited rule of thumb is that at least half their income is derived from trading rather than from subsidy or donations.

Joel's note: Um, cost of capital is not "the cost it takes to start the business" or "recouping the money that's put in to it". Cost of capital includes risk-adjusted interest rates. Is there an equivalent on the social side? Is there a social capital interest rate? Is that interest rate positive if the world is getting worse and negative if the world is getting better (or vice versa?)?

Sources of capital for social enterprises....

Something like 4 out of 5 businesses fail within 5 years (numbers I just pulled out of my ass. Here's some data: "The NFIB estimates that over the lifetime of a business, 39% are profitable, 30% break even, and 30% lose money, with 1% falling in the "unable to determine" category."). What's the rate for non-profits?

Guest: Albert Teo

Social Entrepreneurs in Singapore.

Next week

I'm presenting one of three cases, Microfinance 2.0 with BJay.

J. Gregory Dees, Jed Emerson, Peter Economy, Enterprising Nonprofits: A toolkit for Social Entrepreneurs (New York: John Wiley and Sons, 2001) ; Chapters 1, 2, 3

Case: Social Enterprise Spectrum: Philanthropy to Commerce

Case: Social Enterprise: Private Initiatives for the Common Good

Fundamental missions of social enterprises:

• reduce conditions with socially undesirable side effects
• provide goods and services with socially desirable side effects
• create a safety net for the less fortunate
• promote a more just distribution of benefits and burdens
• advance human rights

Nicholls, A; (2006). Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, Chapter 4

J. Emerson, “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation” – Executive Summary

Concludes with nine areas for further research in the field of social entrepreneurship.

Presentation on the case study

World Bank involvement in financing judicial reform in Peru circa 1996-1997. The question is whether Fujimori's government is serious about reform, or just wants World Bank cover for further abuse of the judiciary. Events make it utterly clear that the latter is the case, but is any way left for the Bank to still have a positive impact?

Why Peru? There was an opportunity to help fix a judicial system that had never worked in the history and pre-history of the country. The Bank justified participation under the theory that a corrupt judiciary hurts the economy.

Extended history of the judicial system reforms in Peru 1994 to 1997. There are a bunch of different entities in the system with various constitutional powers, dealing with: how are judges trained, how are they selected, who has authority to remove them, how much are they paid, etc. All of these are intensely political questions, especially who can remove judges, since without judicial independence the judiciary has no foundation and may do more harm than good. The story of judicial reform in Peru appears to be the story of Fujimori attempting to maintain subtle but real control through institutional tools; i.e., having the power to select the people who select the people who can fire judges, things like that. Each time Fujimori or his pawns make a step or delays real reform, the Bank writes a complaint or delays the next step. Eventually a more or less acceptable structure is in place, and the loan gets approved in late 1997, with money to be lent in early 1998.

Then Peru's Congress passed a law gutting judicial independence, and the World Bank's project director put a six-month hold on the loan. The case ends with the director about to respond to a meeting summons from Fujimori.

Q: what's the best outcome the World Bank could have been responsible for? If you assume that Fujimori would not give up control of the judiciary, could the World Bank still have catalyzed a meaningful (and dare I say, sustainable) improvement in Peru's judiciary? After all, the pretense for their participation, was the impact of a corrupt judiciary on the economy. Perhaps Singapore is a model of the best possible outcome as long as the political elites (Fujimori) keep their power monopoly: Singaporean business courts are world-class but the Singapore government has a 100% success record in suing political opponents in Singaporean courts.

Q: In this case, who exactly should have been more transparent, how would it have been in their interests to be transparent, and what would have been different if they had been transparent?

Class Discussion

Goodness and shrewdness. Do you need transparency to have accountability? (I don't think so) Is transparency a precondition for reform? (I don't think so)

What is transparency? There are two problems with defining it in terms of exposure to external scrutiny. The first is that that suggests that some extra effort is taken to be transparent. The second problem is that if such effort is necessary, that effort implies judgment and thus an unavoidable lack of transparency. E.g., GRI requires that an organization take time to write a report. Inevitably, the report authors will be exercising judgment about what is relevant. Or suppose you are releasing documents; even an innocuous decision about whether documents have anything meaningful, or what file names to use, etc, can spin the outcome. Only universal, automatic transparency (all meetings open to the public, all documents and emails and phone calls shared on the internet as they happen, etc) avoids these problems completely, although it introduces other problems. Although this seems fantastical, some open source projects come quite close to this; all members of the project communicate online in archived, public discussion rooms and all work is done in a public repositories, including all historical changes. Wikipedia is another example, at least up to a certain level; above that level, transparency disappears, and lo and behold it's in the un-transparent point that we hear about all the Wales scandals.

Transparency and the media: Perception of corruption is very high in the Philippines and very low in Singapore, but how much of that reflects a free press in the Philippines and a captive press in Singapore?

How is it in government or corporate interest to be transparent? So far we've got some indirect benefits of perception and reputation. I think it's in the interest of the governed for the government to be transparent, but maybe not in the interest of the government. What about SWFs as an example of both transparency and North's natural state argument?

Q: Does transparency have to have a moral dimension? Does transparency have to have a positive effect? (If there isn't an ultimate purpose then it's just a mechanism, and mechanisms shouldn't be fetishized.)

Prof-led Discussion

Why are we discussing transparency? We can see why non-state actors would want it; why do companies and governments do it?

Rational explanation: companies benefit because transparency may level the playing field and so reduce transaction costs. (I'm not sure I followed that argument to the conclusion. I can see how transparency could be a competitive advantage in a market: I'd rather go to a transparent money-changer.) Ultimately, for self-interest. Reason two: reputation and trust (in turn leading to the same aggrandizement as self-interest.

Other reasons for companies to be transparent: to solicit feedback; to get first-mover advantage (but what advantage?) As a means for credible commitment, which is useful in various strategies (e.g. chicken). As a means for forestalling government regulation. To solve a tragedy of the commons problem within a business context.

Dutch disease and resource curse. UK and other North Sea countries were not damaged by the discovery of oil because they had transparency and good governance, but oil in African countries has been a net negative for societies. (Joel's note: Since evidence is now surfacing of the extent and breadth of corruption in Alaska, does that suggest that Alaska in the 1970s did not have transparency and good governance?)

Origins of transparency

Open Skies Initiative as an early example of transparency. US and Soviets would be allowed to overfly each others' territories for military verification. Proposed in the 1950s but not ratified until 2002. Nonetheless, reframed concepts of openness and transparency. 1986: Gorbachev takes up the US offer of transparency across the board and furthers the norm of transparency.

US corporate disclosure starting in early 20th century in response to trusts and other bits of capitalism.

Sweden's freedom of information act in 18th century.

What are the supposed benefits of transparency? Anti-corruption, economic growth, political stability, civil freedom. Back to, what kind of accountability is necessary for success? And back to the issue of Singapore as an example of success without accountability.

How would you know if Singapore was not doing okay? You wouldn't, if you only read the Straits Times. (Joel's Note: Not only does the Straits Times filter, but I think it's also important that the bad news that it does print seems calibrated to control the boundaries of thought. That is, it provides a steady stream of things to worry about that are small, that direct public thought in desired directions, and that distract from more fundamental problems)

Transparency as a means to efficiency or transparency as a means to rights.

Joel's note: N.B.: A key issue in US politics the last few months is the degree to which the government and telecom companies will be held accountable and/or subject to transparency for illegal domestic surveillance. The courts have made a beautiful catch-22 ruling about who can claim to be damaged and thus have standing to sue in order to get disclosure. If I remember correctly, you can't sue unless you were harmed, but you can't get access to information that shows you were harmed until after you win a lawsuit. The whole dispute comes into even sharper focus in the context of today's class.

This is the one class where we get in trouble if we don't do the readings, and it's in two hours and I haven't done the readings. Erp.

Florini, The Coming Democracy: New Rules for Running a New World, chapters 2 and 9

Mallen Baker, “The Global Reporting Initiative - Leap forward or last gasp?” Ethical Corporation, p 40, March 9, 2006

"Sustainability reports are even more heavily dependent on the context [compared to financial reports]. And yet all the current models of reporting expect the companies to provide their own narrative – to tell the story complete. But that does not work, because the end user actually does not read the reports, and does not even trust the company to provide its own context."

We talked about that in class, but I think maybe in 5263, not 5262, about the problem that we don't have any real feel for the numbers yet. If a corporation outputs 5,000 tons of CO2 in a year, is that more or less than their fair share?

Virginia Haufler, “Corporate Transparency: International Diffusion of a Policy Idea?” Paper prepared for the IR Field Workshop, University of Maryland, April 17, 2006.

One World Trust Global Accountability Project, 2007 Global Accountability Report

How are 30 top TLAs (including NGOs, IGOs, and MNCs) doing with their accountability reporting? They range from pretty good to pretty bad; the average IGO is must better than the average NGO, which is slightly better than the average MNC. Of four dimensions, transparency is worst. "All assessed TNCs have weak external stakeholder engagement capabilities." TNCs are narrowly in the lead on complaint handling, "partly a result of the Sarbanes-Oxley Act".

Case: Aiding or Abetting? World Bank and the 1997 Judicial Reform Project Transparency International

2007 Global Corruption Report 2007. Executive Summary

Executive executive summary: judicial corruption is really really bad. 26 recommendations for reducing judicial corruption.

Presentation on Case Study

Slum Rehabilitation in Mumbai. A case study of one project in which several NGOs collaborated with Citigroup to fund a mixed market-rate and free housing project in Dharavi, a slum neighborhood in Mumbai. Complications included disagreements about the viability of the project and the amount of financial risk the various actors should take. Joel's note: You can take a tour of Dharavi. And I just learned that Dhoby Ghaut, a subway station here in Singapore, is actually a term for Indian laundries.

A music video about Dharavi. One million people in 535 acres, with 150 toilets. More pictures.

The actors:

• SPARC
• NSDF
• Homeless International
• Slum Rehabilitation Authority
• Citicorp, Citigroup, Citibank
• ?? The presentation identifies one with a picture but no name
• Rajiv-Indira Cooperative

Why is there an alliance between NSDF, SPARC, and MM? SPARC started the alliance to find financing for people to build houses.

SPARC and Citibank reached the first or second stage in Austin's model of NGO/business relationships. More than just money for reputation.

To analyze: where is the money from? Who carries out the construction? SPARC persuaded Citibank to give loans to the project; Homeless International provided loan guarantees. (But Citibank didn't actually provide money in early stages; SPARC provided the initial funding, not Citibank.)

Complications:

• market drops reduced demand for the TDRs, transferable development rights (to build higher than local limits), that the free housing would generate
• New Coastal Regulation Zone II rule also threatened the TDRs.
• Citibank made new analyses suggested that nobody who could afford the market-price apartments would want to live near the slum, or vice versa. But the local activists believed that there would be plenty of non-impoverished people living in the slum, for example those owning some of the 15,000 single-room factories within the slum.

Original financing: US$750,000. By 2001, Citibank's actual input was $190,000, and SPARC and NSDF contributed $435,000. Final cost was $1.5 million (but whose money was that?).

Very limited government involvement. Maharashtra Slum Areas Act.

Classmate note: The NGO participation in building housing in Dharavi incented local slum dwellers to stay put instead of participate in government programs to move them to more distributed housing.

More recent news: a $2.3 billion project to bulldoze the whole slum and put up free housing for the poor, though "outraged local activists say the plan will benefit wealthy developers instead of the poor, leaving many with no place to go." The plan "calls for apartments to be built for the 57,000 families the government says live there." Yeah, if there are really a million people there, then that's not going to turn out well. The government plan would provide 225 square feet for each family.

Class discussion

My turn, with a classmate, to lead discussion this week.

Second case study discussion

Identifying the key points from case (not the Mumbai case, the other case; Steamburgh, in "Midstate" USA):

• 40% poverty rate, high unemployement
• tax base comprises property taxes only
• revenue shortfalls
• Growing private sector, 40% services, financial sector with $75B assets under management.
• Robindale industries, $5B in assets, international sales, cyclical employment. Their foundation supports education and art; they have renovated 2 city blocks of retail space.
• Robindale calls the mayor to invite him to a business group dinner, where they will probably ask for support to build a new stadium.

Roger Cowe, “Business/NGO Partnerships -- What’s the Payback?” Ethical Corporation April 2004.

Deep partnerships between NGOs and companies, as opposed to "loose relationships or traditional sponsorship". Some obvious risks, such as tarnishing the reputation of the NGO, which is its primary asset. Less obvious risk: partnering with a company which later gets acquired by a less friendly company.

Key success factors (paraphrased): the company has to be serious; the NGO can't let itself get co-opted; both parties must benefit; the participants must have real authority within their organizations.

Bottom line: If NGOs want to make a difference, they have to partner with companies who are actually part of the problem, and get them to change behavior, while at the same time not get taken advantage of as a PR gimmick.

Glenn Prickett, “Can corporate-NGO partnerships save the environment?”, Posted February 7, 2003.

Answer: probably not, but any little bit helps. And "NGOs also need to learn to work more collaboratively with each other. Too often ego and competition for donors and media attention prevent NGOs forging alliances that could yield larger-scale results. Competition among NGOs leaves corporate partners confused. The Center for Environmental Leadership in Business has found that it is often harder to get NGOs to collaborate than companies in highly competitive industries."

J. Austin, “Strategic Collaboration between Nonprofits and Businesses:, Nonprofit and Voluntary Sector Quarterly, 29:1, Supplement 2000, 69-97

Five in-depth case studies and ten more case studies (each comprising interviews) to support some new theories on how to think about NGO/business partnerships.

• p 73: three stages on the Collaboration Continuum: philanthropic (example: write a check every year), Transactional (example: use designated company time to help an NGO), Integration (CEO serves on NGO board).
• p 76: Collaboration Value Construct: NGO gets money, stuff, access to other corporations, etc; corporation gets reputation, image, employee morale, recruiting and retention, etc. More value at deeper stages on the Collaboration Continuum.
  • Generic resource transfer: cash for image.
  • core competencies exchange: CARE's knowledge about coffee farming in exchange for Starbucks' promotional abilities and retail network
  • joint value creation. An MCIWorldCom manager: "They have unbelievable assets, but they don't necessarily know how to exploit them all. When you work with them in a really close partnership, they will let you use those assets."
• p 81: Alliance drivers: strategic alignment (Time-Warner with "Time to Read" NGO); personal relationships; shared visioning (this article is really full of painful buzzwords, the author being from Harvard Business School, and I kept my mouth shut as long as I could but seriously: shared visioning).
• p 85: Alliance enablers: communication etc
• p 88: no marketplace for matchmaking; hard to value most activities and put a price tag on them.

Case: Public-Private Partnerships

Discussion Questions (it's my turn this week):

• The case mentions a public-private partnership, possibly in the context of a construction project to attract a new sports team. What defines a public-private partnership? What are the benefits and disadvantages of a partnership?
• What are the economics of attracting a professional sports franchise?

Case: Financing Slum Rehabilitation in Mumbai: A Nonprofit Caught in the Middle

• What governance exists in Indian urban slums?
• Is it significant that certain organizations are all-male or all-female? If so, how?
• Which stage (from the Austin article) is the SPARC-Citibank relationship in?
• Citibank and Homeless international are concerned about uncertainty in several different factors. Which factors, and what could be done to reduce uncertainty?
• Is this project in its current state benefiting its stakeholders?

Case: Financing Slum Rehabilitation in Mumbai: A Non-Profit Caught in the Middle: Epilogue

Tadashi Yamamoto and Kim Gould Ashikawa, Corporate-NGO Partnership in Asia Pacific (Tokyo: Japan Center for International Exchange, 1999). Suggested.

Discussion of the case. There's a case? Crap. On the bright side, it turns out nobody else realized there was a case to read either.

Here's an article about the subject of the case, Casas Bahia. It's one of the biggest retailers in Brazil, selling furniture and appliances on credit to poor customers in the slums

The big question: is any poverty alleviation happening thanks to Casas Bahia? Not on the income side; do their consumers have the chance to purchase things that they couldn't otherwise purchase? Is their overall wellbeing or standard of living better?

Reading discussion

Example from India: CSR evolving from business groups centered around commodities and trying to stabilize prices.

The first and second readings synthesize nicely to make this point: corporations put forth CSR as the means to forestall regulation that might otherwise put "non-negotiables" like the rights of corporations to exist back on the table.

Are the business values (which I quoted in my reading notes) actually those that businesses want? Blowfield's list is closer to the classical liberal values, but what companies actually want is to secure protected rents (the economic term for monopoly profits); they don't want free trade, they want trade on terms that benefit them and hurt potential competition.

Should local religious values be considered within CSR? Buddhism in Myanmar, Islam especially in banking.

Myths about the bottom of the pyramid: the poor don't have any money. Joel's note: Let's think about the issue behind the notion that the poor don't have money. Money is a red herring; the real issue is that the poor don't have anything that rich people want. That's not strictly true: there's sex trafficking, importation of cheap labor, etc. But in general, the poor market is neglected by the wealthy because the poor have little to offer. Of course the poor (to generalize three or four or five billion people into one word) do have economic activity; I'm sure that many or most impoverished people work harder every day than I do. But a lot of it is black market, or not monetized, or very inefficient, or otherwise of low value, and especially of low perceived value by the rich. So the real issue with marketing to, or exploiting, or making profit from, the bottom of the pyramid, is how to convert the current labor of all of these people into an industrialized or post-industrialized context.

Michael Blowfield, “Corporate Social Responsibility: reinventing the meaning of development?” International Affairs 81, 3 (2005) pp. 515-524.

Some very refreshing skepticism about CSR. Not from the angle I've been concerned about, that it's simply a PR stunt, but from a different direction. Rather: To what extent does simply thinking in terms of CSR mean accepting basic premises that should be examined more carefully?

the right to make a profit, the universal good of free trade, the freedom of capital, the supremacy of private property, the commoditization of things including labour, the superiority of markets in determening price and value, and the privileging of companies as citizens and moral entities ... CSR has had no impact on these ... non-negotiable values

In other words, if you substitute the word "morality" for corporate social responsibility, as many people implicitly do, you end up with a very constrained definition of morality before you've even begun making judgments.

Rhys Jenkins, “Globalization, Corporate Social Responsibility and poverty,” International Affairs 81, 3 (2005) pp. 525-540.

More skepticism. Does CSR have any bearing on poverty reduction? Even the UN Global Compact fails to explicitly mention poverty reduction. The assumption seems to be growing that FDI in and of itself is a poverty-reducing force, and that providing FDI in a developing country is a moral act. But MNCs can hurt the poor, e.g., by marketing unsafe or inappropriate products.

Three channels through which corporations can reduce poverty. Directly through employing people or buying from local suppliers; through efforts to enrich the poor enough to buy corporate products; and through government revenue streams (e.g., taxes on resource extraction). Each of these channels can be subverted, for example by free export zones that are untaxed and use local labor only to process materials brought in from elsewhere.

Employment at a higher than local wage is a positive, but the total number of people so employed is only 19 million, which is one percent of the number of people living at US$1/day or less.

Only one out of 248 codes mentioned taxation. Taxation could be made an important part of CSR codes (and, one hopes, corporate behavior). Few codes mention corruption.

Conclusion: CSR is unlikely to contribute materially to poverty reduction, nor can it easily be reformed to do so.

C.K. Prahalad and Allen Hammond, “Serving the World’s Poor, Profitably,” Harvard Business Review September 2002.

Rhys Jenkins in the previous reading take issue with the quality of Prahalad's arguments, and it's easy to see why and to agree.

Take the assumption that the poor have no money. It sounds obvious on the surface, but it's wrong. ... Grameen Telecom's village phones ... generate an average revenue of roughly $90 a month ...

And that supports your point? The aggregate of a very small amount of money is still a very small amount of money. If an average cellphone bill in the US or Europe is (just to guess wildly) US$40/mo, then a village of 100 such people, half of whom have phones, will generate at least $2000/mo.

Customers of these village phones ... spend an average of 7% of their income on phone services—a far higher percentage than consumers in traditional markets do.

So even after these people desperately squeeze the rest of their budgets to get this essential service, they still aren't producing much revenue. Whether or not the poor make up a great potential market is not my point; my point is that Prahalad and co-author aren't making a very competent argument.

The article feels like a collection of cherry-picked, qualified, vague anecdotes: this company has the potential to generate $200m/year in revenue with candy for the poor; this company provides smart ATM cards; this company has internet kiosks that provide access for up to half a million people. Although a flavor of ROI, "return on capital employed", does appear, there are no hard numbers for it.

The conclusion is that corporations should try to market to the poor because it will be a moral act—the corporations will be more accountable and effective than the governments and aid agencies have done— and because it is profitable in and of itself. In reaction, I find Rhys Jenkins concerns to this entire line of thinking to be extremely convincing.

An impromptu grilling on the case, which we the class failed. I got my question wrong (did Levi's Community Involvement Team have local partners? the correct answer is yes).

Talking about sweatshops. Here's an NGO on the topic.

In the class presentation, it's not clear who they are addressing their recommendations to: Levi, the government of the Philippines, the workers? In addition to the recommendations, there are some action proposals: use CSR to internalize the externalities and make them locally enforcable.

One very interesting angle to the case, which today's presenters did not address, is the difference between the FLA and WRC. Both are NGOs focused on working conditions in the garment industry, but the FLA comes out of industry while the WRC was initiated by university students. The big question (which I haven't researched at all) is, to what extent is FLA just a fig leaf? This is of course the essential question about CSR at large.

we've now watched two anti-sweatshop Youtube videos, which on the one hand are a bit simplistic for a graduate-level course, and on the other hand are important for seeing how people attempt to communicate about the problem. I find myself wondering, where do the clothes that sweatshop workers wear come from?

Class Discussion

Have you ever bought and tasted Fair trade coffee? discussion: Is it even available in Singapore? It's supposed to be in every Starbucks. You don't pay more for it. I used to work in New York for Oxfam; the Starbucks staff got sick of us asking for the fair trade coffee and once it took 25 minutes. Nobody asks for, and the staff turn over quickly and they don't know about it. Carrefour has fair-trade products. What are the effects of having a single fair trade product within a product line: does it get the company off the hook? Does it make people think when they buy non-fair-trade products?

The supply chains are so big, does fair trade advocacy really make a dent? 90% of child labor is in agriculture, not manufacturing?

Should corporations care about moral obligations? This isn't purely a moral issue: in the case study example, the companies are not following local laws.

Is asking corporations to be more moral a pointless effort since it's asking the capitalist system to behave in a sub-optimal way? If we want different behavior, the answer may lie in changing some basic rules of the system. Does this point back to some kind of regulation? (This line of thinking seems to point back to the "Institutional Design" answer: that if you have good institutions, everything will be mostly okay, and if you don't, nothing will be okay.)

(One set of answers seems to be more fatalistic: this is just the way it is, and there's no realistic alternative in sight, just constant struggle on the margins. Another set of answers includes points such as the many past successes of civil movements (vs slavery, etc) ... [incomplete thought - my brain doesn't seem to be working at full speed today]. Perhaps the best model of CSR is that CSR is part of the civil society function of identifying and making decisions; once those decisions are made, it's a government function to enforce them.

Nuts and bolts issues: many factories supply dozens of countries, and so are dealing with dozens of codes of conduct. What could corporations who actually want to change things (whether for moral or practical reasons) do—is that even a problem, or are we still in the situation where the buyer corporations are winking when they demand good conduct?

I guess behavioral economics is ultimately the best tool to address the problem of abusive corporate behavior. Who are the people who are doing bad things, and why are they doing them? I'm picturing factory owners deciding to lock workers in, etc. It must be a combination of economic incentive and culture; different cultural backgrounds set different expectations of what's possible and appropriate. A factory owner in Germany, faced with economic pressure, will think of different choices than a factory owner in Myanmar. Which makes we wonder to what extent the de-humanizing effects of the Cultural Revolution enabled some of the abuses in China, or if that's silly because plenty of other places have similar abuses.

The western companies are to blame because that's where the behavior comes from. Well, take slavery as an example: the large-scale demand for slaves came from Western economic arrangements, but they depended on many local people turning into suppliers of slaves, i.e., by enslaving their neighbors.

Externalities. Power and exploitation.

Is it true that dealing with externalities is itself a a public goods problem? Under what conditions will corporations internalize their externalities? When it affects their bottom line (which is to say, corporations never internalize their externalities; when consumers change their preferences and impact a corporation, the corporation is responding to market forces; it's the consumers who've done the work of internalizing).

Should there be global standards of labor and conduct? There's a global market, so why not global standards? What about the impact of investors? Institutional investors? SWF investors?

Regulation by revelation.

What's a corporation? A juridical person. Limited liability. What was the first big modern corporation? Standard Oil. Rockefeller created the company to provide a stable supply of refined oil. ILO: created by the West in response to the Russian Revolution, to forestall further communism. Includes governments, capital, and labor unions.

Ann Florini, The Coming Democracy: New Rules for Running a New World, chapter 5.

• p 90: A shorter version of Susan Sell's story of how a few MNCs in the 1980s initiated the global IP regime.
• p 94: "Now that socialism has demonstrated its inadequacies" I'm always bewildered by the exact definition of socialism. When communism fell, I assumed that meant it was communism, or perhaps totalitarianism, that had demonstrated its inadequacies. I've always understood socialism to be a lot broader and milder and to include things like social security, minimum wages, and universal health care.
• p 99: "Formerly viewed as exploitative agents of neo-imperialism, these corporations are increasingly seen as much-needed providers of capital, technology, management skills, and access to export markets." Why can't they be both?
• p 101: "[The Louisiana-Pacific Corporation] pleaded guilty to eighteen felony charges and agreed to pay $37 million in penalties and $5.5 million for criminal violations of the Clean Air Act." The notion that corporations are legal people is a legal fiction, granted, but how many humans that pled guilty to eighteen felonies would get off with a fine of 20% of their annual income and no jail time?
• Type A and type B social compacts. Type A are usually drafted by the corporations, are vague, and have no enforcement or monitoring provisions. They are more likely to represent a superficial approach to responsibility. Type B are drafted by second parties and have at least some teeth.

Teresita C. del Rosario, "Social Responsibility and the Multinational Corporation: The Case of Levi Strauss’ Code of Conduct in the Philippines," Labour and Management in Development Journal, vol 4, no. 4, 2003

David J. Vogel, "Corporate Responsibility for Working Conditions in Developing Countries," in The Market for Virtue: The Potential and Limits of Corporate Social Responsibility , pp. 75-109.

UN Global Compact

OECD Guidelines for Multinational Enterprises

UN Principles for Responsible Investment

A video from the World Social Forum. Interesting that the voiceover at the end puts the WTO, the IMF, the World Bank, the occupation of Palestine, and the occupation of Iraq are all grouped together.

What kind of impact, if any, does this have? Well, what kind of impact could they have? Either internal impact, inspiring and enabling themselves, or external impact, changing the behavior of other people. How can they have external impact, if they don't have power or media coverage? Classmate: on the one hand it gives some voice to the marginalized, but on the other hand it's messy, sometimes they end up delegitimizing some of the valid concerns about the IMF.

Once the Davos people tried to reach out to the WSF with a simultaneous video link. They sent four white men, including Soros, as their representatives to the WSF. It was poorly received.

Hmm. Who are they? The marginalized victims—workers, un-free. Note that one guy says his dream is the struggle for workers' rights—he doesn't express his dream as having rights, he says its to struggle for rights. Telling slip?

The epistemological dilemma of anti-authoritarian organizers: How do protesters take the group actions necessary to execute a large action (a meeting of 100,000 people) as a group?

Northern vs Southern origins of these non-state actors. Originally mostly Northern (US, Europe); after shutting down most new dam construction in the US and Europe, they went after World Bank dam projects, but initially failed to work with the affected people. Over time, however, locals took over the campaigns. Jubilee campaign started as a UK group; an alternate group emerged.

What do NGOs do? Produce policy papers, convene people, board whaling ships, meet with governments, march in the streets, riot, get shot, barricade streets, through food, commit protest suicide.

It used to be called the anti-globalization movement, until people figured out that they aren't all anti-globalization; many of them are opposed to how globalization is going. Yes. There are many different viewpoints and opinions.

What was the first international campaign? I'm sitting on my hands. The campaign against slavery.

It's interesting to note that the US street protests against the Iraq war had no effect, because Bush didn't care and had enough power to continue running the war as he pleased; but the Falun Gong street protest triggered a large set of changes in the Chinese government and the fabric of civil society. In both cases, and perhaps in street protests in general, the goal is to change the behavior of another actor (the government, the mass support for the government) rather than to take direct action, and so street protests by definition and frame cede power.

Discussion of protests in China. Chinese classmates suggest that the Chinese society is not receptive to mass action/chaos. Role of mass protest in nation conflict between China and Japan (perhaps the Chinese government allowed/promoted street protests as a form of saber-rattling vs Japan). What's the difference between a mob and a social action? morality?

Where is civil society strong and active? The US. Philippines, India. Western Europe, Scandinavia. Some parts of Russia. Some state leaders came from civil society: Vaclav Havel, Lech Walesa. Africa has a lot of transnational NGOs; is this legitimate? Those trying to take over a state are not counted within civil society. Also Latin America. What about the Middle East?

Red Crescent. Aga Khan foundation. It is beginning to grow, but there isn't much. Maybe that's because civil society often emerges from religion, but in the Middle East religion is linked to the state? Classmate rebuttal: the religion-based civil society groups are fanatics and are not considered "civil". In Singapore the politicians deliberately use "civic" instead of "civil" society, stripping the notion of advocacy. (I.e., tame neo-Tocquevillean. Alagappa's framework is surprisingly useful.)

Classmate: What about movements that have both a military and a political wing? So Sein Fein is not a civil society, because both the IRA and Sein Fein want political power, but Hamas is a more mixed case.

A 12 trillion dollar wealth transfer is beginning in the US, from previous generations, and some of that may be earmarked for active philanthropy, with Gates and Buffett as examples. (Or maybe not)

The role of the IMF as a focal point of protests. Blaming the fire truck for leaving the house a smoking wet mess.

The movement. Rejectionists: nationalists, localists, anarchists (Ron Paul). Reformers. Is the movement a good thing or a bad thing? Classmate: I support your cause but I have no way to hold you accountable.

Discussion about consensus. Issues of majority rule, power to the powerful. Is consensus desireable? possible? Consensus among whom?

Florini, The Coming Democracy: New Rules for Running a New World, chapter 6.

It was interesting to consider, after reading this chapter, how deeply it assumes the "Neo-Tocquevillean" civil society norms that Alagappa refers to. Not having read any source material on this, I rely entirely on Alagappa's usage and especially on the class discussion. With the exception of a brief mention of Al Queda, Florini describes civil society as a positive force, recounting success stories (to varying degrees) including the campaign to ban land mines, human rights campaigns, and the nuclear test ban treaty. But Alagappa talks about the "neo-Gramscian" view of civil society, which (without having more than the vaguest recollection of Gramsci's name, much less his writing or its later interpretations and applications) I understand to mean civil society as a battleground, sometimes literally, to determine which norms will dominate. I think both analysis are helpful: certainly Gramsci's frame is more helpful to understand the battles in many countries for abortion rights, divorce, gay rights, religion, etc.

Something in the reading about the role of government vs civil society reminded me of this, Martin Luther King Jr's own answer to Hillary's charge that while King (Obama) made noise, it took Johnson (Clinton) to make change actually happen. King's reply is "No president has really done very much for the American Negro, though the past two presidents have received much undeserved credit for helping us. This credit has accrued to Lyndon Johnson and John Kennedy only because it was during their administrations that Negroes began doing more for themselves."

Barbara Gemmill and Abimbola Bamidele-Izu, "The Role of NGOs and Civil Society in Global Environmental Governance," in Daniel C. Esty and Maria H. Ivanova, eds., Global Environmental Governance: Options and Opportunities (New Haven: Yale School of Forestry and Environmental Studies, 2002) pp. 77-99.

Some more or less nuts and bolts details on how NGOs can fit into the UN and other global authorities' activities: spreading information, monitoring, raising awareness, providing legitimacy in decision-making bodies, etc. Come to think of it, it does seem to make the implicit assumption that NGOs have to fit into an existing structure of "real" entities, UN entities and governments. Hmm.

Interesting definition of civil society (women, children, business, labor, science ... apparently the only people who aren't in civil society are non-unionized male government employees).

Homework: Write-up on group exercise topic. Due at the beginning of class.

Huh? what group exercise? What group exercise topic? What kind of write-up? I have nothing in my notes, I don't think we discussed this. I feel like I just slept through an exam. I should probably read this stuff earlier than the night before class. Hrnnnn.

(Reading notes for this week)

The case study

Management consulting approach to case studies.

• Understand the case
• Complications. What are the issues?
• Solution. what solutions are you putting forth?

(Joel's) Summary of the case: before apartheid, NGOs in South Africa had worked out routines for dealing with government abuse. After apartheid ended, NGOs got together to come up with self-governance plans. Meanwhile the new government attempted to rationalize the regulation of NGOs while also announced spending plans that obsoleted most of the NGOs. Their heavy-handed actions and dissociation with existing efforts lead to accusations of political partisanship.

Student Group for case study

Core problem is disagreement over the draft bill. Joel's note: no, the core issue is a lack of communication and trust between government and the NGO community. The fight over the draft bill is the symptom.

"The government needed to control NGOs which had misbehaved."

Stakeholder analysis. Champions of change vs champions of status-quo. So the existing NGOs are the status quo? "The government has a carrot approach, and secondarily a stick approach" That may be true in the context of the proposed law, but this misses the broader context. By announcing billions of spending and a new bill without coordinating with the existing NGOs, the government already wielded not just a stick but a huge club. The contents of the bill aren't the most important thing. Once everybody's pissed off, as they are at the end of the case, any bill will be viewed with extreme suspicion.

Alternatives: redefine the role of the commission. Create an accountability environment. Use a third party to mediate and to monitor.

Prof Q: Who is that third party? International or local, that can be trusted by both. If there's no mediator, there will be a long back and forth between NGOs and government and it will take a long time for the bill to pass. Or the government will pass the bill it wants and further alienate the NGOs. Does that set a good precedence for the government, that they can't deal with NGOs themselves? If funding is international, then it's politically neutral for the government to bring in international mediators/monitors. So you are advocating two sets of laws for disclosure?

Was this case really about the bill, or about how much power the NGOs will have? In many countries, NGOs are destabilizing; maybe the government saw them as a threat. Hmm, perhaps power issues underlie the government's tone-deaf approach. What about the role of the Ford Foundation's local representative, who initiated the NGO review process?

The act passed, but was overhauled in 2001. Public Benefit Organization was defined. In 2006 a Parliament bill changed the tax system even more, and formal declaration was made optional. In the end both parties got what they wanted, and mutual understanding was much improved.

Rules in students' countries

Angles I missed in my homework:

• Can donors get tax breaks?
• Are there different rules for foreign contributions?
• provisions to send retirement funds to non-profits

China: registration procedures are quite strict because of the nature of the Chinese regime, especially after the collapse of the socialist countries in Eastern Europe. Any organization must find a government sponsor. In China, they are called "social organizations", not NGOs. You have to submit an annual report and financial statement to your sponsor. You cannot register for some sensitive topics. You cannot operate outside your registered region. Laws are scattered. NGO income is taxed but income from technology transfer is not taxed. If an NGO for your topic in your region already exists, you cannot register. You must register to raise funds; the donations have tax benefits. The regulations are intended to constrain some kinds of NGOs but allow others.

Singapore. Provides constitutional rights. Article 9 allows the government to constrain any right that could affect security or relations with other countries. Public meetings of more than five people must have permits. Singapore wants to be a hub for NGOs in the region, but 80% of locally raised funds must be spent locally. The media is state-controlled— the "fifth Estate" (actually it's the fourth, after the clergy, the French nobility, and the public). Allegedly you can deduct twice your charitable contribution. A 2005 Rutgers poll rated Singapore's media freedom 140 out of 157. Perhaps Singapore wants the non-profit funds, but not the actual NGO activities. Both NGO money and casinos may be examples of Singapore seeking comparative advantage. Voluntary welfare organizations may be a better comparison.

US. Wide-open. Must register to get tax benefits. No tax benefits for political action. It occurs to me that some fraction of the NGO growth (1.6 million in 2006) could merely be tax shelters. I mean, plenty of them have always been motivated by tax savings, but now a lot of them could be private trusts etc which are really paper-thin tax shelters.

Philippines. Vibrant sector, very open, especially after 1987 People Power. Registration is not required, but you have to have a legal entity to open a bank account, etc. Two primary laws: Corporation Code, Tax Code. Do not have to register with the Securities Exchange except to receive funds. The law gives many tax exemptions to NGOs. Bureau of Internal Revenue issued a regulation that microfinance activities will be taxed. They are like any other corporation: can sue, be sued, own property, etc. Have to file an annual financial statement, activity statement, etc, which are public documents. (Somebody paid $200 last year to get what would have been a great answer to our homework. Wow, they're paying $200 per country for detailed research on NGO statistics, especially ICT (Information and Communication Technology?), for 88 countries and counting.) Some efforts to get NGOs to self-regulate. Still have an accountability deficit.

Most dictators tend to suppress civil society. What did Marcos do? Most were underground organizations; in fact, the NGO sector in the Philippines started as human rights organizations.

India. 1.5 to 2 million, possibly only including NGOs, not any kind of civil society.

Japan. Register with the prefecture. Exempt from taxes, but only up to a limited amount of money. Private donors still pay tax unless donating to one of 75 accredited NPOs. In general, NGOs are not promoted in Japan. "The government doesn't know what to do and the public doesn't know what they want."

Cambodia. No regulation or law. Some verbal instructions from the Ministry of Foreign Affairs, such as getting letters from home countries. No formal procedure; it seemed to be easier in 1979 than 2007.

Myanmar. Things are on the difficult side. There are "guidelines for implementing projects". Local NGOs have been operating for decades, doing social work. Government allows some foreign NGOs to import some cars at special rates, import fuel. Three months ago the ministry stopped this, and will look at each organization again to see if they have any political activity. Since them, some have had renewed permits. Geographical access is restricted; some areas still have insurgencies. The Global Fund stopped operation in Myanmar because of these restrictions.

Kazakhstan. Some similarity with China—territorial divisions. High registration fee, US$170, more than US$1000 for international. 2003 law applies to international NGOs. A huge flow of money from NGOs to affect parliamentary elections.

Mexico. Opening up a lot. Trusts regulated by federal law, other things by states.

The readings

What's civil society? Non-state arena of uncoerced collective action. My definition: any social (e.g., more than 1 person) activity that is not government and not for profit. Anglo-American: state, business, civil society (everything else) vs European, anything that's not government. Uncoerced collective action (a very good and terse definition if you take the profit motive as coercion). In pursuit of a legal purpose? That's a normative element.

Formality. Pick-up soccer games. Reading club. Mass march or street process. Alagappa: As a distinct space for non-state, non-market organization. A site for discourse. As a site of governance. Means to influence the state. Is this concept relevant to Asia, to your society? Yes, in every heterogeneous society, to protect identity, to preserve values. In Confucian or Islamic societies, there is no space for civil society, true or false? Certainly club goods. What about public discourse? It's incorporated into the Islamic religion itself. In Western culture, having a nanny state is a bad thing, but in Asia the state is expected to look after the citizens. Is the concept of cradle-to-grave government oversight Western? What about the iron rice bowl? Do people want a civil space only when the government does not provide services? In Singapore, where civil society is restricted, people seek alternate outlets, like the internet. A prof shout-out to David Brin's Earth, a prophetic 1990 novel about the internet and civil society in the face of impending crisis.

Colonialism as a common enemy stimulating civil society. Alagappa says that there is more civil society in weak states, where they fill in gaps, and also more civil society in strong states, where they are part of a healthy society. Unclear what's really cause and effect. Could there be more informal organizations in weak states and more formal ones in strong states? Now I'm wondering what civil society exists in North Korea?

Explanation of Tocquevillean and neo-Gramscianism. Tocqueville sees social society as contributing to a healthy working nation. Gramsci saw oppressed workers being fooled into supporting the system which exploits them, and views civil society as a battleground for defining how society should be.

Muthiah Alagappa, Civil Society and Political Change In Asia: Expanding And Contracting Democratic Space, pp. 455-477

Summary: What's up with civil society in Asia? There are a lot more NGOs than before and economic growth brings more every day, but the state still dominates the public space. Many NGOs are rooted in anti-colonialism or in "totalizing" a religion or other vision for the state, but most of those have mellowed. Most states are semi- or non-democratic and lack basic legal guarantees; even the democracies with more hospitable laws are still iffy in practice.

• p 461: China in particular has "GONGOs", government-organized non-governmental organizations, which are fairly bogus.
• p 464 - 467: "An Arena of Power, Struggle, and Cooperation". Buddhist vs Tamil in Sri Lanka; Muslim vs secular in Indonesia; radical, democratic left vs conservative, authoritarian US allies in South Korea; class struggle in the Phillipines. But "zero-sum struggles give way to competition, cooperation, and compromise." Mostly.
• p 468: neo-Tocquevillean and neo-Gramscian frames. Better look those up.
  • "Neo-Tocquevillians such as Robert Putnam (1993a, 1995, 1996) argue that civil society is crucial to 'making democracy work'"
  • "With the Italian Marxist Antonio Gramsci it later became rephrased as a zone of contestation where hegemonic forces (classes) fought out struggles for societal domination including party politics. A neo-Gramscian position popular today sees it as that which is neither state nor market, nor party political ..." That quote comes from an interesting Danish paper¹ about global civil society, which argues that the popular criticisms of the concept are invalid because the critics are still stuck in a state-centric mindset.
• p 470: "Lag in institutionalism". At the performance by the Singapore Complaints Choir, as they explained their problems getting a performance permit, they mentioned in passing having to get the lyrics approved by the Media Development Authority. Yes, that MDA:

  

Case: Role of NGOs in Civil Society: South Africa & the Draft Bill Tempest, International Center for Non-profit Law

Homework: Two-page description of the regulations governing civil society in your country

I almost forgot that I co-founded an NGO. Which is less than it sounds: we filled out some forms and now we have a 501c(3), with which we have done very little in the last two years. Maybe that will help with the homework.

1. I would also like to mention that I continue to take great pleasure in pronouncing Danish names, a skill I credit to the KISS language school in Copenhagen. In this case the street address of the University of Copenhagen, "Ostre Farimagsgade", which I think comes out something like "ohs^(t-gargle) fahmahsgeh^(l). Like yodeling or bagpipes, there's a certain dirty thrill to this kind of sonic vandalism, although you pay immediately with a sore throat.

Florini, The Coming Democracy: New Rules for Running a New World, chapter 1.

The nice thing about taking two classes from the same professor is that some of the reading overlaps.

Jan Aart Scholte, Globalization: A Critical Introduction, Second Edition, chapter. 1.

Yale H. Ferguson and Richard W. Mansbach, Polities: Authority, Identities, and Change, Part III, "The Past as Prelude"