Here’s a report I submitted to the Development Through Enterprise blog at www.nextbillion.net:

“The 8th annual Harvard Social Enterprise Conference last Sunday (March 6) at the Harvard Business School drew a sellout crowd of 1,000 people. Cheryl Dorsey, president of Echoing Green, and Victoria Hale, founder and ceo of the Institute for One World Health, gave morning keynotes.

Echoing Green acts as an “angel for emerging social enterprises,” and has awarded $25 million to more than 400 entrepreneurs since 1987. Dorsey noted that when she graduated from medical school, she intended to practice medicine, but saw a Boston Globe story on the high incidence of infant mortality in Boston’s black neighborhoods. It was this “ZIP code as destiny” epiphany that led her in 1992 to start The Family Van, a community-based mobile-health unit that provides basic medical services to at-risk residents in Boston’s inner city neighborhoods, and earned her an Echoing Green fellowship.

Dr. Hale is an Ashoka Fellow festooned with awards from The Economist, Skoll Foundation, and Schwab Foundation, not to mention a MacArthur Fellowship. She is founder of the America’s first non-profit pharmaceutical company, which recently received Indian government approval (FDA approval in 2005) for a low-cost drug to combat Visceral Leishmaniasis, a deadly disease of the spleen and liver that occurs primarily in the Indian state of Bihar (as well as Nepal and Bangladesh). More “geography as destiny,” for in this state alone a sand fly bite injects the deadly parasite. She showed slides of children with inflated bellies trying to fight off infection, slides of Indian women and girls with red hair due to malnutrition. Because the disease is confined to a poor and remote region, it has not been on the radar screen for big pharma, but Hale has corralled industry to develop a low cost drug.

One World Health now has a $10, 21-day cure, but still has to deal with the issue of distribution and education. Hale notes that of all the big pharma companies who have tried to develop effective drugs to combat diseases in poor countries (Glaxo Smith Kline, Merck, Pfizer, Novartis, Eli Lilly), only Merck has succeeded—with its cure for river blindness in Africa. Hale is out to change that lamentable track record, and noted that “industry doesn’t know the world’s poorest people, doesn’t know what need doing, but they want to do well and do good. We need to ask, she says, ‘What do you need to engage? What are you afraid of?’”

The “Private Capital in Development” panel, moderated by HBS’s Michael Chu, former CEO of ACCION International, was superb. Sarah Alexander, executive director of EMPEA (Emerging Markets Private Equity Association), noted that $33 billion in private equity flowed into emerging markets in 2006, compared to $26 billion in 2005, $6.4 billion in 2004, and $3.5 billion in 2003. She also noted that the “barbarians at the gate” (Carlyle and Blackstone?) mentality was widespread in Europe and emerging markets, and that private equity’s image in developing countries was an issue for governments. They want the money; they don’t want the buyouts, the cut-and-run.

Yasminda Zaidman, a director at Acumen Fund a non-profit venture capital fund (one of my favorite oxymorons), says they use “philanthropic capital to show private capital the path.” She also mentioned the “lost year” that many social entrepreneurs face when they try to start a business and spin regulatory and financing wheels for 365 days. Acumen prefers loans to equity, as “it’s hard to see exits.” Milton Namude of the IFC split the difference, saying the IFC took a long-term horizon, using debt and equity when needed, that private equity and venture capital were a small piece of the puzzle. He urged students to “join the IFC and have it all!”

The “Past, Present and Future of Microfinance” panel, also moderated by Michael Chu, hit the many fissures in the microfinance industry. Nancy Barry, president of Women’s World Banking, started out by saying that Grameen Bank was a huge success but had not innovated on its original models, and that MFIs should not be “loan dispensers” but “financial intermediaries” that provided insurance, savings, and consumer finance. Jeffrey Ashe, manager of community finance for Oxfam America, noted that 6 of 7 borrowers come from a “handful of countries” and that his Saving for Change Initiative aims to promote savings (rather than lending) as a way of changing lives and mobilizing capital. Carlos Castello of ACCION International, spoke about the commercialization of microfinance. Of ACCION’s 33 partners, 28 are generating better than 20% returns. He pressed the idea that returns were key to sustainable success.

All panelists talked about the impact of commercialization, and saw a split in the industry between banks that moved further upstream (targeting the rich poor), and NGOs that moved further downstream (targeting the poor poor).

This conference moved the ball, however defined, forward.”

http://www.nextbillion.net

A very interesting opinion piece in the Jan. 29 Wall Street Journal notes that both the Nobel Prize winner in economics (Edmund Phelps) and peace (Muhammad Yunus) highlighted the impact of entrepreneurship in their Nobel addresses. “Phelp’s Prize” by Amar Bhide, a professor at Columbia University, and Carl Schramm, president of the Kauffman Foundation, picks at the open wound between plain-old entrepreneuers and social entrepreneurs. I basically agree with them, but I also beg to differ as I think they compare apples and oranges. (I don’t link to the article because I don’t have a subscription to wsj.com.)

Of the 35 winners in economics, 28 never mentioned the word “entrepreneur.” Phelps mentioned it 17 times–more than the total over the previous 19 years! Yunus mentions it 6 times. Twenty-three mentions in two Nobel speeches has to be a record. But it is almost as if the laureates had a different dictionary in front of them when choosing their words.

Phelps talks about a transformative entrepreneurship that is central to capitalism, by sparking growth of small businesses that become large commercial operations; Yunus talks about microloans that don’t involve economies of scale or lead to significant new enterprises. The writers ask, ” Can turning more beggars into basket weavers make Bangladesh less of a, well, basket case?”

Well, no–but. It’s a false dichotomy–and the writers know it. They note Bangladesh’s export-oriented garment industry as being “larger and more productive than individual craftsman,” which is true, as a way of saying that it is better to provide venture capital to growing businesses than seed capital to individuals. They also note that government reforms, such as those that are now propelling Vietnam to new heights, are more important than microloans. But because the Bangladesh government is intractably backward and corrupt and anti-private business, does that mean that Yunus’s loans are a bad thing? I think the writers are reacting to the hoopla rather than the reality.

I am not an unabashed proponent of microloans, because I agree with the writers that while they may lift individual families out of poverty, they do not scale an economy. But I do not think microloans are a bad thing–how could they be? Some, such as Alexander Cockburn in The Nation (“The Myth of Microloans”), paint microloans as the devil incarnate, due to farmer suicides in India.

To me, the issue is clear: Capital that helps people raise a cow and escape poverty is as good as capital that helps start an Apple Computer. Yes, there’s a difference of scale. But there’s also a difference of context. The two sources of capital are not comparable–one’s in America, one’s in Bangladesh. But that doesn’t mean they’re not both productive.

And what about microloans that help build a GrameenPhone, the largest and most successful business in Bangladesh? It would not have been built without microloans that allowed distribution into rural villages, because Grameen Bank would not have backed the project. Does that not count? The authors cannot take a potshot at Yunus’s track record without examining his full portfolio.Â

Straw-man arguments are not compelling. It’s not either-or. Let’s deal with the facts on the ground–and celebrate entrepreneurs and capital that builds businesses of all kinds.

I don’t want to sound like Scrooge, but I can’t help myself after reading the cover story of last Sunday’s (Dec. 17, 2006) New York Times Sunday Magazine. “On Giving,” written by Australian philosopher Peter Singer (Princeton University), who suggests that world poverty could be elimninated if only Americans donated more of their money to the cause.

I mention the article here because the theme of You Can Hear Me Now is that private enterprise that sparks grassroots entrepreneurship is a better long-term solution to poverty eradication than foreign aid or charity, which inevitably end up in the hands of a narrow elite and enrich those who are powerful enough to grab the spoils.

Singer begins with this “textbook” dilemma: If you, a rich American, saw a poor Bangladeshi child drowning in a pond, do you have a moral imperative to soil your shoes and save the child? The answer, in case you are struggling, is YES! The author moves from this slam dunk to the problem of world poverty, which he claims is largely the fault of developed nations, and thus seeing that and knowing that, do we not have the same moral imperative to come to the aid of the poor as we do to the aid of the drowning child? Again, the answer is YES!

Now comes the fun — collecting the money from rich Americans. Starting at the top of the totem pole and moving down, the author looks at income groups in the 90th percentile and above, and decides how much of their money they should donate. For the top .01%, 33% of their income; for the top .1%, a mere 25%; and so on down to the top 10%, who average $132,000 per year. They are “required’ to donate the “traditional tithe,” or 10%.

Now come the questions that the editors apparently forgot to ask, or the author refused to answer:

• To whom should this money be given?
• How would it be used?
• What’s happened to the billions in foreign aid and charity given over the past 50 years?
• What if someone in the top 10%, who makes $95,000 a year, has a mortgage, two children in college and two cars, which is not an unreasonable assumption? Should he or she take $9,500 off the top and send to — oh, there is no address.
• What if all the money — which Singer figures would total $404 billion from the top 10% of American families — lifted everyone out of poverty for a year, but then the same people sank back into poverty the following year?
• Worse, what if the $404 billion were misappropriated, human nature being something even philosophers cannot control or change, and corrupt governments becoming even more heinous and hateful to their people, and the poverty rate actually increased?

I am sounding like Scrooge, aren’t I? I guess I just need more data. Data, say, that shows that adding 10 phones per 100 people adds .6% to the national GDP (from the London Business School). Stuff like that. I don’t think philanthropy or charity are necessarily misguided, any more than I think that free enterprise or markets are the solution to poverty. But I am appalled that a cover story in a widely read Sunday news magazine could be so illogical and unpersuasive.

An excerpt from Muhammad Yunus’s Nobel Peace Prize acceptance speech, in which he publically prods majority owner Telenor to cede majority control to Grameen:

“Grameen Phone is a joint-venture company owned by Telenor of Norway and Grameen Telecom of Bangladesh. Telenor owns 62 per cent share of the company, Grameen Telecom owns 38 per cent. Our vision was to ultimately convert this company into a social business by giving majority ownership to the poor women of Grameen Bank. We are working towards that goal Someday Grameen Phone will become another example of a big enterprise owned by the poor.”

I wonder how this went over in Norway, where Telenor is the largest telecom company?

Based on my discussions with principals of GrameenPhone and Grameen Telecom, I don’t see this happening. But I do see a possibility that GrameenPhone, or some portion of it, will be listed on the Dhaka Stock Exchange, which would add 30% to the overall market cap and open up ownership opportunities for the people of Bangladesh, although not necessarily the Grameen borrowers. When? Who knows?

Muhammad Yunus, en route to Oslo to collect the Nobel Peace Prize for his pioneering work with microcredit in Bangladesh, has let it be known that he has a side agenda in Norway: challenging Norway’s Telenor to cede majority control of GrameenPhone.

GrameenPhone is a partnership between Telenor and Grameen Telecom, an affiliate of Grameen Bank, but Telenor holds 62% of what is the largest phone company in Bangladesh. Yunus insists that Telenor made a legally binding agreement in 1996 to give up majority control within six years. Yunus would like to turn GrameenPhone into a “social business” that reinvests profits in the company and its customers. Telenor, for its part, says that it has reinvested most of the more than $1 billion in profits and has yet to recoup its initial $87 million investment.

Yunus told Fortune in Dhaka ahead of his departure: “There’s tension between us and Telenor. There’s a philosophical difference. They’re oriented toward profit maximization. We’re oriented toward social objectives.”

Says Telenor CEO Fedrik Baksaas: “Different opinions are part of daily business life. We have never committed to reducing our share in the company.”

Two stories outline the core arguments on either side.

Nobel Peace Prize Winner Itching for a Fight (Fortune.com) presents Yunus’s case on behalf of Grameen–essentially that Telenor is depriving the poor of Bangladesh of their rightul spoils.

Telenor Says No Quarrel with Nobel Peace Laureate (Reuters) presents Telenor’s response–in essence, that it is willing to talk, but that GrameenPhone is a business that has done more to aid development than all development programs combined.

It’s going to be dark in Oslo on Sunday. It also could get a little hot.

A very unusual and innovative way to raise money for social causes has attracted such of the world’s best known consumer product companies, such as GAP, Converse, Armani Exchange, and Motorola. They are selling products under the band name Red and donating a percentage of profits to the Global Fund (a project supported by Tony Blair, Bono, the Bill and Melinda Gates Foundation, among others). Red is a brainchild of Bono’s. (Want to Help Treat AIDS in Africa? Buy a Cellphone, from the New York Times.) 

To date the Global Fund has raised $10 million in Britain, with which it is testing treatment of HIV-positive women and children in Rwanda. Red products are just hitting shelves in the U.S.

Bill Gates told the New York Times:

“Red is one of the first major efforts to tap more Americans to contribute to fighting AIDS a continent away. And they can do so simply, just by switching their cellphone or buying some of the clothing that’s part of the Red line.”

Says Ron G. Garriques, president of mobile devices at Motorola: “I don’t believe it’s giving up profit. What I believe is, it’s making more profit.”