Thursday, April 24, 2008

Poverty ... not because people are poor, but because the system is dysfunctional

Dear Colleagues

One of the characteristics of Dr. Yunus's work has been the fact that he does not see poor people as being the cause of poverty, but a poor system ... a dysfunctional system ... as being the cause of people's poverty.

Why ... he has asked ... is it that people working very hard for very long hours have little of value to show for it at the end of the day. His answer, as I understand it, is that the system makes it impossible for them to keep much of the reward of their effort for themselves.

Over the last 150 years, the United States was at the forefront in terms of making ordinary people full participants in the economic opportunities of the country. Hard working entrepreneurs and labor collaborated in building wealth ... and the country progressed enormously. It was not all comfortable cooperation, and not everything was right ... but there was impressive progress in many ways.

The bottom billion has never seen anything like the opportunity and the collaboration between entrepreneur and labor that gave the Unites States its prosperity. Instead, most of the world's poor are confronted with economic and governance systems that ensure a poor and brutish life ... but it need not be this way ... it should not be this way.

Dr. Yuynus, and people like Dr. Yunus, have started to bring opportunity to poor people. If this can continue, and grow, the bottom billion will start to progress for everyone's benefit.

But the system has also got to be addressed. For the past half century the business schools have taught analysis that only has had one dimension ... entrepreneurial profit and how to maximize stockholder value. The social dimension of economic activity is not in the curriculum ... and now it is showing.

Social Benefit Accountancy ... or Community Impact Accountancy ... is needed so that decision makers can start to prioritize the allocation of resources so that there is the maximum of good community impact and social benefit as well as reasonable reward to stockholders and other financial stakeholders.

This is urgent ... second rate teaching of economics and business over fifty years has done a huge amount of damage, and it will take a lot of effort to change the focus. How many expected that the sub-prime meltdown ... that became a banking and finance meltdown ... and may yet become a dollar currency meltdown ... and an inflation crisis ... and an energy crisis ... and a food crisis ... and a perfect storm of everything bad would every happen. But it is happening.

If the analysis is about identifying critical needs ... allocating resources to work on these needs ... that puts everyone to work on critical needs of value ... then there can be a rapid rebuild of the global economy. If, on the other hand, the analysis stays focused on building "my wealth" ... in my view of the situation, "wealth" will evaporate into thin air, and poverty will expand rather as it did in the 1930s.

We are at an important fork in the road ... Community Impact Accountancy ... ought to be the basis for a new GAAP.


Peter Burgess

Monday, February 25, 2008

Poverty: What are the solutions?

Dear Colleagues

It is really a pleasure having Dr. Muhammad Yunus actively engaged in working on solving the problem of poverty. He is very well known among people active in the international relief and development community, but much less well known in the mainstream of corporate business and social life ... which is a great shame.

Dr. Yunus would like to see poverty relegated to being only in museums ... a place where future children can visit and see what poverty used to be like.

Dr. Yunus sees people as the solution ... sees people as assets that should have opportunity to work and progress. Like Dr. Deming, famous for his work on quality over a period of half a century or more, Dr. Yunus believes that the system is the problem more than the individual person.

This is similar to the conclusions of Tr-Ac-Net. Most poor places are not poor because the people do not work, they work hard and as a community, they do not progress. Something is wrong with the system. There has to be something wrong with the system when resource rich places are home to some of the poorest people on the planet ... and they remain poor even when the local resources are being exploited aggressively.

It appears therefore that the solution to poverty is a systemic solution ... and this is exactly how Dr. Yunus approached the problem starting some 30 plus years ago. To get to a systemic solution it appears that he tried many things, and let the successes develop and discarded the others. In 30 plus years the Grameen Bank has not left the village in search of more profit, merely grown in the village and in other villages in Bangladesh, and increasingly in other countries around the world to get more people who had access to credit and a path out of poverty and one important step towards more prosperity.

In the process Dr. Yunus has been very careful not to make the system worse. He has taken local culture into consideration, but not allowed local culture to be a constraint on the big goal of reducing poverty.

The Grameen approach to microcredit is a critical part of the solution ... it addresses a systemic problem of lack of financial services for the very poor. But Dr. Yunus and Grameen have not stopped with this single solution because more is needed. Every part of the "system" needs to function well, and Dr. Yunus is anxious that everyone, especially the youth, become part of the solution and work in some way to ensure that the system works and poverty is, in fact, and soon, relegated to being in museums.

Dr. Yunus makes one optimistic ... but there is work to be done.


Peter Burgess

Tuesday, February 19, 2008

Poverty: What are the Causes?

Dear Colleagues

I attended an event at Columbia University yesterday evening. The occasion was the launching of Consilience, a new journal of Sustainable Development with presentations by Dr. Jeffrey D. Sachs and Dr. Joshua Graff Zivin.

Consilience ... which means "the joining together of knowledge and information across disciplines to create a unified framework of understanding" is a very appropriate name for a journal that is going to address issues of sustainable development.

I did not have high hopes for the evening. I remember an event at my own University some 45 years ago when I attended an alumni affair and heard the managing director of a well known British company ask that the academic community not to waste money researching things that the corporate community had been doing for years. Now, many years later I feel the same way about academic research into poverty ... yes, there is a need to understand poverty, but the knowledge about poverty is to be found within the community of perhaps 2 billion people who are in it (or is it 1 billion or is it 4 billion) and not much in the writings of academic researchers whose papers are filed in stacks in academic ivory towers. So I did not have high hopes!

In fact, I came away with considerable optimism. The group of students who were largely responsible for the establishment of the new journal seemed to represent a new wave of students who understood better than most that the possibilities of sustainable development were way better than performance under the present paradigm for relief and development ... and Dr. Sachs talked about the need for knowledge in the context of radical reform (though he did not use such words) of the way in which the world's institutions worked. I have often characterised Dr. Sachs as being too comfortable with the status quo, and merely arguing for more funding for what I argue is a "failed" status quo ... but this is not what I heard last night. Rather I heard Dr. Sachs arguing for knowledge that would facilitate the changes that are both possible and needed ... and arguing for inclusion of knowledge from all areas of science and society. I heard about the possibilities of new ways to do good things ... I heard a positive message.

All of this was encouraging. There was not much of accounting ... but there never is. So that was not a particular disappointment. There was not too much about a people perspective, and the need for understanding poverty from the perspective of people who are experiencing poverty, and what the priorities might be from their viewpoint. But these perspectives are rarely articulated in academic circles ... however Dr. Sachs acknowledged in response to a question from the audience that issues of monetary policy (citing the case of Bolivia) are much easier to resolve than deeply entrenched issues of poverty ... and that poverty is, in fact, one of the most complex inter-disciplinery problems there is.

The evening ended too soon ... the journal has been launched ... maybe there will be not only a journal called Consilience, but wow ... also the practice of consilience. Now that would be progress!

Peter Burgess

PS The Consilience website is:

Thursday, February 7, 2008

Is poverty a result or a cause?

Dear Colleagues

Maybe this is not an important question ... or maybe it is.

Some of the news about poverty alleviation is good ... many millions of people have moved from abject poverty to something better. Many of these people are in India and China, and other parts of South East Asia where global manufacturing and services have taken hold.

But the bad news is that far too many people are still in poverty with little hope, as things are presently going, of having much of a better future.

This population is in a perpetual Catch 22 ... because they are in poverty they are malnourished ... because they are malnourished, they have bad health ... because they have bad health, they cannot work well ... because they cannot work well, they are in poverty.

But worse ... the amazing improvements in productivity that have been achieved through science and technology has done little or nothing for the world's really poor. The exponential improvement in productivity has been matched by an exponential deterioration in the governance that might have been expected to mitigate the situation of the very poor. The global market economy has served the interest of the profit maximizing business, but has not had much of a favorable impact on the society at large, and the commons has been exploited more and more for private benefit. From the perspective of the poor, the global economic system is dysfunctional ... getting worse ... and offering very little hope.

What hope is there? Is there any hope?

Some of the leaders of the international relief and development sector (IRDS) opine that more resources flowing through the IRDS will give better results and will help reduce poverty. In my view, the evidence base for this is weak. In fact, it is possible to conclude that the value destruction associated with the activities of the IRDS will make matters worse and not better. But it is likely that more funds will flow into IRDS, and it is to be hoped that slowly there may be some progress made in using these funds more effectively.

The real hope is that there can be a significant change in the relief and development paradigm and that people centric and community centric development assistance can expand with far more respect for the potential of the poor. Dr. Muhammad Yunus has shown with the Grameen approach that poor people have potential ... and that it is opportunity that is missing. Do something about opportunity, and the people will progress. While the Grameen experience is significant ... it is not widely appreciated.

And to the extent that the Grameen experience is known ... no lessons seem to get learned. The whole of the IRDS remains focused on national level programs with planning and implementation driven by government processes, procedures and constrained by government capacity. Meanwhile the capacity of the people is largely ignored. The IRDS focus on sector programs ... or worse, sub sector or sub sub sector initiatives ... usually means that scarce local resources are badly utilized. In the end, rather little is sustainable ... and poverty just goes on and on and on.

And what is disturbing is that so much that is needing help from international sources could be fixed locally if only the people were a little less in poverty.

Peter Burgess