Conversations on Sustainable Development

The Cyclical Economy

2008-07-01T21:08:00.000-07:00

On the cover of The Ecology of Commerce, there is a photos of a horn made of leaves, sewn by stems, that rests on the grass. When Wynne saw the cover, she informed me right away, “It’s Andy Goldsworthy”. Sure enough, the horn was made by him. After looking him up on YouTube, I saw a clip of his documentary “Rivers and Tides”, where he knit a web of sticks that hung precariously in balance, at the whim of the wind, at the mercy of nature (http://www.youtube.com/watch?v=3TWBSMc47bw). Such is the state of our ecosystem at large. We must fastidiously meter our exploitation of nature, recognizing our vulnerability before it, at the same time our stewardship over it.

Essetially, this is message of Paul Hawken in my most recent read, The Ecology of Commerce: A Declaration of Sustainability. I am sheepish to admit that something sounding so novel and fresh was published in 1993.

Hawkins argues that our economic systems must model nature. As such, waste equals food. Our industrial processes must be engineered to prevent hazardous materials and create re-useables. Old products will be the basis for our new products.

Practically speaking, this might mean the implementation of a rental system instead of an ownership system. Take a car for example. A car manufacture would make a car so that it can be disassembled and parts melted and reused. As such, a company would be responsible for disposing of an old vehicle, which would stimulate innovation and reuse of parts.

In our family business, Chukar Cherries, I have seen this in a small but significant way. Chukar must ship chocolate wrapped in icepacks to its store at Pike during the warm summer months. Weekly we gather these ice packs and company employees headed to the East side haul them over. In the same way, for years we threw out nubbins and “seconds” that were not attractive enough to sell in our high quality products. One day, my mom had a brainwave to sell these as “Cherry Bombs” – a pound for 2/3 the price of our normal chocolate. Waste is reduced, and profit is made. I am excited this summer to look for other ways Chukar can reduce waste and increase efficiency and profit.

I confess I have not written in awhile and am intimidated and out of practice. I plan to write more often now, albeit with shorter more informal pieces. For anyone who still reads this, feel free to comment and engage with me.

Yunus Revisited: Social Business and the Future of Capitalism

2008-01-21T17:57:00.000-08:00

Muhammad Yunus has certainly been one of the most influential thinkers in my formation in sustainable development. I have only written three blogs, and one of them was dedicated to the topics he addressed in Banker to the Poor. Still, I am impelled to return to his ideas, given that I attended presentation his gave on Friday at the UW. Certainly the Nobel Peace Prize winner is more than worthy of my extra attention.

First, impressions: Yunus walked into Kane Hall, a large lecture room. Though he has presented all over the world to so many different people, he did not seem at all mechanic, but rather grateful, honored. He looked as I expected, draped with a traditional, elegant grey tunic, smooth and moist bronze skin, an easy and genuine smile. The standing ovation he received seemed (truly!) to surprise him, and his eyes twinkled as he made small but intentional bows of deep gratitude.

Yunus’ presentation was as simple and impressive as his presence. I wanted to focus on two aspects of it. The first is assumptions of the human nature he makes; the second is an emerging concept known as social business.

Yunus truly believes that human beings have this creative capacity that leads to an entrepreneurial spirit, and that development work and economic theory ignores this very important fact. If Yunus were to read my blog about MNCs and development through job creation, he would say: “That’s just it! You have taken the traditional economist’s path and see the human being in the labor market as merely a worker! But the human being is also inherently endowed with the skills of an entrepreneur!” In the first case, poor people are “plugged into” the system; in the latter case, the poor re-write the system as entrepreneurs. I stand to be corrected.

There is another assumption Yunus makes, and I’ll arrive at it through a quick description of the process of microlending, and then an anecdote:

No one who borrows from Grameen Bank stands alone. Each belongs to a self-made group of five friends, no two of whom may be closely related. When one of the five friends wants to take out a loan, she needs approval from the remaining four. Although each borrower is responsible for her own loan, the group functions as a small social network that provides encouragement, psychological support, and practical assistance in bearing the unfamiliar burden of debt… (Creating a World Without Poverty, page 57)

Responding to this time of interdependency and social cohesion, a man after the presentation asked Yunus if he thought this form of development was culture-specific. In other words, though it functions in Bangladeshi due to cultural value of “saving face”, would it work in a developed, “individualistic” country like the U.S.?

Certainly Yunus has been confronted with this question before, and his response was immediate: “People are people everywhere”. In other words, the desire to succeed, the ability to work together, the entrepreneurial spirit – all of these are innate, and part of all of humanity.

I tend to agree with Yunus, and I think that any sort of development work requires both a healthy respect/sensitivity toward the culture, while it simultaneously challenges it. This is really only possible, I think, if you either belong to the culture (Yunus, a Bangladeshi, working in Bangladesh) or you know it intimately (language, history, worldview – perhaps me in Chile?). Yunus’s microcredit program does challenge the culture aggressively. Each borrower of Grameen memorizes and commits to the “Sixteen Decisions”, whereby they agree to many “anti-cultural” things, like banning the dowry at their sons’ weddings, banning child marriages, keeping families small, building and using pit latrines. They have seen positive results in terms of development because of these cultural confrontations.

I think that a development program must tread very carefully along cultural fault lines if it is a top-down approach (IMF-, UN-, or World Bank-), avoiding cultural imposition which ultimately is futile anyways; if it is a bottom-up approach, the organization/developers can move more freely, realizing that the native people are choosing to commit to and uphold those values. In the case of Yunus’ Grameen Bank, borrowers are choosing to take out a loan from the bank and in doing so must follow the bank’s principles.

The final assumption Yunus makes about human nature is that we are not one- but rather multi-dimensional beings. Ha! This is exciting! This is to say that we have many contending goals and values, and they are not necessarily exclusive. Traditional economic theory has committed a grave injustice by simplifying individuals and firms as “profit-maximizing” entities. Certainly that is one of our motives, but there are others, which leads us to…

…The concept of social business.

Under Yunus’s model, social business is a business that: (obviously) makes ends meet financially to be sustainable (and stay in business); and, that maximizes its social goal(s). If those two requirements are met, the firm can make a profit, or do whatever the hell it wants, but these two “bottom-lines” must never be compromised. These businesses compete with profit-maximizing businesses, and as Yunus says, “Let the best one win.”

Investors in a social business would probably be philanthropists or other people interested by the social goal, who would buy stocks in the business. Instead of throwing dividends, the profits would stay in the business, reinvested toward furthering the social goal. The investor could at any point sell her stocks and receive back the money she invested. Yunus goes so far as to promote a new stock market for social businesses.

Whereas the philanthropic dollar is finite, the social business dollar is recyclable…

If you haven’t quite caught on, let me give an example. A new social business has been launched by Yunus and Danone, the French yogurt company. It is called Grameen Danone, and the goal is simple affordable, fortified yogurt for Bangladeshis. Yunus commented at the presentation that they were cutting the cost of the yogurt by not constructing a cold plant; cold storage spiked the price of yogurt. Instead they make what they sell daily. In addition, Yunus insisted that Danone make a biodegradable cup for the yogurt; they had never used a biodegradable cup before. But then, after they developed a biodegradable cup, Yunus insisted on an edible cup, that also had nutrition, after all, that is the idea, an affordable, nutritious, and delicious product…Danone has had quite a bit of difficulty with this idea, but plans to come up with an edible cup in the next six months…

What is more, this concept can be extended to virtually any sort of business, from energy to healthcare to microcredit to banking.

Wheww! This is really exciting to me. I appreciate the model’s

· Sustainability: A recyclable dollar means no fundraising.

· Efficiency: Time and energy can be spent in doing the business work and not fundraising. Also, to be competitive a business must be efficient.

· Flexibility: Virtually any goal is obtainable.

· Competition: This is not a pity pool. This is a business. It has real goals and will attract real investors and buyers who share those goals or like its products.

· Inclusion: The social business is a new type of business in the capitalist system. It’s not this type OR the other, rather both can coexist! – And compete.

· Assumptions: Traditional economics assumptions of human nature simply do not square with reality; under this business model, human beings are recognized as people with many motivations, goals, and ambitions. Profit-maximization is not always the bottom line (I did not need the concept of social business to tell me that…)

On a personal note, I think this is the side of sustainable development that is most thrilling to me thus far. Unlike a non-profit, it is not donation-driven. Unlike the UN, it is not bureaucracy-ridden. Unlike welfare, it is not a temporary solution. To go even further, social business is very compatible with my background as my parents started and continue to own an all-natural fruit and nut business. Their experiences have instilled me with my own business sense. Finally, social business allows me the flexibility to choose my goals, what is most important to me? What is a product people are interested in/need? If this is the case, I’m on the road toward my MBA, though the path before my feet seemly rather windy between now and then…

I hope this entry excited you as much as it did me. For next week, I think I will write about free versus fair trade, and how economics explains the two, as well as my own thoughts. Thanks for reading!

Corporate Responsibility and Sustainability

2008-01-12T19:13:00.000-08:00

Recently I met with some two international friends in Starbucks to help them with their applications to the undergraduate program at the UW. We worked for about 2 hours, sipping our drinks and discussing their motives and goals, as well as the semantics of an application to a U.S. university.

Later that evening, I received an email from a friend who had passed by Starbucks while I was there, and he teased me (albeit with a bit of condemnation) about “supporting the big corporate-America instead of the local/small/independent coffeeshops”. I laughed and defended my choice to meet friends there (I happened to by the recipient of a very generous Starbucks gift card from my mom…), but his challenge was enough to make me pause.

Actually, it reminds me of my good friend/mentor’s Brett Dillahunt’s words. Many years ago, he told me that the best way to live out one’s convictions was by the way I spent my dollar. Good ol’ George inevitably reveals our true loyalties. So now I am going back to that question: do my financial decisions reinforce the principals I defend? Based on what criteria do I make my financial decisions?

Obviously, price and product quality are (and always will be) the primary basis for our economic decisions. Now matter what the “social responsibility” of a company, we will not shop there if we cannot afford to, or if the product does not match our standards for quality.

Still, I insist there is another standard, and that is the standard of social responsibility. I think we should choose where we shop based on the social, environmental, and economic impacts made by those businesses. By social, I mean, how does the company impact the community? Are workers treated with dignity? Are they safe and have rights? Does the company provide quality jobs? Is there adequate time for rest? Are there employee benefits, like education stipends/scholarships and medical insurance? By economic, I mean, are the employees paid well? How many jobs are provided? Does the company contribute to other industries? Does it monopolize its own industry (not necessarily a bad thing…after all, state-sponsored conglomerates allowed the Asian tigers to develop rapidly)? By environmental, I mean, does the company contaminate the environment? Contribute to unnecessary waste? Intentionally work toward sustainability? Recycle? Promote environmental stewardship? These three criteria together form the basis of an ever-growing preference for socially-responsible business in our consumer choices.

That being said, I have to admit I know very little about the social responsibility of the businesses where I shop. Thinking back to a pair of shoes I bought from a little store on the Ave, or the book I bought from the U-Bookstore, or to snow-shoes I rented last weekend – how I am ever to know how all of these economic decisions are contributing to or detracting from my goals?

The short answer is, that I will not. But I can still try to make informed decisions in conscientious ways. In general, I would say that I prefer small, family-owned, local businesses to large, mostly because that impacts our communities in a variety of ways from the environmental costs of transportation to profits that stay in the region to families in the area that receive the wage (in truth, I am inevitably biased as my parents started a small, gourmet food processing company that competes with giants like Harry and David’s…) Moreover, I prefer companies with happy employees who offer high quality service to other companies – this represents not just good service, but also a positive social impact and dignified workplace for employees. Finally, observable practices like the amount of garbage and the impact of consumption (be it food, clothing, etc) influences how I think about the extended impacts of the company.

So let’s return to Starbucks. The unforgivable sin of Starbucks is the infamous cardboard cup that is the default instead of the alternative choice for costumers. Almost every customer in Starbucks, whether “for here” or “to go”, uses a take-out cup. I cringe. Really. Still, the company has a lot of other outstanding practices in social responsibility:

· Emphasis on quality of supply chain for coffee and cocoa, including fair trade, organic, shade-grown

· Quality relationships with coffee farmers, including access to credit, social development programs

· Business relationships with other companies that share Starbuck’s ethical values

· Investment in youth-oriented programs through the Starbucks Foundation, which has given $12 million since 1997

(For more information, see http://www.starbucks.com/aboutus/csr.asp and the yearly Corporate Social Responsibility Reports on the Web site).

In reality, it turns out my reservations toward Starbucks are outweighed by the outstanding social investments the company has made. And though I prefer small, local businesses, it is also true that Starbucks’s impacts as a large corporation have ripple effects that dwarf those of the small businesses. On the whole, Starbucks scores pretty well on the sustainability report card.

One last note on business choice: Businesses don’t just offer any products; they respond to their consumer preferences. If I think that Starbucks has done an injustice by defaulting to the non-recyclable cardboard cup, it is also necessary to recognize that people do an injustice by preferring the cardboard cup. They would request a ceramic cup or shop elsewhere if their preferences were not met. This is to say that corporate responsibility will come when there is consumer demand for corporate responsibility. Ultimately, we the consumers are the actors, and the capitalist system is such that we are both influenced by as well as act upon market forces.

Development's quagmire: MNCs

2008-01-03T12:19:00.000-08:00

There is a common saying used by conservatives in the U.S. that goes, “Don’t give a man to fish, teach a man to fish.” Though part of the pro-capitalism, conservative mantra, communists have their own version: equal access to the means of production. The two groups may have different viewpoint in the political spectrum, but they would both agree that all people should have access to jobs and productivity.

One of the greatest obstacles in less-developed countries is job availability. For example, one of my dear friends Pablo from Chile, who is perhaps more qualified than any person I have ever met to teach, struggled for over a year to find a teaching position, despite his outstanding grades and accomplishments at the University. If he couldn’t find a job, I thought, who can in Chile? And Chile is one of the most developed counties in Latin America…

I recently read about a very innovative approach to job creation in less-developed countries in a New York Times’ op-ed piece by Justin Muzinich and Eric Werker. The two proposed converting some (though not all) of U.S. aid dollars into tax credits for domestic Multi-National Corporations (MNCs). Aid is an inefficient means of development because a) only 40% of aid dollars is actually invested in development, according to economist Jeffry Sachs; and b) the rest of the aid dollars finances bureaucratic monsters of distribution. Of that 40%, much is squandered by corruption and poor-governance. What is the solution?

The two propose that the government take the money that would normally be spent in aid ($23 billion by the U.S. in 2006) and offer it as a tax credit for U.S. businesses that invest in these countries. The idea is based on a domestic U.S. model oriented toward poverty alleviation where businesses that invest in poor areas are given a 39 percent tax credit. True to the capitalist spirit, the authors argue that businesses that are profit-oriented would have incentives to produce efficiently; they would create jobs and new markets in these countries. The same $23 billion dollars in aid would generate $59 billions dollars in foreign direct investment.

This creative solution through a “Global Tax Credit” is not without controversy; it brings globalization and economic imbalances to the forefront of the conversation. MNCs in the past have exploited less-developed countries by taking advantage of less-mature political systems and lax environmental regulations. Thus you have MNCs like Standard Fruit Co of Central America, where workers suffered from sterility and cancer after dealing with the pesticides DDT and DBCP (see http://www.organicconsumers.org/corp/011003_dow_chemical.cfm) . On the other hand, MNCs have been responsible for sustained growth and technology transfer through job creation in countries like Costa Rica. Intel’s $300 million micro-chip plant more than doubled the economies GDP in 1999, and pushed the country toward a historic trade surplus.

So here is what I am proposing: a compromise. Let’s convert some of our aid (say 30 percent, to start) to a “Global Tax Credit”, but let’s carefully select which companies get that credit. Preference should be given to companies like Intel that implicate a transfer of technology. These tech companies would create jobs, as well as forge new industries, creating new markets in these countries instead of monopolizing existing markets. In addition, the U.S. government could award the “Global Tax Credit” to companies with environmental standards and/or community investment priorities. In order for this to work, the U.S. government would have to embrace some green regulations for its own industries and take a serious stance on environmental regulations and business practices (sounds like a future blog entry).

On the other side of the equation, the government could elect which countries receive the foreign direct investment based on the countries’ environmental record, human rights record, democratic report card, etc. This point is also suggested by Muzinich and Werker. Certainly no business will invest in a country in chaos, so stability and democratic institutions are vital.

Of course, there are weaknesses in this selectivity. Intel was only able to invest in Costa Rica successfully because of a highly educated population. Costa Rica has a relatively high literacy rate at 95.8 percent, compared to 76.7 percent in Nicaragua, 80 percent in Guatemala, and 69.1 percent in Guatemala. That means that aid dollars should be invested in education and healthcare, realizing that a sick and poorly educated workforce is incapable of production, which is inextricably tied to standard of living.

Also, there are no guarantees that businesses would be successful or entirely efficient. Thus I proposed an experimental phase where 30 percent is converted to the tax credit.

Finally, there is nothing to say that some of the aid could not be given to local businesses instead of local governments. The U.S. government could consider “subsidizing” not domestic MNCs, but rather local businesses in these countries. The U.S. government could try, again, to focus on industries that did not compete with U.S. industries, and to recognize companies that are environmentally respectful and that invested in human capital. If companies maintained or increased efficiency with the subsidy, the results, in theory, would be more jobs, more productivity, higher standard of living, and less poverty.

In sum, MNCs are a hairy topic. Creative solutions can harness the power of capitalism toward sustained development in a globalized economy. The potential (and the risk) is greater than ever in our globalized world.

Muhammad Yunus Challenges Conventional Development Work with the Grameen model in Banker to the Poor

2007-12-28T15:11:00.000-08:00

Muhammad Yunus’s book Banker to the Poor, is one of the most inspiring books and influential testimonies I have read in quite awhile. Yunus presents a new approach to sustainable development through the method of microcredit. The results are concrete and life-changing, both for the women who borrow from Grameen Bank in Bangladesh and for the reader who witnesses their progress.

In his book, Yunus takes on a number of false dichotomies present in current development models. The first is business profit-oriented work versus non-profit social-oriented work. Many development workers think that non-profit, social-justice-motivated organizations are the only the avenue toward a more just and equitable society. Not true, says Yunus, who argues that through access to competitive rates of credit for the world’s most poor will actually enable society’s resources to be justly distributed. The imbalance created by the capitalist system thus far, argues Yunus, is actually the result of an economic apartheid, where the poor are excluded from insertion into the capitalist system. Contrary to common thought, business can be both profit-driven and social justice-driven. In other words, competitive business and sustainable development work are not mutually exclusive.

If the poor could access credit, they could reclaim their entrepreneurial spirit and make their own economic opportunity. This is the second dichotomy that Yunus takes on: economic impoverishment versus hopelessness. The poor are poor, but they are not hopeless, says Yunus, and in many cases do not need skills training in order to be successful entrepreneurs. Rather, the poor should been encouraged to use their existing skills or develop new ones in order to create successful micro-businesses. Some of the most clever examples in the book are a woman who buys and then “rents out” a cellular phone to be used in rural Bangladesh. Another woman who is a basket weaver is able to buy her supplies at competitive rates instead of the middle-man’s rates. Another woman buys a bicycle cart whereby she can sell her service of efficient transportation. These are just three examples that show humanity has inherent skills and creativity that can produce income given access to capital and the means of production under the Grameen Model.

Just as Yunus combated the assumption that the poor have no inherent entrepreneurial skills, he also challenges the assumption that the poor are irresponsible and lazy. On the contrary, the poor have greater incentive than the rich to repay loans on time, given that their collateral is their livelihood. In other words, if they do not repay their loans, they must go back to the money lender to whom they were in virtual economic enslavement. So the working poor repay consistently under the Grameen model, which emphasizes periodic (in some cases daily), small repayments.

Yunus wipes out another myth with his testimony as well. Many claim that development progress is local and only applicable to Bangladesh. On the contrary, the Grameen model has been applied extensively throughout Southeast Asian, now Africa, and even the U.S. Yunus has encouraged the development and competition of multiple development banks in these areas, claiming that their competition will cause these banks to improve efficiency and offer even more competitive (lower) interest rates to the poor. Under Yunus’s cross-cultural model, women are favored as borrowers, culture is both respected and challenged, and the poor are considered to have inherent entrepreneurial skills.

The Grameen model is changing the lives of the rural poor in Bangladesh, and changing the way both business and development leaders think about their respective work. In any case, Yunus, the Nobel Peace Prize winner, promotes a different avenue for development and a different method for peace through micro-credit using his training as an economist. The book is sure to turn a number of conventional understandings of the poor and development work on its head.

My View of Development in Brief

2007-12-28T14:45:00.000-08:00

All of my writings will spring from some presuppositions that I make about development work. In order to engage with the writings, you will need to be aware of those assumptions.

Poverty is multi-faceted: The World Bank has a system of defining poverty in terms of the amount of consumption. If one lives on less than $2 a day (in terms of purchasing power parity), that person is considered poor. If one lives on less than $1 a day (in terms of PPP), that person suffers from extreme poverty. I will generally use those definitions, but I understand poverty to be multi-faceted. The poor suffer from inadequate physical provisions, lack of opportunity, lack of dignity and self-respect, lack of access to education and healthcare. Poverty can be physical, spiritual, emotional.

The solution to Poverty is multi-faceted: Changing the situation of the poor means more than equitable distribution of income or increasing the per capita income; instead, addressing poverty means recognizing the social-political-economic structures that create the situation, recognizing the spiritual bankruptcy and feeling of hopelessness of the poor, and challenging conventional viewpoints of why the poor are poor. I maintain that each person is ultimately the agent of change for his or her own life, and that true progress (economic gains, restored dignity, community engagement) will only come when a person claims his or her endowed capabilities and overcomes both the external and internal obstacles.

Poverty is not inevitable: In a world so abundant of money and technology, I maintain that poverty is not inevitable. Rather, we must come together as local communities, nations, and a world community to take action and provide a world framework of opportunity for all. In order for this to be accomplished, it must be the vision and desire of agents of change in our world.

A poverty-free world is not the cure-all: Muhummed Yunus received the Nobel Peace Prize for his work in microcredit in rural Bangladesh. Certainly, providing opportunity and empowerment of the poor fosters peace and harmonious relations between people. When people’s basic needs are met, there is likely to be less fighting, less stealing, more educational attainment. That being said, eliminating poverty does not mean eliminating war, fighting, selfishness, and greed. These results (the first two) and human conditions (the last two) must be addressed because they are related to poverty, but they are not the only causes or consequences of poverty itself. Addressing poverty is just one piece in the puzzle toward creating a more just world.