The Answer

....that no single key, no formula can, in principle, solve the problems of individuals or societies; that general solutions are not solutions, universal ends are never real ends.... ...that liberty--of actual individuals, in specific times and places--is an absolute value; that a minimum area of free action is a moral necessity for all men, not to be suppressed in the name of abstractions or general principles so freely bandied about by the great thinkers of this or any age, such as ... humanity, or progress...names invoked to justify acts of detestable cruelty and despotism, magic formulas designed to stifle the voices of human feeling and consience.

This is Isaiah Berlin describing the views of the great Russian thinker Alexander Herzen (1812-1870), although I think he was also describing the views of the great Russian thinker Isaiah Berlin. It's from one of my all-lifetime-favorite books, Russian Thinkers. (HT Dennis Whittle for reminding me of the Herzen chapter.)

Berlin presents the lite version of Herzen in a direct quote from his autobiography:

'Human life is a great social duty,' [said Louis Blanc], 'man must constantly sacrifice himself for society.'

'Why?' I asked suddenly.

'How do you mean "Why?"-but surely the whole purpose and mission of man is the well-being of society?' [said Blanc]

'But it will never be attained if everybody makes sacrifices and nobody enjoys himself.'

Another version of this I heard a long time ago, not sure where:

The purpose of life is to live for others.

Then what should the others live for?

How NYU will save New York, and other entrepreneurial insights

Wonderful article by Ed Glaeser in City Journal on how entrepreneurs are the heroes of New York's success, from the days of pre-Civil War packet shipping and sugar refining, then the garment business, and more recently the Great Finance Sector. OK that last one looks a little shaky right now, but Ed talks about how something new always comes along if the city just manages to hold on to enough entreprenurs to find the Next Big Thing.

One thing that Ed says helps hold on to the entrepreneurs: great universities. You're welcome, New York, glad that we NYU profs could do our part to save your keister.

(HT Coordination Problem by Peter Boettke)

Is it easier to start an NGO than a business in Haiti?

From today's NYT:

Alain Armand, 36, a Haitian-American lawyer from Fort Lauderdale, Fla., who is now trying to open several businesses here in Port-au-Prince, the capital, including a bed and breakfast.

Trying is the operative word, he said: “It costs $3,000, and it takes at least three months to get incorporated. There is no organized structure in which we, outsiders to NGO-land, can operate.”

Meanwhile, one list for Haiti lists 822 NGOs operating.

Rwanda’s coffee success story

A walking tour through some of the trendiest coffee shops in the NYU vicinity reveals a common element: creatively packaged, expensive Rwandan coffee for sale.

Given our long-standing interest in 1) good coffee and 2) the potential of entrepreneurship for development, this phenomenon clearly merited investigation. The work of Karol Boudreaux, who has been following the Rwandan coffee sector for several years, helps to sketch the outlines of a partially donor-funded development success story now unfolding.

The history of coffee in Rwanda is intertwined with the country’s political fortunes, and stretches back to the 1930s when the Belgian colonial government required Rwandan farmers to plant coffee trees, while setting price restrictions and high export taxes, and controlling which firms could purchase coffee. These policies helped create a “low-quality/low-price trap” that would bedevil the post-colonial governments that continued similarly heavy-handed policies. They also ensured a national distaste for the stuff—reportedly even today many Rwandans prefer tea.

In the late 1980s global coffee prices plummeted, and the economic devastation following Rwanda’s 1994 genocide wiped out what remained of the struggling industry. In 2000, there was no functioning infrastructure to wash and process coffee beans, meaning that what little coffee was produced was of poor quality.

Fast forward ten years to today: Rwanda has a National Coffee Strategy. Rwandan specialty coffee is winning international competitions, commands some of the world’s highest prices, and is sought out by Starbucks, Green Mountain Coffee, Intelligentsia, and Counter Culture Coffee. There is preliminary evidence that the coffee industry is creating jobs, boosting small farmer expenditure and consumption, and possibly even fostering social reconciliation by reducing “ethnic distance” among the Hutus and Tutsis who work together growing and washing coffee.

How did this happen? First, the Rwandan government lowered trade barriers, and lifted restrictions on coffee farmers. Second, Rwanda developed a strategy of targeting production of high-quality coffee, a specialty product whose prices remain stable even when industrial-quality coffee prices fall. Third, international donors provided funding, technical assistance and training, creating programs like the USAID-funded Sustaining Partnerships to Enhance Rural Enterprise and Agribusiness Development (SPREAD). SPREAD's predecessor started the first Rwandan coffee cooperative as an experiment in 2001, and the project continues its work improving each link in newly-identified high-value coffee supply chains.

Some problems and constraints still plague the Rwandan coffee sector. For example, transport costs remain high, and poor management at some coffee cooperatives points to a persistent need for good training and financial management skills.

Still, Rwanda’s revenues from coffee are still growing in the face of global recession, and these revenues bring real benefits to Rwanda’s rural poor.

Time for toilet deregulation?

UPDATE 10:34AM, 4/16 SEE END OF POST

Right now, India has more cell phones than toilets. That's the headline buzzing over the wires today, thanks to the latest phones-to-toilets ratio released by the United Nations. It's certainly a dramatic factoid. But it's not just true of India's 1.2 billion-strong population — this lopsided statistic is true around the globe, as well.

This is from the Change.org Global Poverty blog. The most obvious explanation:

And though the mobile sector has seen massive private investment — thanks in many countries to telecommunications deregulation — few corporations are clamoring to provide better sanitation for the poor.

(This picture is from an earlier Aid Watch blog reporting a happy encounter with the private sector toilet service industry in Ghana.)

UPDATE 10:34AM: I had underestimated the amount of interest and effort devoted to poor people's toilets in the story above. Somehow I had missed one of the hottest stories in the burgeoning lavatory sector (covered in the NYT, HT IdealistNYC): the Peepoo :

A Swedish entrepreneur is trying to market and sell a biodegradable plastic bag that acts as a single-use toilet for urban slums in the developing world.

Once used, the bag can be knotted and buried, and a layer of urea crystals breaks down the waste into fertilizer, killing off disease-producing pathogens found in feces.

The bag, called the Peepoo, is the brainchild of Anders Wilhelmson, an architect and professor in Stockholm.

“Not only is it sanitary,” said Mr. Wilhelmson, who has patented the bag, “they can reuse this to grow crops.”

The Peepoo is even endorsed by the WTO.  No, not THAT one, I mean of course the World Toilet Organization.

Please continue to forward me links for this rapidly exploding story.

You want cell phone entrepreneurs, we’ll give you cell phone entrepreneurs

Last week we posted some cool maps showing the spread of cell phones especially in Africa over the last decade. We called this “a triumph of bottom-up entrepreneurial success,” but you weren’t convinced. You thought it was foreign direct investment (FDI). Provide more evidence that entrepreneurs are part of this picture, you said. Aid Watch never declines a challenge: 1) OK, it’s true that 52 percent of the African Market is dominated by 6 multinationals: Orange (France), Vodafone/Vodacom (UK/South Africa), Zain (Kuwait), MTN (South Africa), Moov (UAE), and Tigo (Luxembourg).  But that other 48 percent is the battleground of dozens more, many of them home-grown.  (Also we heard a rumor that South Africa is located somewhere in Africa.) To give an example from The White Man’s Burden:

Entrepreneur Alieu Conteh started building a cellular network in the Democratic Republic of the Congo … when it was still in the midst of its civil war in the 1990s. He couldn’t get foreign manufacturers to ship cellular towers into the country with rebel soldiers around, so he got local men to weld scrap metal into a makeshift tower. Demand exploded for Conteh’s phones, and in 2001 he formed a joint venture with the South African firm Vodacom. One illiterate fisherwoman who lives in the Congo without electricity relies on her cell phone to sell her fish. She can’t put the fish in a freezer, so she keeps them alive on a line in the river until customers call to place an order.

Sudanese-born entrepreneur Mo Ibrahim is another example. His mobile telecom company, Celtel, had about 5 million subscribers in 13 African countries when it was sold in 2004 for $3.4 billion. 100 Celtel employees, most of them African, earned more than $1 million from the sale. Celtel is now part of Kuwaiti-owned Zain, which serves 40 million subscribers in 17 African countries.

2) Being a successful mobile operator often requires big infrastructure investments, so it’s no surprise many of the first telecom firms to enter the African mobile market have been large. Multinationals investing in Africa to provide millions of Africans with essential service is a GOOD thing. Yes, the market needs more  effective regulation, increased competition, and lower end-user costs, but those trends are now happening.

3) Multinationals spur smaller entrepreneurs. The Nigerian telecom sector has created some 450,000 indirect jobs since it was liberalized in 2000. And Uganda’s five mobile operators provide employment for more than 100,000 people, who work for the operators directly or indirectly, selling airtime or handsets. An Economist article noted:

In 2003 Ms [Mary] Wokhwale was one of the first 15 women in Uganda to become “village phone” operators. Thanks to a microfinance loan, she was able to buy a basic handset and a roof-mounted antenna to ensure a reliable signal. She went into business selling phone calls to other villagers, making a small profit on each call. This enabled her to pay back her loan and buy a second phone. The income from selling phone calls subsequently enabled her to set up a business selling beer, open a music and video shop and help members of her family pay their children’s school fees.

4) Finally, farmers and fishermen now check prices in markets across the country before selling their goods, while unbanked buyers can make payments with mobile banking technologies. Individual entrepreneurs are beneficiaries of mobile technology’s spread in a big way.

Who ya gonna call? Entrepreneurs!

Just a decade ago it seemed we were stuck with landlines. State-owned telephone companies were largely entrenched, sclerotic organizations that provided poor, delayed, or simply unavailable service —even in some rich European countries, and nearly universally in poor countries. These maps (with data from 2001, 2004, and 2008) show how cell phones have quickly bypassed the dysfunctional landline companies and emerged as a triumph of bottom-up entrepreneurial success.

The measure is cell phone subscribers per 100 population, with darker shades of blue indicating movement from 0-20 to 20-30 to 30-40 to above 40 (above 40 is the dark blue shade that is most evident in all the graphs).

Note the darker blue color now encroaching on all sides of the African continent. This gives us hope that the dynamism of the bottom from entrepreneurs can overcome sclerosis at the top.

2001:

2004:

2008:

Data source: World Development Indicators

Gujarati hotels and Chaldean liquor stores

UPDATE 2 (3/27, 8:24am EDT) Great academic paper on Jewish domination of the diamond trade (see end of post) UPDATE (3/26, 12:34EDT) Great NYT mag article explaining the details of the Gujarati hotel story (see end of post)

I’ve long been fascinated by the Vietnamese nail salon phenomenon. My female friends report a remarkably high concentration of Vietnamese women in nail salons in US cities. I even heard there was a nail trade magazine for the US market that is in Vietnamese. Alas I was never able to do more to document this systematically. Today I happened to stumble over a University of Chicago Ph.D. dissertation by Martin Mandorff that finally nailed it (bad pun was unavoidable).

Mandorff shows that ethnic specialization is remarkably widespread among US immigrants. The following table from 2000 census data shows the leading specializations (the OVER is how much males from that group are over-represented in the industry,* is for self-employed and ** is for employees).

Gujaratis (already famous worldwide as entrepreneurs and traders) are even more specialized as hotel owners. And then there is a group that I had only vaguely heard of: Chaldeans – they are Aramaic-speaking Roman Catholics from northern Iraq. They’ve got the liquor franchise.

It’s amazing how something so unexpected appears from the spontaneous efforts and social interactions of ethnic entrepreneurs. Mandorff of course has much more detailed and analytical explanations, which you should check out.

The phenomenon of ethnic business networks is of course not new, but it’s far more widespread than most people realize (almost every African nation has an indigenous group known as the entrepreneurs and traders –the Hausa in Nigeria, Gurage in Ethiopia, Serahule in the Gambia, etc.) And it’s too well known to even bother mentioning the famous merchant diasporas like the Jews, the Lebanese, East African Indians, overseas Chinese in SE Asia, and so on. Thomas Sowell has written at least TWO insightful books on the phenomenon: Race and Culture, and  Migrations and Cultures.  Avner Greif's now standard explanation  (at least partial explanation) for ethnic networks was that small ethnic clusters could use the the threat of explusion from the group to enforce contracts and other trustworthy behavior (a more precise version was worked out in his  famous article on the experience of Mediterranean traders called Maghribis --11th century Jews in Cairo).

It’s all a very big hint that social and family relationships, culture, and self-organizing networks are an important part of economic development that has been much neglected by previous generations of development economists. Now the tide is turning – I gave a whole two-hour Ph.D. class on Wednesday that only scratched the surface of recent research by economists on culture, social norms, and development.

UPDATE: just received link to an NYT article by the always amazing Tunku Varadarajan (formerly at Wall Street Journal, now colleague of mine at NYU) explaining where the Gujarati dominance of hotels came from:

70 percent of all Indian motel owners -- or a third of all motel owners in America -- are called Patel, a surname that indicates they are members of a Gujarati Hindu subcaste. ... ''In some American small towns they think 'Patel' is an Indian word for 'motel.'"

{Patels are members of a caste called} vaishyas, or traders, who were once employed to calculate the tithes that were owed to medieval kings by farmers in Gujarat, an Indian state on the Arabian Sea.

More great details follow in Tunku's article on how the "Patel Motel Cartel" came about in America.

UDPATE 2: An academic paper that traces the origins of Hasidic Jews dominating the 47th Street Diamond District in Manhattan all the way back to the 11th century, with some suggested explanations.

Afghans and social entrepreneurs improvise when official aid fails

From the blog FabFi (HT to blog Whirled Citizen)

{A} World Bank funded infrastructure project to bring internet connectivity to Afghanistan began more than SEVEN YEARS ago and only made its first international link this June. That project, despite hundreds of millions of dollars in funding, is still far from being complete.

{Meanwhile} the Fabbed Long-Range Wireless Antenna Project, ... as of December 2008 is working on an installation in Jalalabad Afghanistan.

today (Feb 4, 2010)  marks a new peak in the size of Jalalabad's Fabfi network--26 simultaneous live nodes.

Pictured above is a makeshift reflector constructed from pieces of board, wire, a plastic tub and, ironically enough, a couple of USAID vegetable oil cans that was made today by Hameed, Rahmat and their friend "Mr. Willy".

Set a Big Goal. Give All to Meet It. This is Stupid.

The first two sentences come out of thousands of commencement addresses, not to mention inspirational foreign aid addresses. But they’re bad advice. Social entrepreneurs in foreign aid might learn from private sector entrepreneurs, who don’t stick to fixed goals.

A University of Illinois graduate moved to Silicon Valley with a great goal (perhaps inspired by the Illini commencement address) – develop security software for hot-selling handheld devices like the Palm Pilot. He assumed that enterprises were soon going to be using Palms as primary means of communication and sharing documents, and would need security to protect business secrets. “Any minute now, there’ll be millions of people begging for security on their handheld devices,” he thought. He was wrong – he never found a demand for handheld security software.

He could have kept trying to make his original idea work. Entrepreneurs that do stick to fixed goals are very good at least at one thing – wasting investors’ money. An idea for an online grocery startup, Webvan, managed to go through $1 billion before finally pulling the plug.

Illinois Man was different. He shifted to Plan B. Sell his cryptography software. Still no takers. We can skip over Plans C, D, and E, which all failed.

Plan F was a system for securely transferring cash from one Palm Pilot to another. He put a demo on the Internet so people could see how great it would be for Palm Pilots. People liked the web demo and started using it for real transactions, while the demand from Palm users still failed to materialize. eBay users started asking if they could put the web demo in their ads for people to pay them. There was no demand for the product, only for the web demo.

Illinois Man finally realized what might succeed. He forgot about Palm Pilots. Plan G was a system for making secure online payments for sites like eBay. His Plan G company was called PayPal, and his name was Max Levchin. eBay eventually bought PayPal for $1.5 billion. The story is from a new book by John Mullins and Randy Komisar, Getting to Plan B.

This principle translates to social entrepreneurship. Mohammed Yunus was trained as an irrigation economist. If he had stuck to fixed goals they would have involved irrigation. We would never of heard of him or of microcredit (at least until someone else without fixed goals came along).

Why is entrepreneurship so hard? It is always very uncertain what you can do well that the customers will want. Finding that sweet spot is a process of trial and error and gathering feedback. Research cited by Mullins and Komisar shows it takes 58 new product ideas to develop one successful product.

An even better book on this theme of searching for what works rather than sticking to the pre-conceived plan is Bill Duggan’s Strategic Intuition. Duggan uses a nice military analogy. Why was Napoleon such a successful general? Before Napoleon, military strategy was about how to take a fixed position from the enemy. Napoleon realized that the point of a war was to defeat the other army. He said, forget the targets, just keep the army moving relative to the other army until you are in the most advantageous position, then attack.

Of course, this advice about flexible goals might conflict with previous advice about specialization. Yes, you want to get the gains from specialization, but be flexible about what your specialization will produce for the customers. So you might be a health specialist, but which among many interventions that you could do will pay off? James Grant, a former director of UNICEF, knew he wanted to save children’s lives, but he was open to any way to do it. He and his staff stumbled on oral rehydration therapy, which has since saved millions of babies from dying from diarrheal diseases at a cost of about 12 cents per dose.

The economists’ version of this mentality is to keep doing and redoing your cost/benefit analysis. The rational next step is one with the highest ratio of benefits to costs. Many goals are set that ignore cost/benefit analysis altogether (Millennium Development Goals, for example). Other goals might be set with some vague notion of predicted costs and benefits, but these predictions are usually wrong. You have to be willing to adjust as benefits and costs turn out to be different that expected, and often shift to another activity altogether – Plans B,C,D,…Z.

Obviously the official aid world of MDG Plans and Poverty Reduction Strategy Papers does not have a clue about the entrepreneurship needed to solve problems.

Official aid doesn’t know how to operate in a world where most Problems are solved by entrepreneurs who originally intended to solve a DIFFERENT Problem. So it’s up to you private and social entrepreneurs.

Begin it Now: The Inspirational Success of Ashesi University in Accra, Ghana

Ashesi (which means “beginning” in a local language) is a remarkable private university begun in 2002 by a returning Ghanaian expatriate, Patrick Awuah. A recent column in the Seattle Times interviewed Awuah and profiled the university: “So far, its four graduating classes have had a 100 percent placement rate. Most graduates have stayed in Africa, and some have even started companies that are hiring Ashesi students.”

Half of the students are on scholarship. I have visited Ashesi myself on several occasions and have been humbled and inspired by the dynamism of the students and faculty.

Awuah said he was inspired by the words of Goethe: "If there is anything you can do, or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now."

Now the campus is expanding rapidly, building on success. The Ashesi website gives its vision: “to educate a new generation of ethical, entrepreneurial leaders in Africa; to cultivate within our students the critical thinking skills, the concern for others and the courage it will take to transform a continent.”

Despite widespread international publicity as a homegrown success, Ashesi has yet to receive a single dollar of official aid (one famous official aid agency turned Awuah down when he refused to raise his student-teacher ratios to what he saw as unacceptable levels).