The idea has been growing in popularity and has all but snowballed into an immutable law – it is considered unfashionable, pessimistic and cynical to question the idea, and in fact, why should one question it? It is a beautiful win-win, an elegant theoretical solution, and proper management should make it a success which can be scaled. The idea I am talking about, is that developmental organizations, such as NGOs, can morph into revenue earning businesses, and manage their P&L well enough to sustain their operations without grants. They would market and sell products and services produced by the members of the poor communities they strive to help. The benefits for customers are that, more products and services become available for consumption, probably at competitive rates and better quality. The benefits for community members are that jobs are created and incomes improved. Over a period of time, the profits from operations would be enough to sustain the management overhead costs of the business exchange, and responsible ploughing back of profits, and eschewing of the greed that sometimes comes into pure commercial businesses, would ensure that this entire model would grow.
Now, my view is that this model can work within limited frameworks only, and the operating profits earned would never be high enough to cover the entire overhead of managing the operation. In short, you can NOT run a true developmental organization without some grant funding.
My logic for taking the counter view to popular thought is as follows: A developmental organization should go where market forces do not go. There is no great achievement in uplifting a micro-entrepreneur who is already on his way up… there is no great glory in supporting a community or group which is competitive enough to safeguard its interests and speak with a voice which is regularly heard. A true developmental initiative should therefore actually go against the market, and try to provide growth opportunities to those whom the market has already declared as uncompetitive.
Now, suppose with some seed capital, a developmental initiative succeeds in building the skills, resources, capabilities, market reach and overall competitiveness of a community of people whom the market on its own will not sustain; is it not conceivable that over a period of time, this community would actually become competitive and therefore provide enough returns to the developmental organization to now cover its costs?
The simple answer is yes, but if this happens, then, the developmental organization would now need to milk the asset it has created (even if only to a moderate extent, without “greed”), to cover its operating costs going ahead. As this point in time, what do we have? A “developmental organization”, which is actually an early stage investor, taking back returns from a community or group of people, who have now become competitive enough to win in the market, with the capabilities that they have developed. Therefore, while this would be a fair and justifiable outcome for the developmental organization, giving it a well deserved positive return on investment, the fact is, that it has ceased to be a developmental organization, since it does not any more go where the market refuses to go!!!
To remain a true developmental organization, if indeed that is its vision, then this organization, at the first sign of sustainable profitability in a community initiative, should actually exit it! This is because if the community is able to earn sustainable profit, they do not require developmental support any more. Therefore, the true developmental organization works with communities which need support, strives to improve their capabilities, competitiveness, effectiveness and productivity… but even as the community starts approaching the tipping point to achieving these very qualities on a sustainable level, the developmental organization must exit, foregoing all the returns it could have earned, and seeking out some other community which now needs its support. If the developmental organization stays on and remains engaged with the now productive community to get a share of the returns, it is an investor or a venture capitalist, (though a benign one with a social orientation), for the main focus would then be managing the portfolio of investments and returns, rather than doing developmental work. Then in this case, how does the true developmental organization sustain itself, if it walks away from the asset it has created at precisely the point in time when returns start emerging? The answer, clearly, is through grants.
While it is again a fashionable clich̩ to say that grants will not go on forever, the simple truth is they will. At least, they are as likely to go on as revenues in a market economy, no more and no less. As long as there is a sovereign government, there would be some government spending on welfare. As long as there are corporate organizations eager to bolster their image as responsible entities, there will be CSR (corporate social responsibility) spending. Therefore, my simple view is that a developmental organization can achieve sustainability, but not necessarily through business revenues only. In fact, sustainability would be largely achieved only through grants. This has a deep and all powerful impact on the business plans and projections that developmental organizations and social enterprises would make, since as per this view, their revenue projections only have to cover a portion of their cost, and the rest must be covered by grants. The next question would therefore be, how do we bring long term predictability in grants, but that is a separate problem. This is therefore very different from making unrealistic claims to cover all costs over time from business revenues. If the developmental organization, along with the members of the community it is trying to uplift can actually be completely sustainable, then they are competitive already Рtherefore, where is the support needed?
NGOs trying to build a sustainable business model would therefore do well to mull over the actual identity they wish to create for themselves in the long term; Similarly, social investors would do well to question where the thresholds lie, between returns they look for on investment and actual developmental impact they want to bring about, where it is needed most.
Friday, May 7, 2010
Thursday, May 6, 2010
Transformation and social mobility
Mallika (name changed) was four years old when her mother migrated to Bangalore city from a small village near Thiruvanamallai back in the late ‘80s. Although Mallika’s mother was an illiterate agricultural labourer, she was lucky to find stable, permanent residence in poor but safe slum area. Regular employment as a domestic maid in a number of apartments in a nearby affluent area enabled the mother to send Mallika to the government school close by, and Mallika surprised everyone by going all the way to standard 10 and passing with a second class in Kannada medium. By then, Mallika’s mother had won enough goodwill with a few benevolent employers to fund her education through PUC (plus 2), and also help her learn some basic English. The young girl was showing a liking and an aptitude for math and science, but no one was prepared for what was to come… Mallika got a 1st class in her PUC second year, and even got a rank (though it was over 8,000) in the state common entrance test. With the help of a valid reservation category certificate, Mallika went on to do a BE in Computer Science in an engineering college at Bangalore, during which time she also did a project in which she learned java and C++. After a tense 6 month wait following successful graduation, Mallika landed a job in a small software development company where she made a reputation as a hard worker, even if not exceptionally brilliant. Two years later, she was picked up by her former manager, who had switched jobs by then, to join one of India’s big 5 software companies, which has a market capitalization of a few billion dollars and a headcount of several thousand tech professionals. Today, Mallika lives in a small but comfortable and well furnished apartment with her mother who has stopped working. She has visited Singapore and the US to work on projects for clients and is a team leader.
Mallika’s story, though quite extraordinary and fairy-tale like, is not unique. The transformation in her life has been played over, though less dramatically perhaps, and starting from more favourable levels, with hundreds of thousands of young men and women in India over the last 20 years. Most working professionals today enjoy a better standard of living than their parents and grand-parents. However, in general, the growth opportunities start from a much higher base level than the one that Mallika began at. In fact, in her case, a number of favourable factors combined with her diligence to help her pole-vault to a higher economic level… for instance, she and her mother lived in one house for several years, the government school she went to was actually functioning, she did get support in terms of funding, encouragement and occasional guidance from her mother’s upper middle class employers. The sad part is, that just as there are hundreds of thousands of people who have been transformed by education and new economic opportunities, of which Mallika is a more extreme example, there are tens of millions of young people who are unlikely to ride the wave of transformation.
So what is this transformation? What is the destination of this desired change? To a large extent, it is a transformation from being employed in the unorganized sector to the organized one. I say to a large extent, because there are notable exceptions. Everyone in the unorganized sector is not poor, and everyone in the organized sector is not comfortably off and above being vulnerable to economic shocks. There is however, a strong correlation. In the organized sector, employees have structured compensation, some level of job security and predictability, some level of leave with pay, especially for emergencies such as medical conditions; in the unorganized sector, nothing is sure for daily wage worker or labourer, in terms of where they would be working and how much they would be earning even a few weeks later. Often, there is no insurance, no protection of earnings for periods of illness or injury, no long term job security. But, probably the most important difference is, that in the organized sector, a person can grow professionally by getting training or varied experience. A person can change her field, such as an engineer who gets an MBA and moves to finance; a person can get promoted by getting an advanced training; in the unorganized sector, no such opportunities exist. A labourer remains a labourer all her life and can continue to earn wages as long as she has physical strength to perform the same level of work. Even a relatively skilled unorganized sector worker, such as a self employed motor mechanic on the road side, cannot claim a faster growth path by attending a training program – market conditions simply do not allow such a change practically, though it could be theoretically possible. The market may also not be willing to pay a higher wage for a higher level of skill to an unorganized sector worker simply because standard mechanisms do not exist for benchmarking, assessment, certification and additional training. For instance, the salary that a qualified accountant can command in the organized sector would be a function of his experience in terms of time, performance, different assignments handled and so on. Also, in any new job, he would get paid leave, insurance coverage, savings fund and other benefits as part of a standard package. On the other hand, the wage and benefits that a domestic maid can receive would only depend on her negotiating ability and the benevolence of her employer.
The stark reality is that in India today, over 90% of the working population is in the unorganized sector. The solution is clearly not to try to transform this huge, fragmented work force of over 400 million, to the formal sector… its always tempting to try to simplify problems to address them more effectively, but in doing so, we create an illusion of simplicity which we may try to solve through a single silver bullet. In fact, post-independence, the Indian government tried exactly this, i.e. to provide state-controlled organized sector employment (through PSUs, or public sector units) and hope that progressively the entire working population would be covered. Unfortunately, even without considering the number of PSUs which have gone sick or are loss-making, this idea is a relative failure as far as creating mainstream employment goes, because all PSUs together do not employ more than 30 million people.
Then what is the solution? I’m not sure what it is in terms of a series of executable steps, but I think I can visualize what the solution would mean in terms of visible change.
On the one hand, it would mean more Mallika’s climbing up the social and economic ladder by getting and converting more opportunities. Clearly, once an individual has received education and the capability to secure higher value jobs, to a large extent, she becomes competitive and secure from economic shocks, vulnerability and exploitation. Her dependents and she make a permanent climb to a higher social and economic orbit.
On the other hand, it would mean more standards which are organized-sector-like stretching down to prevail in the huge, anarchic, jungle-law-governed unorganized sector. This would mean a complex set of levers to be applied, including state legislation, recognition by employers of the need for more fair and humane practices, improved professionalism among workers to increase their bargaining power, pay for performance irrespective of the type of work (i.e. a general acceptance of the concept of dignity of labour and delinking type of work from caste, class and community). For instance, today, sewer cleaners in many parts of the country come from particular Dalit communities, and they are looked down upon because of the work they do, for which they are paid peanuts and exposed to dangerous and unhealthy conditions. Now, sewerage systems exist in every country of the world, but in developed countries, sewer cleaners are trained, certified, insured, provided with protective clothing and equipment, and respected for the job they do. If sewer cleaners would have such fair conditions to work in and get paid fair wages which may include special allowances for hazardous work, then who knows, cleaning sewers could become a competing alternative career path to accounting and software development – at the end of the day, it’s a job!
So, we need that magic method, or a combination of several hundred methods, to push more Mallika’s up, and to push better practices and standards down, to provide transformation, mobility or just better conditions, to people like Mallika’s mother… just imagine what would happen, if the 90% of our work force who make up the unorganized sector are empowered to perform and produce, and are also treated, more like the 10% who hold up much of the organized economy!
Mallika’s story, though quite extraordinary and fairy-tale like, is not unique. The transformation in her life has been played over, though less dramatically perhaps, and starting from more favourable levels, with hundreds of thousands of young men and women in India over the last 20 years. Most working professionals today enjoy a better standard of living than their parents and grand-parents. However, in general, the growth opportunities start from a much higher base level than the one that Mallika began at. In fact, in her case, a number of favourable factors combined with her diligence to help her pole-vault to a higher economic level… for instance, she and her mother lived in one house for several years, the government school she went to was actually functioning, she did get support in terms of funding, encouragement and occasional guidance from her mother’s upper middle class employers. The sad part is, that just as there are hundreds of thousands of people who have been transformed by education and new economic opportunities, of which Mallika is a more extreme example, there are tens of millions of young people who are unlikely to ride the wave of transformation.
So what is this transformation? What is the destination of this desired change? To a large extent, it is a transformation from being employed in the unorganized sector to the organized one. I say to a large extent, because there are notable exceptions. Everyone in the unorganized sector is not poor, and everyone in the organized sector is not comfortably off and above being vulnerable to economic shocks. There is however, a strong correlation. In the organized sector, employees have structured compensation, some level of job security and predictability, some level of leave with pay, especially for emergencies such as medical conditions; in the unorganized sector, nothing is sure for daily wage worker or labourer, in terms of where they would be working and how much they would be earning even a few weeks later. Often, there is no insurance, no protection of earnings for periods of illness or injury, no long term job security. But, probably the most important difference is, that in the organized sector, a person can grow professionally by getting training or varied experience. A person can change her field, such as an engineer who gets an MBA and moves to finance; a person can get promoted by getting an advanced training; in the unorganized sector, no such opportunities exist. A labourer remains a labourer all her life and can continue to earn wages as long as she has physical strength to perform the same level of work. Even a relatively skilled unorganized sector worker, such as a self employed motor mechanic on the road side, cannot claim a faster growth path by attending a training program – market conditions simply do not allow such a change practically, though it could be theoretically possible. The market may also not be willing to pay a higher wage for a higher level of skill to an unorganized sector worker simply because standard mechanisms do not exist for benchmarking, assessment, certification and additional training. For instance, the salary that a qualified accountant can command in the organized sector would be a function of his experience in terms of time, performance, different assignments handled and so on. Also, in any new job, he would get paid leave, insurance coverage, savings fund and other benefits as part of a standard package. On the other hand, the wage and benefits that a domestic maid can receive would only depend on her negotiating ability and the benevolence of her employer.
The stark reality is that in India today, over 90% of the working population is in the unorganized sector. The solution is clearly not to try to transform this huge, fragmented work force of over 400 million, to the formal sector… its always tempting to try to simplify problems to address them more effectively, but in doing so, we create an illusion of simplicity which we may try to solve through a single silver bullet. In fact, post-independence, the Indian government tried exactly this, i.e. to provide state-controlled organized sector employment (through PSUs, or public sector units) and hope that progressively the entire working population would be covered. Unfortunately, even without considering the number of PSUs which have gone sick or are loss-making, this idea is a relative failure as far as creating mainstream employment goes, because all PSUs together do not employ more than 30 million people.
Then what is the solution? I’m not sure what it is in terms of a series of executable steps, but I think I can visualize what the solution would mean in terms of visible change.
On the one hand, it would mean more Mallika’s climbing up the social and economic ladder by getting and converting more opportunities. Clearly, once an individual has received education and the capability to secure higher value jobs, to a large extent, she becomes competitive and secure from economic shocks, vulnerability and exploitation. Her dependents and she make a permanent climb to a higher social and economic orbit.
On the other hand, it would mean more standards which are organized-sector-like stretching down to prevail in the huge, anarchic, jungle-law-governed unorganized sector. This would mean a complex set of levers to be applied, including state legislation, recognition by employers of the need for more fair and humane practices, improved professionalism among workers to increase their bargaining power, pay for performance irrespective of the type of work (i.e. a general acceptance of the concept of dignity of labour and delinking type of work from caste, class and community). For instance, today, sewer cleaners in many parts of the country come from particular Dalit communities, and they are looked down upon because of the work they do, for which they are paid peanuts and exposed to dangerous and unhealthy conditions. Now, sewerage systems exist in every country of the world, but in developed countries, sewer cleaners are trained, certified, insured, provided with protective clothing and equipment, and respected for the job they do. If sewer cleaners would have such fair conditions to work in and get paid fair wages which may include special allowances for hazardous work, then who knows, cleaning sewers could become a competing alternative career path to accounting and software development – at the end of the day, it’s a job!
So, we need that magic method, or a combination of several hundred methods, to push more Mallika’s up, and to push better practices and standards down, to provide transformation, mobility or just better conditions, to people like Mallika’s mother… just imagine what would happen, if the 90% of our work force who make up the unorganized sector are empowered to perform and produce, and are also treated, more like the 10% who hold up much of the organized economy!
Subscribe to:
Posts (Atom)