What is Development?: Progress in a Vacuum

Development is the emergent property of a system. The challenge is creating the system.

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with 2 key ideas that should shift the way we think about foreign engagement in developing economies.

In Part 2 of this blog series (Part 1: Where we've been) we consider an illustrative scenario that points out the current problem with piece-meal development. Next blog, we'll look at a case study that illustrates the power of adaptive problem solving.

When we left of last we had reviewed the history of development ideas and the various parts of the economy that were proposed as the key levers for sustained development.

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Thomas Thwaites, a British design students decided that for his final project he would make an electric toaster entirely from scratch, from basic raw materials. He selected the simplest toaster model he could find for ~$6.

The simple toaster turned out to still be incredibly complicated, with over 400 parts made form hundreds of different raw materials. 

Aside from trying to make a home-made smelter, Thomas faced incredible challenges. After spending 9 months and an absurd amount of money he assembled his finished product. Unfortunately, since he was unable to get any rubber, the copper wiring was not insulated and after a few brief moments of functionality, his toaster burst into flames.

The principle is that even a five-dollar toaster is an incredibly complex machine that requires an array of services and technologies. Likewise, an economy that makes toasters must provide this broad range of capabilities. If you're starting a toaster business, not only do you need functioning industry, but also a functioning legal system and labor market and transportation system.

Hence, increasing productivity or capability in one industry or aspect of the economy is itself unlikely to spur development. It is the full emergence of functioning trade, industry, legal systems and schools that leads to rapid development. 

Emergence here has a specific meaning. The idea is that development isn't an activity you do, but rather the emerging feature of a system and confluence of events. If individual sectors and firms are raindrops, then development is the gathering storm. No single droplet can be described as a storm, but in composite, they form a thunderstorm.

Likewise, no particular economic activity can be rightly be described as development, but rather in aggregate they allow for the emergence of development as a property of the system.

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In the post-war 40's, the American economy was primed for development. It has a large returning labor and consumer force, a massive infrastructure and technology investment as a result of the war, and a friendly economic environment with people eager to escape the confines of the great depression. This lead to a economic boom that propelled America into a new global economic power, far more-so than before the war.

When we think of today's development landscape, it perhaps should be through the same lens of development as something that happens when the right ingredients are in place.

What is Development?: Where we've been

After a century of economic thought we still wrestle to bridge the development gap.

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with 2 key ideas that should shift the way we think about foreign engagement in developing economies.

• The economy consists of a many people, products, firms and institutions which means it behaves as a complex adaptive system. Hence, development is not a series of individual successes. Instead it is the emergence of self-organizing complexity from the system as a whole. 
• There are 7 key policy implications from this idea that change how we engage with issues of development and that explain why some economies ‘take-off’ while others stagnate. 

This first blog post pulls out a summary of the history of development ideas included in Barder’s presentation. Post #2 – 3 will talk about development as an emergent property and the last post will focus on the policy implications. Conventional Economic Models

1. It’s capital, stupid: Developed after the second world war, the Harrod-Domar growth model argued that the economy is the sum of labor and capital inputs. Since most developing countries seemed to have a surplus of labor, they were most likely capital constrained. 
2. It’s savings, stupid: Walter Rostow’s model of economic growth spoke of the virtuous cycle of investment, growth and savings. He argued that if an ‘investment gap’ could be bridged by aid, then the virtuous cycle would lead to rapid growth. This has informed much of traditional foreign aid policy.  
3. It’s technology, stupid: The prevalent Solow model of growth mentions ‘technology’ as the exogenous component that drives growth. The idea has received merit thanks to the telecom revolution in Asia and Africa. However, what constitutes the right technology is hard to define and Solow himself tends to avoid specifics on this bucket. 
4. It’s policies, stupid: The IMF and World Bank have set up loan programs on the thesis that government is the ingredient that prevents economies from living up to their theoretical potential. This has created the Washington Consensus which is a series of policy reforms often required from countries receiving aid and loans. 
5. It’s institutions, stupid: In response to the failings of the Washington Consensus, business figured the lack of strong institutions are to blame and hence billions have been spent of trying to build good governance practices. However, given the range of institutions (land reform, judicial reform, public sector pay, government auditing, corruption, budgeting, term limits, etc.) its hard to figure out where to start. 
6. It’s politics, stupid: In their 2012 best-seller “Why Nations Fail”, Acemoglu and Robinson argue that it is the politics of powerful elites that control capital and resources that are to blame. Hence, the idea is that weak institutions, bad policy and poor capital are designed and intended results of a well-positioned elite. 

So, which of these answers are correct? In some sense, all of them are. In some sense, none of them are. The models are right to the extent that the last half-century has been an era of rapid economic development and the biggest increase in the global standard of living in history.

However, the models still fail to explain why some countries have astronomical success and why others fail. The chart below shows the relative income growth in South Korea and Ghana, and economists have struggled to explain where Korea succeeded and Ghana failed.

The biggest challenge is that ultimately each of the models points to an endogenous ingredient that is driving growth. It seems that in order to be effective these ingredients are not something provided from the outside, but rather are products/characteristics of the economic system itself.

Next Up > The Toaster Experiment

EMDC gets on the Cold Call Chronicle

For the first time, EMDC has featured an article in the Darden Cold Call Chronicle. We are thankful for our partnership with the paper and look forward to more opportunities in the future. We are especially thankful to Jonathan O'Connor for candidly sharing his thoughts with us. It helps us aspire to ask more of each other and search for the truly extraordinary amongst us.

Help us become a fuller and better community. Tell us about you and what you care about.

Best,
EMDC

EMDC: A Year in Review (2012)

EMDC has come a long way since it launched almost 2 years ago. As we close this year, we asked our out-going president (Jay Beekman) to share some thoughts on this past year. As this year's leadership team, we are extremely excited to partner with you to make 2013-2014 memorable.

If you would like to learn more about the club checkout our website.
If you would like to join us for the road ahead, register for the club online.

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Jay Beekman:
I am extremely proud of the progress that EMDC made in just its second year in existence. The high level of student engagement in 2012-2013 is evidence of the importance of EMDC as the home for international development at Darden.

Below are some highlights from the year, including many “firsts”: 

• For the first time, EMDC created and sent out a monthly newsletter with job opportunities, events, articles, and other interesting tidbits.
• For the first time, EMDC hosted a panel at Darden’s Business in Society Conference. The “Achieving Measurable Impact in International Development” panel was expertly moderated by all-star faculty member Professor Peter Rodriguez and featured the following panelists: 
• Heather Simpson, Senior Director of the Department of Education and Child Development at Save the Children
• Dan Baker, NGO Global Programs Director at Accenture Development Partnerships
• Lisa Simutami, Senior Regional Director for East Africa at Population Services International (PSI)
• Rosario Londoño, Senior Social Innovation and Development Effectiveness Specialist at the Inter-American Investment Corporation
• For the first time, EMDC set up a Global Field Elective (GFE). A team of four students advised an association of leather shoe manufacturers in Nicaragua on an export strategy for breaking into the U.S. market and traveled to Managua over spring break to present the deliverable.
• For the first time, EMDC received funding from a source other than student dues.
• For the first time, EMDC teamed with the CDC to set up a resume drop for the International Finance Corporation’s summer internship program. Over 30 first year students applied.
• EMDC had an impressive lineup of events throughout the year:
• Lunches: 
• Dan Bierenbaum, Senior Researcher in the Batten Institute
• Frank & Veronica Warnock, Professor & Senior Lecturer and Fellow in the Batten Institute, respectively (Joint Event with Net Impact)
• Moustapha Sarhank, Postgraduate Scholar and Honorary Chairman of the Sarhank Group for Investment
• Peter Eliassen, COO of Visionspring (Joint Event with the Healthcare Club)
• Presentations:
• “African Export Successes” by Ariell Reshef, Assistant Professor in UVA’s Department of Politics (Joint Event with DABO)
• “How MBAs with Hazelnuts Changed Bhutan” by Teresa Law & Daniel Spitzer, Founders of Mountain Hazelnut Ventures (Joint Event with ABC & Net Impact)
• “Consulting in International Development” by Sarah Glass, Senior Manager at Accenture Development Partnerships
• “India and the Global Financial Crisis” by John Echeverri-Gent, Associate Professor in UVA’s Department of Politics (Joint Event with DSAS)
• “In Business for Freedom – Combatting Human Trafficking in South Asia” by Kerry Hilton, Founder of Freeset (Joint Event with DSAS & Net Impact)
• “Investing in Social Entrepreneurs to Create a World Beyond Poverty” by Jacqueline Novogratz, Founder of Acumen Fund (Several Co-Sponsors) 

The progress that EMDC made in 2012-2013 would not have been possible without the efforts of a talented and motivated leadership team. I would like to thank:

• Amram Migdal, VP of Events – Amram sourced, arranged, and managed many of the events this year
• Eugenia Delgadillo, VP of Finance – Eugenia spearheaded the GFE in Nicaragua and successfully applied for funding from a university source
• Charlie Lin, VP of Careers – Charlie researched the opportunities in EMDC’s newsletters and liaised with the CDC about pertinent career opportunities
• Isaac Salem, VP of Communications – Isaac leveraged his unique position as a joint-degree student at JHU’s SAIS to inform and compile EMDC’s monthly newsletters 

We are very all very excited to see what CJ, Rohan, Sylvester, Kyle, and Andrew have in store for EMDC in 2013-2014!

Darden Student Profiles: Changing Healthcare in Burundi

I recently sat in on a speech by Ed Freeman, where he shared about how to discover Inspiration. A particularly important point he made is to look for inspiration among those around us. For Ed, inspiration came from within his family.
As we think about the Darden Family, it seemed appropriate to look for inspiration within our family. With that in mind, I'm excited to invite our first student speaker to share a bit about his story.

- CJ (EMDC President)

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Student: Jonathan O'Conner
Co-Founder & Vice-President
LifeNet International

Jonathan, in 2008 you co-founded LifeNet International in order to deliver health solutions to the poor in Burundi.

Can you share a bit about what motivated you to launch this organization?

We started LifeNet out of a desire to better serve the global poor and for me, personally, an entrepreneurial desire to be part of a start-up. Microfinance had done wonders in helping the poor gain sustenance in food, but little had been done in healthcare. We wanted to create something that would bring healing to the poor.

I was working in investments at the time, when a mentor approached me with his idea to apply business-thinking to healthcare for the poor. We wanted to serve the poor in a way that would be sustainable (financially) and scalable (would impact a large number of people).

Launching a business is Burundi is an unusual task. What challenges did you face in bringing LifeNet to fruition?

There were two key lessons I learned in Burundi: fail fast, and persevere. Within three months of our launch we had completely failed in our idea for nurse entrepreneurs. The government regulations significantly restricted innovation in the delivery platform and many of the local nurses had much lower levels of education than we ever imagined. But we failed fast and learned faster. Within a few weeks we had another pilot launched focused on franchising existing clinics and a few months later launched our final major pilot that further honed our idea to focus on faith-based clinics, which were strategically significant in the country.

Our final model was a conversion franchise for faith-based clinics. That means, we took existing clinics and incorporated them into our franchise network to deliver nursing and businesses education, quality control, and medicine supply.

Official NGO registration with the government is required to scale your organization, import goods and the like. This process took me 16 months to complete because we refused to pay bribes. I met with everyone from the Minister of Health to the Permanent Secretary of Foreign Affairs to every administrative assistant, I believe, in the entire government (so perhaps not everyone in the government, but I did meet with a LOT of people to gain our final approval). But all the work, all the setbacks, taught me a very important lesson in not giving up.

  

How has LifeNet impacted the health system in Burundi? What challenges remain in improving healthcare delivery?

It’s incredibly exciting to see our work continue to grow. We’re now in 40 clinics and hospitals in Burundi and our network sees nearly 50,000 patient visits every month! In our first 10 clinic partners (with one year of partnership) we’ve improved the quality of care by 63% on average. In a country of 9 million people, we feel like there’s a real chance to impact their well-being.

The challenges ahead are significant. We’re still trying to increase the financial sustainability of our operations through medicine importation, but that’s a very difficult business in a developing country. There are also significant infrastructure and educational constraints that are major problems and not quickly fixed.

What prompted you to come to Darden for your MBA?

After nearly three years in Burundi our project was beginning to shift from our pilot stage to scaled growth. I felt that this was the right time for me to make a personal transition back to the US and that’s when I applied to Darden.

My work with LifeNet taught me the power of business-thinking to create value in the nonprofit space but I was always wanted something more. I saw telecoms in Burundi that were making millions in profit and yet creating tremendous social value that nobody seemed to recognize. And that’s what I wanted to do. Create businesses that generated both economic and social forms of capital and I saw Darden as a place where I could explore these ideas.

 Any advice for those planning to enter the social entrepreneurship space?

I would take Ed Freeman’s class and begin to question the social entrepreneurship heuristic. I think we should start with recognizing the problem to be solved and then trying to understand what forms of capital are required to solve it – is it philanthropic capital, patient capital, economic capital, or something else? There are a number of great nonprofits that apply business-thinking and a (very large) number of great businesses that generate social value and each are solving meaningful problems.

If you are interested in solving complex problems using non-traditional capital – philanthropic or otherwise - core business skills are crucial. My time spent in investments prior to LifeNet was invaluable. I knew how to put together a pitch book, which helped us communicate to donors. I knew how to build a financial model, which enabled us to make mid-sized loans to local clinics. So, consulting and investment backgrounds can be a huge help. Marketing also plays a big role. A good friend is an exceptional marketer and I was constantly soliciting his help.

The last qualifier is that none of this is any good unless you’re on the ground. Be willing to go move for two or three or five years to a crazy place and see what happens. You can’t learn empathy from a case. Really invest yourself in what you are doing, go co-create with your customer, and deliver a product that changes the world. 

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Jonathan O’Connor is first-year MBA student at the Darden Graduate School of Business. Prior to Darden, he was a co-founder at LifeNet International, a nonprofit that improves performance of primary care clinics and hospitals in Burundi, East Africa. Prior to launching LifeNet, he worked as an investment analyst with CNL Real Estate Advisors. During his time with CNL, he helped to originate private placement real estate funds for syndication to the retail equity markets. Prior to joining CNL, Jonathan was awarded a fellowship of the Trinity Forum Academy, a leadership academy based outside of Washington, DC. Jonathan will spend his summer as an associate at New City Capital, a private-equity firm based in Charlottesville, Virginia.