Monday, July 13, 2009

Replace the World Bank with Venture Capital?

This is a guest post from Carl Hammerdorfer, the director of Colorado State University's Global Social and Sustainable Enterprise Program. Carl is an entrepreneur, returned Peace Corps Volunteer (Mali), and has worked in international development for years. In this post from somewhere in Africa, Carl proposes that poor countries (and BOPreneurs) would be better served by shutting down the World Bank, paying their experts severance, and investing the remaining multi-billion dollar budget as venture capital. Can he be serious? You decide (and comment if you'd like).

"Is it just me, or is the world actually discussing global poverty and development solutions with renewed passion and genuine rethinking? Work in the development racket for too long can make even the most starry-eyed optimist feel a bit jaded. After all, how long can you hang your hat on the success of South Korea and Poland? Sure, Ghana and Botswana are starting to seem like good stories, but what about Egypt, Burkina Faso, Honduras, Bolivia and a hundred other countries spinning their wheels in poverty’s swamp? When do we start seeing some real, long-term results? When do perennially poor states stand on their own feet?

So it has been good to see Dambisa Moyo brashly call the whole development rodeo into question. It’s been terrific to see Bill Easterly and Jeffry Sachs duke it out in the NYT, Huffington Post and all over the TV and the web. The kind of debate they’ve been having almost never, ever makes the mainstream media. That pabulum factory is too worried about Brad and Angelina’s adoptions or Oprah’s academy, both nice things to be sure, but hardly more than a gnat on an elephant’s … oh, never mind.

For those of you who haven’t been paying attention, Moyo – dubbed the anti-Bono - has said that the development industry has ruined Africa and should get out…er, except for humanitarian aid… and maybe a few scientific institutes. Jeffrey Sachs holds that it’s Western greed and selfishness that has underfunded development, thereby causing untold misery, death and destruction. “We must give more money!” he screams. “Much, much more money!” Bill Easterly stands with Moyo, deriding the World Bank, USAID and other development actors, and arguing that in enterprise lie the answers. He ridicules Sachs, while Sachs basically accuses him of murderous proposals that will damage the lives of millions. And then there’s Bono, Bob Geldoff, most of Hollywood and almost every wannabe activist between the age of 15 and 21. They all want to have another rock concert for Africa and buy more T-shirts to save the planet and all of the poor people on it.

Well, It is time for some wise person to reconcile these seemingly irreconcilable positions so that we can all get back to our I-Phones, Tivos and Priuses. I, regrettably, am not that person. Rather, I’d like to throw some more fuel on this fire and get some other people involved in this global barroom brawl. Smart people. People with big brains and big pocketbooks. People who hate to chip or mar their manicures. World Bank people!

I think it is time to shut down the World Bank. Yes, you heard me right. Shut them down.

It’s not a new or original idea, I’ll admit. Right wing nuts and crazy leftists have both taken aim at the Bank over the years, so this might actually be a chance to get two nuts in the sack together. Er, never mind. But if the extreme right and left agree on this, then let’s take a flyer and cut off the money, turn off the lights, and send all of those really smart people who want to save the developing world back to the developing world. After all, if these guys, most of whom have multiple PhD’s, are the premier experts on development, let’s send them to developing countries where they can practice their craft. And I don’t mean 14 days in the Ulan Bator Hyatt or the Dhakar Sheraton. No, I mean to live, to educate people, to reform governments, to build economies, to create civil society institutions and all of that stuff that they so ardently want to get done. How in the world are they ever going to do that from Washington DC?

Have you ever been in the World Bank? Man, it is an awesome building. All glass and steel and leather and beautiful art and ergonomic chairs. And that cafeteria? Are you kidding me? Last time I was there I had the choice of Asian fusion, pheasant under glass, sushi, sol meunier or veal piccatta. Food I can’t even pronounce, and all at rock bottom prices! Heck if they’re serving that kind of fine cuisine and not bilking taxpayers to support it, then they should be in the restaurant business, not wasting their time in the “not ending poverty business”. Shoot, the light bill alone at the World Bank could probably get both Cape Verde and Honduras out of poverty in a couple of years.

So, shut down the World Bank, I say. And, I have an idea for putting all of that money to use that would actually help poor countries. A friend of mine helpfully suggested that we not shut them down, but that we “transform” them. Ha, ha ha ha ha! Is he crazy!? Nobody’s ever going to transform the World Bank. Heck, the inertia of this institution is approximately that of the Himalyan mountain range, the pyramids and offensive line of the Pittsburgh Steelers combined… and then squared! And man, are those guys ever cagey. Do you think anyone can transform an organization that has 8500 of the smartest people on the planet, people who were able to get out of villages with no electricity, running water or flush toilets in places like Angola and Burma and Venezuela and manage to permanently entrench themselves into some of the highest paying, tax-free jobs on the planet… you think they’re gonna be transformed by anyone? Not on your life. They must be eliminated.

I think we can pay them to go away, and still have money left to implement my aforementioned plan. We could give them half of their salary for 10 years and ask them to go back to work in the real world. Heck, if you are from Niger or Chad, with that kind of money, you are going to be the man/the woman. Since the cost of living there is about 1/10th of what it is in DC, you’d be able to live off of that money and use the balance of it to manage your own personal development strategy. You could do micro-lending, women’s empowerment, maybe even build a small hyrdo-electric dam. And what could be better for the developing world than to send all of their smartest people back to them to build that country?

With the balance of the $25 billion that 185 countries put into the WB every year, here’s what I propose: Let’s use it to subsidize and incentivize the venture capital industry to invest real money in developing countries. If anyone knows how to invest money wisely, it’s the venture capital guys (excluding, of course the guys who invested in Segway). If you ask entrepreneurs in Africa or Latin America what the biggest problem is, they’ll tell you “it’s capital, stupid”. There’s a bunch of money to be made building businesses that make stuff to sell to local people and into regional markets, but rarely can the guy with the idea and the drive get the money to do it. It’s hard enough to do that here, but at least you can mortgage your house or charge up your credit cards or go to Vegas, find a roulette wheel and bet your life savings on red or black. But in Ethiopia if you have a fool-proof plan to pelletize coffee husk for fuel for people’s wood-stoves, finding an investor is like finding cockroach at the Ritz-Carlton. It ain’t gonna happen.

The reason venture capitalists are as rare as hen’s teeth in very poor countries is the perceived risk of doing business there. As one of them told me recently, “Sure, I’ll go to Africa… just as soon as I feel like I won’t earn a ‘negative return’ on my money.” Okay, fair enough. You see it as too risky. Well here’s what we’re going to do for you. We are going to take the money that’s no longer funding Italian loafers and marzipan biscotti at the World Bank and use it to buy out some of that risk. Maybe we’ll cover most of your startup in Kenya so that you can get a person on the ground looking at investments at minimal cost. Maybe we’ll provide training on how to avoid the sharks and scam artists. Or, maybe we guarantee some percentage of your investment capital, leveraging up all of that taxpayer money, all to be put to productive use.

Yes we’d need controls. No investments in illicit arms smuggling, opium production or massage parlors. But there are a few brave folks who’ve got most of those rules of the game down (go to SEAF and see what they’re doing with VC in over a dozen developing countries). Granted, it takes a while to figure out the ropes in Kenya, but it does in pharmaceuticals and biofuels too. VCs would be smart enough to hire good people and develop a methodology to evaluate investees if the incentives are there for them to make healthy returns. They’d make some mistakes, just like they do here, but they’d probably pick some big winners too, maybe even some that produced enough profit to make up for the WB money that might otherwise have gone to that beautiful office and staff in downtown San Salvador.

Let’s face it- what a poor country needs is no different from what a poor state or county in the US needs. Economic development, entrepreneurship, new companies, products… real jobs for God’s sake! Not unproductive jobs working for a foreign NGO, but jobs where people make stuff….and sell it. Michigan and California are depressed- and what do they want? Companies that give people jobs. Why should Guyana and Mali be any different from Georgia and Montana? And if there’s one thing that entrepreneurs and new companies need, it’s capital. You could have a bunch of WB guys making decisions about where to put the money, but I don’t think anyone believes that that’s what those guys are good at. So let’s let the professionals handle it… the venture capitalists.

Post a Comment