Responsibility ... high crime ... firing police!

Dear Colleagues

Thanksgiving is over ... Christmas is coming ... and so is the end of the year. Budgets have to be balanced in most States and Cities around America ... and this means firing workers.

There is something very wrong with the way the economic system works when police are being let go when crime is high. Newark is in a budget bind ... the result of pretty pathetic leadership for decades ... both corporate and political ... but it is what it is. Mayor Cory Booker, the current mayor, is doing a great job of turning this city around, but a 40 year decline cannot be reversed easily ... but he has been doing it.

But now the budget crunch is getting in the way. The checks and balances that are reasonable have now become unreasonable ... Newark has stabilized its crime situation, but it has a long way to go before it will be a low crime city. Newark needs the police to keep police on the payroll ... the crime situation is unfinished business.

Money accounting is not what should be driving public policy. Public policy should be driven by TrueValueMatrics. Money should be allocated so that needs are being satisfied. In Newark, there is a need to reduce crime. Money should be one of the resources available to reduce crime. In Newark, there is a need to have more jobs. Money should be one of the resources available to increase the number of jobs ... maybe good jobs in the Police Department.

With ridiculous situations like the one in Newark, it is no surprise that the economy of the United States remains in trouble with very high unemployment.

But is is also ridiculous that corporate institutions ... banking and others ... are awash in financial liquidity when the needs of society are only getting met at a very very low level.

With wide use of TrueValueMetrics we would be seeing a very different set of behaviors. Money is not a good measure of quality of life and the progress towards a better society.

How is your community doing? Is the quality of life getting better or not?

Peter Burgess

Campaign for Community Change

Dear Colleagues

I am interested in the betterment of society ... a reasonable thing to want. But the only people that want to talk to me are people who see me as another ATM machine for them to use. Every organization I have ever contacted is now trying to get me to send them money ... and I am really not interested.

What I would like to do is to help some of these organizations use their money more effectively ... but very few are interested in this, even taking the first steps. Here is an example:

From: Deepak Bhargava, Campaign for Community Change to me

Dear Peter,

What a way to ruin the holidays.

800,000 people will lose their unemployment insurance if Congress does not pass an extension TODAY. 2 million total people will lose their benefits between now and January 1, 2011. This means unhappy holidays for families and communities everywhere.

Call Your Senator. Demand extending unemployment benefits for a full year.

These benefits are a critical lifeline for Americans and their families at the mercy of the worst job crisis since the Great Depression. This is not the time for Congress to turn its back on unemployed workers desperately looking for jobs that simply aren’t there. Unemployment stands at 9.6 percent and is in the double digits in communities of color.

Call 866-956-1737: Tell your Senator to do what’s right for workers.

Make your voice heard and tell yuor Senator to put politics aside and come together to do what’s right for Americans who’ve lost their jobs and are fighting to survive in this economy.

In solidarity,

Deepak Bhargava and the CCC Team
Campaign for Community Change

The Campaign for Community Change is the action arm of the Center for Community Change. Connect to thousands of community organizers and leaders in a grassroots struggle for change by joining us today.

Subscription Management:

This is their URL http://www.campaignforcommunities.org/ and some contact info from their website.

home | who we are | what we do | act | contact us | terms of use | donate
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I would like to see an organization like this partnering with TrueValueMetrics so that the work that they are doing can be "valued" and compared to what the big organizations in the corporate world are doing that wrecks "value".

I was very proud as I was growing up that fascism had been defeated ... and proud of the socio-economic progress that was being achieved post war in Europe and the United States ... and proud of progress in many aspects of civil rights. But my big disappointment has been the way in which the modern economy tries to make money and in the process "guts" society. I am proud of my education and my training as an accountant ... but disgusted that accountancy is such a power for measuring money and is irrelevant in measuring the value dimensions of society and economy with the result that big profits get made on top of value destruction in society. Wrong measurement ends up with wrong results.

I would imagine that this group could be more important for the United States than Goldman Sachs ... but nobody will ever know unless they do something like TrueValueMetrics (TVM) to measure the impact they are having on society.

Bluntly put ... good people need to wake up and do TVM type reporting so that the world starts to pay attention to people doing good rather than only paying attention to people making profit.

I am not against profit ... I just think it is only half of what should be being measured!

Peter Burgess

American Public Vastly Overestimates Amount of U.S. Foreign Aid

Dear Colleagues

The fact that the American Public is misinformed on this matter should come as now surprise! It would be interested to know anything that the American Public is informed about ... the role of misinformation dominates politics ... dominates marketing ... dominates the media ... and it is no wonder that the American Public ends up being misinformed.

Frankly the knowledge economy that was anticipated when IT (information technology) emerged ... and promptly fueled the the dot.com bubble ... has been hijacked. Our economy is now driven by super-rich kleptocrats who thrive in a world where misinformation flows freely ... and rule of law serves to make the ethically unacceptable quite legal and impossible to stop through any system of due process.

This is not what the American Founding Fathers had in mind.

Maybe with the application of True Value Metrics some sanity might be possible. This is the text of the note that triggered this responce. The text was at this URL http://www.worldpublicopinion.org/

Peter Burgess

American Public Vastly Overestimates Amount of U.S. Foreign Aid

As debates about how to deal with the budget deficit have heated up in recent weeks, a new WorldPublicOpinion.org/Knowledge Networks poll finds that Americans continue to vastly overestimate the amount of the federal budget that is devoted to foreign aid.

Asked to estimate how much of the federal budget goes to foreign aid the median estimate is 25 percent. Asked how much they thought would be an "appropriate" percentage the median response is 10 percent.

In fact just 1 percent of the federal budget goes to foreign aid. Even if one only includes the discretionary part of the federal budget, foreign aid represents only 2.6 percent.

Solari in 2002 ... I wonder what has happened since then?

Dear Colleagues

I just "tweeted" the following on @TrueValueMetric

Solari & The Rise of the Rule of Law by Catherine Austin Fitts from 2002 is worth reading see http://www.courtskinner.com/solari/Rise.htm

This connection was sent to me by Mark Roest, a friend in California. I was interested to see the date when this was published ... 2002 ... and now curious about what has happened since then.

One of the issues that I have been concerned about for a very long time is that there is very little "system thinking" in what most people of good will are doing. A lot of effort goes into thinking about what is wrong and what might be a solution ... and then a book or report is produced ... and then rather little happens after that. The end purpose seems to be merely publishing the book or report.

Accountants ... and I am one ... come from a different mindset. There is, to be sure, the duty to product the financial reports every quarter and year ... and internally perhaps monthly ... but the real job is to have all the data organized so that these reports are easy to produce and also to help the organization get better and better results. A successful accountant is not one that simply produces the reports, but one that has the data that helps make the organization successful and getting better and better.

So my question of Catherine Austin Fitts is not so much how many people liked the report, but how much has society improved.

Sadly my perspective is that between 2002 and now (2010) the world has gone through a huge series of economic bubble busts ... housing ... financial services ... public sector finances ... jobs ... and nobody seems to be measuring anything that really matters. Success seems to be simply to get on track to build another bubble. The system and its metrics are insane.

Good news ... there is a better way! We need to use True Value Metrics to supplement regular business corporate accountancy.

Anyway ... thank you Mark for alerting me to the work being done by Catherine.

Peter Burgess

Obituary ... Norman Macrae ... The unacknowledged giant

Dear Colleagues

This is the text of the Norman Macrae obituary referred to in an earlier post. The Economist URL is http://www.economist.com/node/16374404?story_id=16374404

I am fortunate to know Chris Macrae, Norman Macrae's son who has shared with me many pearls of wisdom that I like to think have improved my work with True Value Metrics and my analysis of important issues. Here is the obituary.

Obituary ... Norman Macrae ... The unacknowledged giant

Few journalists have had as great an influence—or been proved right so often—as the man who, for 23 years, was the deputy editor of The Economist
Jun 17th 2010

WHEN Norman Macrae died on June 11th, aged 89, no major British newspaper published an obituary of him. You could blame The Economist’s tradition of anonymity; you could blame the extraordinary modesty of the man himself who, if you tried to take his photo, would duck down and giggle, convinced that no one could possibly be interested in him.

Yet Norman was one of the intellectual giants of post-war Britain: one of the very few journalists who could bear comparison with the best brains of his time. Like Milton Friedman, he applied free-market principles to public services such as education and council housing. Like Daniel Bell, he charted the shift from the industrial to the post-industrial society. And like Peter Drucker he illuminated the internal workings of companies, the organisations that drove the West’s prosperity and guaranteed its freedoms.

He kept the flame of free-market thinking burning during the long night of collectivism. He predicted the collapse of the Soviet Union, at a time when the CIA was obsessed by Russia’s growing strength, and foresaw the privatisation of industry, when other intellectuals were celebrating the triumph of the “mixed economy”.

Norman was the first journalist to “discover” Japan. In 1962 he wrote a survey predicting that a country most Westerners regarded as synonymous with knick-knacks and knock-offs would become an industrial power-house. He was also the first journalist to “discover” the internet. In 1984 he wrote another survey arguing that life was about to be transformed by “terminals” which would give users access to giant databases. He predicted that the 1973 energy shock would eventually lead to a surge in the supply of energy. He also dismissed the Club of Rome’s prediction that the world was about to run out of food as arrant nonsense.

The Economist was fortunate that Norman decided to park his formidable intellect at 25 St James’s Street. During his almost 40 years here—23 of them, from 1965 to 1988, as deputy editor—he did more than anyone else to provide the intellectual originality of what he liked to describe as “the world’s favourite viewspaper”. He constantly enlivened editorial meetings with proposals to allow Disneyworld to run the West’s cities or to move the British government from London to York. Roy Jenkins rightly described him as the “epitome of the internal spirit of The Economist”.

He could be a brutal editor and a savage critic of flabby ideas. He altered colleagues’ copy with abandon. But he was greatly liked, generous with his time and amiable in conversation. He was also a loyal company man, never allowing his growing renown to go to his head. He frequently slept in his office, his large frame heaped on the floor, and sweated blood to correct errant facts as well as to expunge creeping heresy. More than anyone else, he made sure that The Economist was not blown off course by the winds of ideological fashion or becalmed in routine reporting.

But if The Economist was lucky to find Norman, he was lucky to find The Economist. His website poses a question at the end of each of his essays: “Brilliant? Batty?” and invites readers to join the fray. His undoubted eccentricity was partly a matter of personal style. The words tumbled out in an incoherent jumble interrupted by heaving shoulders and gales of cackling laughter. His handwriting was such a scrawl that only one person in the world, his loyal secretary, Elizabeth Methold, could decipher it—and she could perform this miracle only by holding the script at arm’s length, half-shutting her eyes and (in her words) going into a trance.

The eccentricity extended to his writing. Norman was a punctilious student of statistics. But he was quite happy to illustrate a 1969 article on American productivity with the assertion that a time-and-motion study of housewives at the kitchen sink would “almost certainly find” that the average American housewife was twice as efficient as the average British one. Why? Because the American housewife was capable of instinctively working out in her head, for each chore, “some rough approximation of what modern businessmen call a critical path analysis”.

The Economist provided him with the ideal mixture of freedom and discipline. He could travel to any corner of the world he fancied to produce lengthy reports on anything he wished, from the state of America to the future of mankind. Many of these special reports became books. But he was reined in when he got a bit too wild—as when he advocated writing a cover leader championing a nasal spray to “cure” homosexuals (who, he thought, were driven that way by their aversion to the smell of their mothers). He was passed over three times for the editorship. But, in truth, he was in exactly the right position.

The crystal ball

His greatest gift was his uncanny ability to predict the future. But the problem with the future is that it eventually arrives. Visions that are called from the vasty deep become reality. Ideas that were once pooh-poohed as outlandish become commonplace. “Nobody listened, then everybody did,” Norman wrote ruefully in a 1991 article called “A future history of privatisation, 1992-2022”. To grasp his prescience, it is necessary to return to an era when today’s commonplaces were heresies.

Not so murky to him

During much of the post-war period the market was “out” and the benevolent state was “in”. Public intellectuals such as Kenneth Galbraith argued that the age of the entrepreneur had given way to the age of the giant corporation. Practical politicians poured money into British Steel and the Concorde project. The market meant chaos and unemployment; industrial policy meant smooth growth and jobs for all.

Norman saw this as a recipe for flabby politics and failed economics. In 1954 he coined the term “Butskellism” to describe the portmanteau politics of the Conservative chancellor of the exchequer, R.A. Butler, and a Labour predecessor, Hugh Gaitskell. Throughout the Butskellite era he relentlessly documented the failures of industrial policy and government planning.

This makes it sound as if Norman was nothing more than a prophet of the new right. But the truth is more complicated—and, as befits the man, more idiosyncratic. Even while he embraced the market on micro-economic policy, he remained more or less a Keynesian on macroeconomic policy until the late 1970s. He was a firm believer in pumping up demand with deficit spending and holding down inflation with incomes policy. No deficit was too big and no incomes policy too hopeless. He greeted the first macroeconomic flushes of Reaganism and Thatcherism with sceptical editorials before finally admitting that he had been wrong. It was perhaps the only time he was not ahead of the debate.

Norman also had no time for social conservatism. He worried about broken families and out-of-wedlock births, but entirely from a utilitarian rather than a moral point of view. He dismissed the religious right as vigorously as he dismissed feminists and environmentalists (“both simple and psychotic Americans have too often been dominated by religious liars”). He argued that one of man’s greatest problems in the coming years would be growing life-expectancy—and advocated a “system of planned death” to deal with it. In a survey of America in 1975 he predicted that euthanasia would soon be as acceptable as abortion: “It will not be at all surprising if there is in some quite near decade-and-a-half a similarly swift and equally civilised dash to acceptance of killing off old codgers (by then, like me) as there has been, in so short a twinkling, towards the more emotive act of killing unborn babies.”

In Stalin’s Russia

Why did Norman think as he did? Why did he reject the post-war consensus about the virtues of government? And why did he keep his distance from a new right that embraced so many of his ideas? Part of the answer lies in his personality. Norman was an extraordinarily self-contained figure. He seldom used his telephone to call people, preferring to sit in his office poring over statistics. He had few doubts about the rightness of his opinions. Once he had an idea in his head he pushed it to its logical conclusion—and if he was proved wrong he simply shifted to another idea, which he pursued with equal certainty. Richard Holt Hutton once wrote about Walter Bagehot’s “dash and doubt”. Norman was just dash.

But his outlook was also shaped by his odd adolescence. His father was a British consul in Moscow in 1935-38, and Norman’s summer holidays from school were spent there at the height of Stalin’s purges. He saw members of the embassy staff—including maids his own age—disappearing, probably to be shot. Before and after his posting to Moscow his father also had jobs in Nazi-dominated Europe. Many of his family’s Jewish friends were terrorised and later slaughtered.

When he left school in 1941, Norman wrote later,

my first job was a public-sector one, with public-sector productivity, as a teenager supposed to throw bombs about as an RAF navigator, creating a slum in the heart of the continent. By the time I got there, the Russians were coming in from the other side. All the politicians, including Churchill and Roosevelt, told us these were fine liberating democrats. And of course I knew from those school summer holidays so briefly before that those were astonishing lies. That has given me one advantage in my 40 years as a newspaperman. I have never since then believed a word either politicians or public relations officers have said.

Norman’s early experiences did not just sour him to politicians. They soured him to collectivism in all its many varieties. He had no time for the government-worshipping intellectuals he found when he studied economics at Cambridge in 1945-47. He loathed the feminists and black-power activists he came across in America in the late 1960s and 1970s, smelling in their affection for group rights and their willingness to use intimidation the same intolerance he had smelt in Europe in the 1930s and 1940s. He took his children on trips to eastern Europe in order to teach them the difference between freedom and tyranny. He seldom missed an opportunity to champion the “hard hats” over the “soft heads”.

Norman’s case for market capitalism did not rest merely on its ability to create wealth, but on its capacity to advance individual freedom. He was almost as critical of big-company capitalism as he was of big-government socialism. In a 1976 survey on “The coming entrepreneurial revolution” he argued that big business was as doomed as big government. Hierarchical managers sitting in their skyscrapers could no longer arrange how brain workers should best use their imaginations. The future lay with small firms that could exploit individual creativity and with bigger firms that could split themselves into small centres and encourage competition between them.

Norman’s critique of the welfare state was inspired by a similar belief in individualism. He pointed out that the market had produced a remarkable equalisation in people’s lives. Rich and poor had access to the same consumer goods—the same television programmes, the same comfortable armchairs, the same plethora of goods in supermarkets, which were spreading from the suburbs to the slums. In 1945 the average Englishman had only one pair of trousers; in the swinging 1960s he had access not only to lots of pairs of (tight) trousers but also to holidays in the sun and cheap mortgages.

The great exception to this story of equalisation was the state. The state distributed its largesse disproportionately to the rich—exactly the opposite of what was supposed to happen—allowing them to end up with better schools and better health services. It also trapped the poorest in poverty, in sink estates with lousy schools and soaring crime and in public-sector jobs with little prospect of long-term prosperity. Norman argued that the only way to change this was to empower individuals—to allow them to own their own homes, through privatisation, and to choose their own schools, through vouchers. Give power to the state and you end up with self-serving interest groups. Give power to the individual and you apply the same creative ingenuity to public services as companies have long done to the invention of washing powder.

Norman’s belief in individualism also drove his enthusiasm for technology. This enthusiasm provoked widespread mirth at The Economist. The man who predicted the rise of the internet in 1984 and preached the virtues of telecommuting in articles on almost anything was by far the most incompetent member of the staff when it came to using new (or not so new) inventions. In battles with the office fax machine he usually came off worse. It was rumoured that paper clips baffled him. The staff were amazed when the Atex publishing system was introduced in 1982 and Norman revealed that he could actually type.

But as a techno-visionary he had few equals. He predicted a world in which “books, files, television programmes, computer information and telecommunications will merge”—in which people could explore the world’s knowledge repositories at a touch of a button, and in which readers would have access to custom-made newspapers paid for by targeted advertising (in typical fashion, he imagined this newspaper emerging from a fax machine at the back of the television). He saw that this revolution would have huge implications for the balance of power. Giant organisations such as governments and companies would lose their comparative advantage. Entrepreneurs would be empowered. Taxpayers would flee the coop and telecommute from rural villages—thus putting more pressure on governments to give up their powers and start serving people rather than bossing them about.

The last clue to Norman was that he was a consummate newspaperman. In print—or indeed on the lecture podium—the cackling incoherence of his speech simply vanished, and he was invariably lucid and frequently amusing, even coruscating. (A similar stylishness could be seen on the tennis court, where the immobility of middle age did nothing to inhibit a well-aimed slice that flummoxed younger and nimbler players.) He was one of the best word-coiners of his generation, producing “intrapreneurship” and “telecommuting” (the coinage of “privatisation” and “Eurocrat” is disputed). He littered his prose with memorable phrases. Milton Friedman was “the maddening gnome of Chicago”. American ghettoes exhibited “public squalor amid private non-affluence”. In diagnosing the failure of British firms to get the most out of computers, he likened them to “former slum dwellers who, when promoted into being council-house tenants, tended to keep coal in the bath”. In championing the virtues of entrepreneurship and people working in small teams, he pointed out that “Jesus Christ tried 12, and that proved one too many.”

Everything he wrote was compulsively readable—partly because he mixed battiness with brilliance and partly because he came at everything from such unexpected angles. His 1975 survey of “America’s third century” started by posing a surprising public-policy quandary:

Our children will probably “progressively” be able to order their babies with the shape and strength and level of intelligence that they choose, as well as alter existing human beings so as to insert artificial intelligence, retune brains, change personality, modify moods, control behaviour.

That raised troubling ethical issues which would be best decided by a world that was shaped by America rather than “the inexperienced Japanese”.

Yet it was those Japanese who best demonstrated Norman’s skills as a journalist. In 1962 he visited Japan to get a measure of how the country had changed since the second world war. He learned little from talking to British ex-pats. But then, in a Mitsubishi factory, he came across a British machine-tool salesman who told him that Japanese workers were getting three times as much out of their machines as their better paid British counterparts.

The resulting article, “Consider Japan”, sealed his global reputation as a journalist and turned him into a hero in Japan (on his retirement in 1988 he was honoured by the emperor with the Order of the Rising Sun). He argued that the key to Japanese success lay in their plethora of tiny entrepreneurial component-makers and in their ability to break up huge plants into “small but brotherly” profit centres. He predicted that the Japanese productivity miracle would transform the world economy.

IMAGE Arise Sir Norman, knight of the rising sun!

An eternal optimist

But for all his interest in the rest of the world, he was a very English figure. His ideas were rooted in the English liberalism of the 19th century — a liberalism that celebrated the individual over the collective, progress over reaction, free thought over superstition. This set him against both the “over-government” that had triumphed in his youth and the religious conservatism that prospered under Reaganism. But it also turned him into an irrepressible optimist. Few people since Bagehot and Macaulay have been so convinced that life is getting better, and that it will get better still if only a few doltish politicians can be elbowed out of the way.

This commitment to classical liberalism ensures that much of his work continues to sing. Norman devoted his energies to two of the most ephemeral bits of journalism—opinionated leaders and lengthy exercises in futurology. Yet a remarkable amount of what he wrote remains relevant today. His 1975 survey on America’s 200th birthday, in which he chastises the Democrats for flirting with the Fabian cult of government expertise, conservatives for flirting with religious extremism, and business for underinvesting in innovation, might easily be a portrait of Barack Obama’s America. Big government has been on the march for much of the past decade. The Beijing consensus celebrates the alliance of big government and big companies. Much of the public sector has resisted the power of vouchers and internal markets. The battle that Norman fought for so long has still not been won.

Copyright © The Economist Newspaper Limited 2010. All rights reserved.

Norman Macrae ... journalist and visionary

Dear Colleagues

Norman Macrae died last June at the age of 89. He worked at the Economist for about 40 years, 23 years in the post of Deputy Editor. This is a wonderful description of his contribution to journalism via the Economist ... a must read. http://www.economist.com/node/16374404?story_id=16374404

Peter Burgess

Study study study ... wasting our money!

Dear Colleagues

I have just read this report titled "Private Delivery Care in Developing Countries: Trends and Determinants" written by Amanda Pomeroy(1), Marge Koblinsky(1) and Soumya Alva(2)
http://www.measuredhs.com/pubs/pdf/WP76/WP76.pdf ... 1 is John Snow Inc. ... 2 is CF Macro. As far as I can see, this study was funded by USAID.

I learned about this report from a list serve that has a dialog about health in Africa ... in the following e-mail:

November, 2010, Washington, DC-- JSI's /Amanda Pomeroy and Marge Koblinksy have authored a DHS working paper entitled, Private Delivery Care in Developing Countries: Trends and Determinants. This article used Demographic and Health Surveys (DHS) data from 16 countries to examine a) trends in growth of delivery care provided by private facilities, and b) determinants of private sector use within the health care system.

For a subset of eight countries, the authors examined determinants of a mother's choice to deliver in a health facility and then, among women delivering in a facility, their decision to use a private provider. Determinants of use were grouped by socioeconomic characteristics, economic and physical access and by actual/perceived need.

Results showed a significant trend toward privatization of delivery care over the 13 years covered in the study, but there was considerable variation in the characteristics driving this increased use across countries. The results warn against making generalizations on the effects of privatization on maternal health use.

Bluntly put ... I am not impressed ... worse I am really very disappointed. The work is almost totally something that we do not need. We need solutions not studies, especially studies that do not have much in them to move the health situation forward. The academic community and consulting community may be happy, but no change of any substance on the ground! I responded to the list serve as follows:

Dear Colleagues

I would like to see a dialog about solutions to the problems of health around the world. In my view this DHS working paper does not contribute very much to a dialog about solutions since it is 90% about "state" rather than "progress" ... and the concept of "performance" is almost totally missing.

Reports like this have been funded by various agencies in the international development community for 40 odd years ... and at the end of this time there are hundreds of reports and essentially no solutions to the core problems.

I was at a conference in New York last week at the New School where some high level people in development assistance talked about the progress that has been made. I tried to ask a question about progress achieved compared to what should have been achieved but did not get much of an answer. The problem is that the dialog is based on a whole lot of study that is subject to enormous potential for statistical interpretation ... and very little of the data has the reliability that one should be getting.

My perspective is that a very different medical care model is needed that recognizes that developing countries have little money but a lot of people ... many of whom have some training ... many of whom could do a lot with a modest amount of training ... etc. In other words there needs to be the best possible use of human capital rather than merely doing things based on welfare money that flows from donors. We also have to look at the dysfunction of the business economy in the development context ... and the resource flows that are making profit
for some while leaving most in continuing poverty.

All of this becomes clear when data a looked at carefully and evaluated with an "accountant's" mindset!

I am appalled at how much development assistance has done so little over a very long time! There is a better way.

Peter Burgess
____________
Peter Burgess
Meaningful Metrics for a Smart Society

It is painful to see scarce funds being used over and over again to do things that have almost no impact on the work needed to improve the health of real people in poor places!

Peter Burgess

There has to be a paradigm change ... we have the metrics to support it!

Dear Colleagues

A new book "Rebooting the American Dream" by Thom Hartmann has recently been published. I have only read some excerpts and they are quite thought provoking. The following caught my attention:

"... when Ronald Reagan came into office, as the result of 190 years of Hamilton’s plan, the United States was the world’s largest importer of raw materials; the world’s largest exporter of finished, manufactured goods; and the world’s largest creditor.

After 30 years of Reaganomics, we’ve completely flipped this upside down: we’ve become the world’s largest exporter of raw materials, the world’s largest importer of finished goods, and the world’s largest debtor. We now export raw materials to China, and buy from it manufactured goods. And we borrow from China to do it.

Part of the reason why this got my attention is that there was a time when the British economy was very powerful ... importing raw materials and exporting manufactured goods.

In True Value Metrics there can be a good quality of life ... but there cannot be a money wealth redistribution along the lines of what has been happening for the past several decades ... which some eminent economists and business journalists have described as a period of some of the greatest sustained economic growth ever. The money metrics might have given this impression, but the reality is that it was being done on top of what eventually turned out to be a bubble of historic scale!

Peter Burgess

The big risk of polluting groundwater should not be discounted!

Dear Colleagues

RISK ... something nobody wants to talk about.

I just came across this piece ... text below:
http://environment.change.org/blog/view/halliburton_to_epa_just_trust_us_and_go_away?me=nl

Oil is a big part of the modern profit economy ... water is something most people in rich countries take for granted. The dangerous problem is that there may well be a link between the "frack" process for extracting natural gas and the pollution of groundwater.

This RISK is serious. My approach to risk is not purely mathematical, discounting the danger of an event by a probability ... but considering the danger of the event itself. What would be the impact of groundwater for New York City becoming tainted with toxins ... one can hardly imagine!

I certainly do not want to trust Halliburton with this risk.

Peter Burgess

Halliburton to EPA: Just Trust Us and Go Away
by Jess Leber November 09, 2010 10:49 AM (PT)

Oh, Halliburton. How your arrogance astounds me.

Two months ago, U.S. EPA wrote nine major natural gas drilling companies a letter. It politely asked the recipients to voluntarily tell agency officials the secret brew of chemicals they use to "frack" gas from the shale deposits. EPA wasn't even planning to make the ingredient list public, a policy the industry is fighting tooth-and-nail in Congress.

Instead, it just wanted the information to help with a crucial first-ever federal study of the health and safety risks of hydraulic fracturing, a drilling technique that has already ruined water and air quality in towns across the country and has proceeded unregulated thanks to the Dick Cheney-pushed "Halliburton loophole" passed in 2005. In case anyone's memory fails them, Cheney himself is a former Halliburton executive.

Today, EPA announced that 8 of the 9 companies complied with the request. You can take a wild guess which one refused.

EPA now issued a subpoena to Halliburton to compel the information from them, since it has a tight legal deadline to provide the initial results by the end of 2012, and that will be sort of hard to meet without knowing the chemicals they are studying.

Halliburton's antics do not stop at the federal level.

As the anti-fracking advocacy group EarthWorks points out, its lobbyists have fanned out to weaken or halt public disclosure laws in major fracking states. Against the wishes of the industry, Wyoming recently passed a law to require the first disclosures of drilling toxics. And a proposal now being considered in Pennsylvania has now been successfully weakened at Halliburton's specific behest.

Halliburton argues the chemicals are trade secrets. But when those chemicals risk contaminating public water supplies and producing huge volumes of toxic wastewater that the public must deal with—trade secret or not, we all have the right to know.

As Earthworks writes in a clever headline, "Halliburton to PA govt: "trust us." PA govt to Halliburton: "ok." PA citizens: "What!?!"

Don't let Halliburton get away with this any longer. We don't want to trust them. We want to know.

Tell Halliburton to disclose its fracking chemicals by signing this petition.

For global progress ... what is really important?

Dear Colleagues

How important are monetary and fiscal policies? How important are Governments and the Central Banks? How important are Capital Markets and the Banking Sector?

I spend a certain amount of time listening to Bloomberg radio, and you would think that these things are really important ... but I would argue that in reality they are not really very important at all.

What is important is the underlying capacity of society to be productive and to be surplus producing. This is a function of what scientists and engineers are able to do to make activity efficient ... to get more output for less input.

It is also a function of people making the investment to deploy high production processes. This is where banking and the capital markets come in ... they are able to facilitate investment. This is where policy can help ... but only modestly. The real driver is entrepreneurial technical innovation way more than it is purely political or financial!

As the system of True Value Metrics is articulated it becomes increasingly clear that sustainable progress is going to be achieved when billions of people are making decisions that move their communities forward with more and more surplus production ... a win-win model. This is a contrast to the zero sum system that has prevailed in the "rich" economies where wealth accumulation has been too much at the expense of some sector of society ... either locally or in the global economy.

Win-win is a better way forward ... but it will only work when the metrics are showing both the money profit dimension and the value dimension

Peter Burgess

Concern USA ... excellent fund raising ... good stories ... no value accounting!

Dear Colleagues

I really do not know why the big and efficient fund raisers for social progress activities do not embrace a value based accountability system like True Value Metrics. These organizations tell heart rending stories about the problems ... then they tell impressive stories about what they are doing ... but they do it in a way that makes it almost impossible to make any judgement about how well they are doing ... and whether their work is doing much good.

The following is an example from Concern USA ... they send me (and perhaps millions of other people) periodic e-mails for fund raising ... but nothing seems to be accessible about what they have done with the money last week, last month, last year and in fact for the last several decades! This is the fund raising email text:

This Week's Challenge: Winning Back the Water in Ethiopia
Field Challenge Friday Team to me

Winning Back the Water in Ethiopia
Posted on Friday, November 12th, 2010
By Joan Bolger, Communications Officer, Concern NY

IMAGE Abebech Tito, from the village of Fango Bijo, Ethiopia

There’s a saying in southwestern Ethiopia and not surprisingly—in an area ravaged by drought for three months of the year—it relates to water. Loosely translated it goes: it’s impossible to win back your water after the bucket has tipped over.

Abebech Tito, a mother of five, told me this through the school fence near her children’s classroom as she considered how her life might have been different had she not dropped out of school at Grade 8. She delivered the proverb with a smile and a shrug. “It was my own foolishness,” she added.

Her village is located in the Rift Valley in the Southern Nations, Nationalities, and People's Region (SNNPR) of Ethiopia, where recurrent drought and the prevalence of malaria is notoriously high.

When I followed the link to learn more ... the first step to being a donor, I reached the following text:

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This week, Joan Bolger, Concern Worldwide US Communications Officer, writes about her visit to the remote village of Fango Bijo in Ethiopia where she spoke to Abebech Tito, a mother who had dropped out of school at Grade 8 and was determined to choose a different path for her children.

Two of Abebech's boys now attend the Concern-supported “non-formal” school that aims to offer the poorest rural kids “alternative basic education.” Many of these children live in very isolated areas where there are few, if any, government schools—they have to walk long distances every day, on their own, to reach them.

Joan challenges you to learn about the barriers that prevent children in rural Ethiopia from having access to basic education – and to share this blog with your friends.

Now I like education as a "development investment" and I am very much aware how little money needs to be involved in running a "non-formal" school that can be a very good investment. I am also very much aware that the way the modern relief and development community does its monitoring and evaluation (M&E) is horrendously expensive are not very useful. For the money that was spent in having Joan Bolger visit this location and write this story, perhaps 100 children could have had a year of "non-formal" education.

In True Value Metrics, part of the core information is to relate the amount of education capacity in the community in the past ... with the amount of education capacity in the community now ... and to estimate how much resources were used to get from state A to state B. A second element is to assess how much additional human capacity has emerged as a result of the education ... how much better educated are people becoming. A third element is to understand whether or not the education has any value in making the community a better place ... in making the family more able to earn more and move modestly forward to a more prosperous (less poor) situation.

When True Value Metrics is done in the community by local people it costs very little ... and when it is studied by visitors ... or communicated to donors, it gets to be very interesting. Top down is very expensive ... bottom up enables a lot of value for a modest cost.

Peter Burgess

Transparency and Accountability ... Kris Dev in India

Dear Colleagues

I have collaborated with Kris Dev in India for almost a decade. His work in mobilizing IT to improve governance is impressive ... and he keeps on going.

To: Peter Burgess
Seminar on Transparency and Accountability in Public Administration
From: Kris Dev
Thu, Nov 11, 2010 at 2:02 PM

Hi,

When most countries are witnessing a plethora of alleged high level corruption cases in public administration running to millions of dollars the presentation made at the National Seminar on Transparency and Accountability in Public Administration can be seen at: The NDTV-HINDU coverage can be seen at the below link from 2.58 min to 4.27 min.http://www.youtube.com/user/ndtvhindu#p/u/13/4PiTICt-SZo

Kris Dev, e-Gov Consultant, Chennai
_________________________
Gopala Krishnan Devanathan,
President & CEO,
Life Line to Business / Life Line to Citizen,
Chennai, Tamil Nadu, India.
email: krisdev@gmail.com
http://krisdev.wordpress.com/about/
URL: http://ll2b.blogspot.com
Ph: + 91 98 408 52132 / 1 (206) 274 1635
Twitter: @krisdev

- Winner of Innovations Award 2009 for IT Innovation;
- Manthan Awardee 2006 for Rural Grass-Root Initiative in Establishing Unique Biometric Identity for e-Inclusion & Livelihood Creation;
- Selected for World Bank Innovation Fair 2010.

These are also interesting notes

Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control. … Article 25 of the Universal Declaration of Human Rights.

"A quick evaluation of the progress we have achieved in the last 20 years shows that in the area of poverty alleviation, we have not done enough. History will judge us harshly, unless we seize the opportunity to do more." - Archbishop Njongo Ndungane, President and Founder, African Monitor.

"When the Power of Love overcomes the Love of Power the World will know peace." Jimi Hendrix.

"Be not afraid of life. Believe that life is worth living, and your belief will help create the fact." - William James

"There is nothing more sacred to a free people than the right to govern themselves and take matters into their own hands when their elected officials have failed them. When the very government which the people have created to secure their liberty and domestic tranquility imposes restraints on their freedom, the people have a duty to try to break the shackles themselves." - Ward Connerly, Chairman of the American Civil Rights Coalition.

"We are powerful before the powerless; and powerless before the powerful"; how sadly true! why not reverse it?!

Practice is better than precept.

At the present time there is the 14th International Anti-Corruption Conference (IACC) in Thailand. It is good that there is now more talk about the problem of corruption than 20 years ago ... but it is sad there is so much corruption to talk about. In fact, what is disconcerting is that corruption is part of the mainstream modern economic system with a lot of influential people and organizations implicated in it. Worse ... the rule of law often contributes to corruption by making it difficult to stop it ... even though it is clear that something untoward is going on!

The implementation of True Value Metrics is a part of a paradigm shift in transparency and accountability that will help ... maybe significantly!

Peter Burgess

Risk ... natural gas production, shale and drinking water

Dear Colleagues

Natural gas production is one of the boom areas in the energy field ... but there may be risks that are presently "off-the-radar" in the news and the public dialog.

In the aftermath of the BP Gulf oil spill, the matter if risk ought to be high on the agenda for public dialog ... but sadly this does not seem to be so.

While energy is important ... water is even more important. In the main the United States of America has been able to manage the water situation, but it is getting more tenuous as time goes by. The major water infrastructure construction that has taken place in the past would not be allowed today because of rules about "environmental impact" ... so much of the water presently being used is available courtesy of "old" infrastructure.

Potable safe groundwater is a key to water in the United States ... but what is going to happen to groundwater when natural gas is broken out of shale formations. There is some evidence that the groundwater may become polluted ... maybe not a lot of evidence but enough to be concerned.

When asked how to "un-pollute" the groundwater ... engineers tell you that it cannot be done.

At the moment the water in New York City is natural and very pure. The source of this water is many miles North of New York City in formations that may soon be subject to natural gas exploration and eventually production. How much is the "risk" in a situation where New York City no more has potable water?

I would like to see more informed dialog about all aspects of this question. At the moment the dominant part of the dialog is that there are big profits to be made by exploiting natural gas in the shale formations around the United States. But what is the pollution risk for the country's groundwater?

Peter Burgess

UN/World Bank write that natural disaster costs set to rise sharply

Dear Colleagues

In a new report titled "Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention" the UN/World Bank write that natural disasters are going to cost a lot more. This is from an IRIN news item http://www.irinnews.org/report.aspx?Reportid=91064. The text of this news item is below.

There is something very bothersome about the reports that come out of the UN and the World Bank. In some ways they are simply objectives studies ... and in another way they are terrible indictments of the performance of global leadership, of which they are an important part.

One way to interpret the findings that get published in UN and World Bank reports is to conclude that these organizations are a big part of the reason why the findings are the way they are. The fact that natural disaster costs are set to rise sharply is that these organizations ... and the other organizations associated with natural disaster recovery are incredibly badly managed and have extremely high cost operations largely associated with high salaries, high operational costs and low efficiency.

High salaries, high operational costs and low efficiency are a result of years and years of work without any significant management controls. The UN and the World bank advise ... but like the cobbler of old, they do not mend their own shoes! The management systems in the UN and the World Bank would have looked modern in the stone age ... but that is about it.

True Value Metrics is a response to the missing management information dimension of the international relief and development sector ... and to the lack of metrics in the society we live in. We know a lot about corporate performance and the stock market ... we know rather little about performance of economic activities and society. This needs to change, and we hope that True Value Metrics can be a step towards a way better use of resources in our society.

This report is another call to action to change the status quo where high costs produce little far too little impact ... and nobody seems to be responsible for anything. The UN and the World Bank are responsible parties in the prevailing high costs and low performance in the international relief and development arena!

In Brief: Natural disaster costs set to rise sharply - new report

Costs because of more intense and frequent cyclones will mount
Johannesburg, 11 November 2010 (IRIN) - A new report by the World Bank and the UN says the cost of coping with natural disasters could triple to US$185 billion per year by the end of the century.

The report - compiled mainly by economists over two years - said the projection did not include climate change impact costs. But added more frequent and intense tropical cyclones because of climate change could raise total costs by an additional $28-$68 billion a year by 2100.

Entitled Natural Hazards, UnNatural Disasters: The Economics of Effective Prevention, the report makes four main policy suggestions to governments: make information more easily accessible to prevent disasters; permit land and housing markets to function; provide adequate infrastructure and public services; help develop effective oversight institutions.

Meanwhile, donors need to focus more on prevention: “About a fifth of total humanitarian aid between 2000 and 2008 was devoted to spending on disaster relief and response" but far less was spent on prevention, it said.

jk/cb

The Fed goes one way ... is the economy going the other?

Dear Colleagues

Some metrics about the US economy ... a few months of new job creation at a rate of more than 100,000 a month, and 10 months of positive private sector job creation. A modest sign of the increased stability of the job situation in the United States ... but the average unemployment rate of 9.5% is way too high ... and the level of better job seekers may be as high as 17%.

The financial and big corporate community has plenty of cash ... and is getting very low cost credit if they want it ... not so much the small business that is struggling on the front line of little aggregate demand.

The US Fed has chosen to launch a new round of quantitative easing ... QE2 ... and when it was announced the US stock market went up a near record amount ... to a level that is about where the stockmarket was before the financial implosion.

Bluntly put ... something is very wrong with the way the markets are working and how the levers of power are being manipulated,

Apparently the German financial minister has described the US Fed's action as "clueless" and many others are looking at the present US situation with increasing concern ... not to mention their view of the US electorate's enthusiasm for the Tea Party and Republican agenda. Serious foreigners seem to have a longer memory than the American voters ... who seem to forget that it was free spending Republicans and an anything goes approach to regulation that precipitated the financial disaster ... and without very responsible government intervention for the past 24 months saved the day. We should never forget!

William Fleckenstein who is an expert on the Fed seems to have a better perspective than most about what the Fed should be doing ... others associated with the US capital markets are laughing all the way to the bank because printing money is making their speculation profitable!

The system is very dangerous and needs better metrics ... metrics like True Value Metrics that have a value component for society as well as the money profit for investors.

Peter Burgess

Raising money by NGOs based on disaster news ... obscene!

Dear Colleagues

The business model of the modern NGO world is obscene ... not much better than the obscene business model of the financial sector that delivered a near catastrophic meltdown of the global economy.

When the earthquake struck in Haiti in January ... within 12 hours most of the big NGOs had deployed websites to solicit donations ... and within days many thousands of other organizations were soliciting donations from the public that really wanted to help.

I have been trying to get some accountability that is worth a damn ... but there is none. The last thing that anyone in the NGO community seems to want is some rigorous accountability, and it becomes very questionable whether these organizations deserve to be funded at all. They do everything to make donors "think" that they are making a big impact on critical humanitarian issues ... but verifiable information is almost totally missing.

I am prompted to write this note today because Haiti has moved back into the news ... first because of a cholera outbreak that has killed an estimated 400 people up to now and several thousand sick. And at this time a tropical storm is very near Haiti and the winds and rain are going to do damage. The email copied below is an example of an NGO using these events to build up its cash reserves.

As far as I am able to discern this NGO is no better than average ... a very low bar ... in its public information about accountability and its performance. Clearly the world has a huge amount of "failed" relief and development ... and interestingly nobody is responsible. Nobody ... or everybody ... nobody knows, and this seems to be the way the executives of these organizations want it to be.

A start on accountability is to know how well the organization is performing ... what impact the organization is having ... but it would appear that this information is almost totally missing. Increasingly, money is being spent on metrics, but from my perspective as a one time accountant/auditor ... and management information specialist ... the money is getting spent and better metrics that have any clarity remain missing.

The need for True Value Metrics (TVM) is obvious ... but having this turn into demand is unlikely. Accordingly, the deployment of TVM may well be done on top of an industry that would really prefer that TVM goes away!

Below is the email from ActionAid ... and please note, this NGO is one of the better ones! It does not name Tomas ... the tropical storm/hurricane approaching Haiti ... but it clearly is using the association! These fund raising people are expert!

Peter Burgess

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Dear Peter,

Global climate change is endangering the world's poorest communities.

But now the Obama Administration has a chance to help.

Tell President Obama to take the steps necessary to help poor nations cope with climate change.

They're called extreme weather events – monsoons or heat waves that result from global climate change. And nowhere are their effects more horrifying than in the world's poorest nations.

But now you and I have a small window of opportunity in which to speak out for the millions impacted each year by these natural disasters.

The Obama administration will participate in a major conference on climate change this month where it will make decisions that will impact the next decade of climate policy. Before they get there, we must make our voices heard and demand the Administration announce how it plans to help the world's poor cope with the brutal impact of climate change and transition to clean energy economies.

Peter, we only have until the end of the month to deliver our call to action – and along with our coalition partners we've set an ambitious goal of 50,000 names in order to make the most effective case possible. Will you join our call and help us reach our goal?

Tell President Obama to take real action to help poor nations adapt to the impacts of climate change.

At the Copenhagen climate conference last year, the United States and other developed countries agreed to jointly mobilize $100 billion per year by 2020 to help developing countries adapt to the impacts of climate change, protect their forests, and promote clean energy.

The tools for raising this money are within reach right now. With enough public support from activists like you, we can convince President Obama to back initiatives that could have real, tangible impacts, such as:

Removing subsidies from the world's biggest commercial polluters to slow the pace of climate change;
Placing a tiny tax on the financial sector's biggest transactions to generate additional funding for life-saving climate adaptation programs; and
Taxing the shipping and aviation industries whose largely unchecked pollution contributes to global warming.
Sign the petition to President Obama now. Tell him to support funding proposals to meet the urgent needs of the world's poor in the face of climate change.

We'll deliver your petitions in person when we meet with key officials in the Administration at the climate conference in Cancun, Mexico in December – all in our concerted effort to get President Obama to act decisively and without delay.

As part of ActionAid's vocal online community, you can be a voice for the world's marginalized poor by helping us reach our coalition's 50,000 petition goal – and by showing President Obama how vital it is to act.

Lend them your voice. Be one of the 50,000 voices standing for the rights of poor people. Sign our petition and tell President Obama to act now.

Thank you for your support and for your continued belief that together – standing up for others – we can all make a difference.

Sincerely,

Ilana Solomon
Policy Analyst
ActionAid USA

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Casino finance ... Stockman does not buy it!

Dear Colleagues

Stockman was right in the 1980s when he opined that the Reagan economic policy would end up with a government fiscal crisis ... which it did. People have short memories, and history gets rewritten.

By the end of the 2nd term of the Reagan presidency, expectation was that the US economic superpower status was over and it was going to be Japan that dominated the future. Reagan did some good things to restore American confidence in itself post Nixon and post Vietnam, but economic management was not something he did well at all. So much gets forgotten!

Today ... Thursday, November 4th, the stockmarket is going up to high levels in response to the diminished power of the democrats in Washington, good profits from the big business sector, and a large commitment by the US Fed to "QE2" ... shorthand for the 2nd Round of Quantitative Easing.

It appears that Stockman sees the current capital market euphoria as stupidity at its best ... my words, not his, but the idea is the same. The problem with the economy in the United States and in most of Europe is simply a structural mismatch between the jobs that need to be done, the money there is to do them and worker expectations. This is a toxic reality. What is going on in the capital markets is hope sitting on top of a mountain of paper money ... not even paper, really ... just electronic notations in supra-national level bookkeeping.

Stockman describes what is going on as monetary policy that is seriously like heroine addiction ... something that makes you feel good, but is devastating to you in every possible way ... and I could not agree more.

The capital markets ... the banking sector ... are still extremely fragile. This is on top of a US unemployment rate that stubbornly stays at an official level of about 9.5% ... and is way higher in many parts of the country and in certain demographic groups.

The Obama Presidency has delivered two years of stability, and improvement in the numbers that move stock markets higher ... like higher profits for big business. But the core foundation of the economy and society remains mired in depression with few signs that there is going to be much help from the economic elite and political leadership.

The global economy is moving ahead because there is true economic demand in the BRIC economies unlike the "faux demand" in the formerly rich economies with their continuing addiction to growth as the key metric about socio-economic performance. Profits in the corporate sector have been going up ... but now commodity prices (raw material costs) are going up in due course profits will come down ... and it is my guess most big corporations will solve that problem by further reduction in labor.

The big question is how to get the corporate sector to pay some attention to their role in making socio-economic progress as well as capital market progress!

It was a pleasure to hear what Stockman had to say ... on Bloomberg TV ... and I look forward to hearing some more.

Peter Burgess

I like more doing ... less study

Dear Colleagues

I have a fairly active presence on various websites that concern themselves with various aspects of socio-economic progress and relief and development activities. One of these discussions is at http://www.changemakers.com/node/90625

I have just added the following comment reflecting my concern that so much of the conversation is about doing studies ... and rather little is about doing the hard work. While I have been fairly polite in my posted comment, I am getting increasingly concerned that there is acceleration in the wrong direction in most of the relief and development sector with more and more people wanting to make a career ins "study" of the problem and nobody deeply interested in actually doing the hard work that is needed ... but worse, less and less people actually knowing much about the techniques that are needed to do things ... to build things, to grow things, to maintain things, and so on! It is a scary situation and not enough on the radar!

Dear Colleagues

Some time back I posted a comment indicating that "I liked the project" ... and there have been a number of subsequent comments about the project, mainly indicating a similar sentiment.

A recent comment asking whether it is this project or some other action in society that is the cause of social improvement and has prompted me to write again. It is very difficult to get academically rigorous cause and effect in any social setting ... and in order to do so there is a high cost, and the answers are usually not much use for practical decision making.

My position is very simple. If we had spent the money that has been used studying development performance over the past 60 years and used it instead to "do development" and if we had kept some quite basic simple tracking of community level performance we would (a) know a lot more than we seem to at this time. and (b) we would have progressed a whole lot more than we have.

On the face of it ... I like this project. I want to see lots of other projects that "I like" being implemented at the community level. I am also pretty sure that where there are a lot of initiatives that "I would like" .. there would be a whole lot of socio-economic progress ... that is the quality of life in the community would have improved.

If the quality of life does not improve in a community doing things that seem to be sensible, then the cause/causes are external issues that are too big to handle at the local level alone. Sadly these bad externalities are widespread ... and most would solve quite rapidly if they were clearly identified and easily seen by the interested global public.

I am convinced that meaningful metrics are key to a smart society ... and that my work towards True Value Metrics is a step in right direction.

Sincerely

Peter Burgess

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Does capacity building have to take a long time?

Dear Colleagues

This past week I attended a 2 day conference at Columbia University on the Extractive Industries and Sustainability.

One has to wonder how it is possible for extractive industries to be sustainable ... but lawyers and academics seem to have found something to talk about. More on this another time.

But in the course of the conference various panelists suggested that it takes a very long time for human capacity to be built in developing countries ... and it was left at that without much comment. I alerted the audience to the issue in a brief question from the floor, and some of the audience seemed to take note.

The point I tried to make was that over the past several decades there had been huge progress in human capital investment in developing countries. When I first worked in developing countries in the 1970s things were better than they had been 20 years before ... and over the past 40 years human capacity building ... education ... has continued and progress has been made.

But structures to employ well educated young people have not changed very much ... the cultures reflect respect for the elders ... who missed out in many cases on the education that has reached their children and grand-children. International organizations have not helped very much ... and experts have tended to complicate things rather than to facilitate the empowerment of local professionals.

It is not surprising that a huge number of educated professionals from developing countries are employed in rich countries ... and doing well.

The idea that capacity building takes a long time is wrong ... it takes a long time when the things that need to be done never get done. Training people and walking away from the work needed to get structures changed is not the work that will do capacity building successfully, but that is what has happened for the past several decades!

Peter Burgess

Have Cargill, Con-Agra and the like contributed to global hunger?

Dear Colleagues

Someone recently told me a story about exporting product to Africa ... and then told me something about constraints that emerged from the US Government and major actors in the global food marketing chain that stopped the business.

In turn, this reminded me of my own efforts to export powdered milk to Africa, and the hurdles that I had to overcome in order to do that. What with subsidies ... or not ... from the USA or the European Union ... the export licensing systems ... the international financial rules and regulations ... the local competition, both fair and legitimate and unfair and essentially unlawful ... and what should have been easy became a nightmare. I made one shipment ... lost money ... and gave up.

But the people ... that is corporate organizations and others ... who are on the inside and in control of the trade are doing exceptionally well. The end prices are high ... the source of products are producing large quantities and contract prices are low ... not to mention all sorts of subsidies. The problem for society is that nobody has much of a clue how much these things should cost and how much is a reasonable price.

This information ought to be very easy to see and to analyze. Commodity markets do not add clarity ... in the main, they add speculative confusion ... and another level of cost that has to come from somewhere! The business world ... and many of their partner beneficiaries ... wants this sort of simple information to be difficult or impossible to see. This is unacceptable ... but it is the way things work.

How much big organizations ... organizations like Cargill. Con-Agra and the like have contributed to global hunger is difficult to assess. My guess would be that these companies have produced good profits over the years without moving the global hunger index very much in the right direction. Compared to what they could have done, I would argue that they have performance very poorly. It would be great to see true value metrics applied to their activities!

Peter Burgess

Better metrics about relief and development interventions are needed

Dear Colleagues

There is a need for paradigm shift in the way data are acquired and the way data are used. CordAid is one of the largest international NGOs with an excellent reputation and a lot of experience ... but they use independently prepared "studies" about their work to help them with management as for example as follows:

CLIENT SATISFACTION AND OUT-OF-POCKET EXPENDITURES ON MATERNAL HEALTH AND MALARIA HEALTH SERVICES
"This study has been carried out on request of Cordaid. Cordaid wished to better understand the effect of their Pay for Performance Programme (P4P) and the introduction of a flat rate fee system introduced in 2007 in some of the health facilities which Cordaid supports. The effect of the intervention has been measured in terms of client satisfaction and out-of-pocket spending on maternal and malaria health services of households in the Catholic Diocese Bukoba in Muleba, Missenyi and Bukoba Districts in North West Tanzania. A population-based cluster-sampled survey was carried out July-Aug 2007 and included 1946 households with members using all types of health service providers. Two main research questions were addressed: (1) to what extend are health services from the various providers in the area being utilized and how much has been paid for these services by households out-of-pocket, and (2) to what extend are people satisfied with the health services that are being provided in terms of perceptions on quality, access and affordability? The results of the survey are presented in this report and should be regarded as mid-2007 baseline for a follow-up survey in 2-3 years time. Therefore, the report is limited in analysing effects of the P4P and introduction of flat rates, though efforts have been put into comparing faith-based and government health facilities."

Client Satisfaction and Out-of-Pocket Expenditures on Maternal Health and Malaria Health Services. A population-based survey in North-West Tanzania 2007. By Ronald Horstman et al., August 2009. Paper commissioned by Cordaid. Download as PDF from cordaidpartners.com

The report referred to is located at: http://www.phc-amsterdam.nl/artikelen/CL-OOPE_Study_Tanzania_-_final_26Aug2009.pdf

The study works for the commissioning organization ... they have a document that reports that they have done something more or less according to what they planned on doing ... and the work looks good and sounds convincing.

It is, however, almost impossible to verify at moderate cost ... and really does not help with the big question of whether scarce relief and development resources are being deployed in an effective way. The issue of whether or not services are better free or paid is certainly interesting ... but a bigger question might be the question of the value of the service relative to the cost of service independent of the issue of pay or free. In poor communities, it is clear that affordability is a challenge ... but that is no issue when there is no service. At the same time ... the value destruction associated with inadequate service is a very big issue.

A new paradigm for assessing the performance of international relief and development assistance interventions needs to be deployed ... the sooner the better.

Peter Burgess

Land grabbing after natural disasters

Dear Colleagues

IRIN ... humanitarian news and analysis ... a project of the UN Office for the Coordination of Humanitarian Affairs publishes some interesting articles. It is a pity that there is no obvious mechanism for follow up and initiating something to address the issues being raised. Having said that, I like to read their reports and then move as best one can to take action.

This report is about land grabbing after natural disasters. It was a disgrace in the aftermath of the Indian Ocean tsunami, and is likely to be an issue in Haiti now. The article can be found at:
http://www.irinnews.org/Report.aspx?Reportid=90885

GLOBAL: Taking on the land-grabbers

LONDON, 26 October 2010 (IRIN) - Property developers in Indonesia and Thailand moved in quickly after the 2004 Tsunami, snapping up land from those relocated into resettlement camps to build luxury resorts, further squeezing the livelihoods of the poor.

Land grabbing happened after Hurricane Katrina in New Orleans, the Haiti earthquake, and after cyclones and floods in the Philippines, according to the World Disasters Report 2010 (WDR).

It can involve outright violence, or carefully orchestrated legislative measures - as after Katrina - says David Satterthwaite of the International Institute for Environment and Development (IIED), and one of the WDR report’s authors.

In New Orleans, public officials pushed through planning and zoning legislation which changed housing ownership patterns across the city, orchestrating what Sara Pantuliano, head of the Humanitarian Policy Group at UK think-tank the Overseas Development Institute (ODI), describes as “one of the starkest examples of a disaster accentuating inequalities between city residents”.

Deepening inequality

Displaced residents may lack land tenure, or have no identity card or documentation demonstrating their right to land, making it difficult for housing associations and NGOs to help them, says WDR.

“Unless disaster aid quickly learns to work with the untitled, the unregistered, the unlisted and the undocumented, it can support and even reinforce the inequalities that existed prior to the disaster,” said the Asian Coalition for Housing Rights in WDR.

Shifting the power balance in favour of the vulnerable is notoriously difficult, admits Pantuliano, but is a cause that NGOs should take up more forcefully. “Too often we focus on the quality of shelter we can provide, but struggle to get past the more challenging questions of how to shift power balances in emergencies, and how not to exacerbate the vulnerability of the worst-off.”

Some 2.57 billion urban dwellers in low and middle-income countries are vulnerable to unacceptable levels of risk, fuelled by rapid urbanization, poor local governance, poor services, rapid population growth and rising urban violence, said WDR.

A team of researchers at the ODI is looking at the impact of displacement and urbanization in Sudan, Kenya Afghanistan, Syria, Yemen, Gaza, Somalia and possibly Iraq.

Depression, isolation

Governments often overlook the social implications of forcing people to move, said Pantuliano. “Planned settlement can isolate communities; it can lead people to depression, to isolation and more vulnerability... driving youths to join gangs or to take up prostitution” she told IRIN.

It can also cut them off from jobs: Displaced communities in Manila, the Philippines capital, for instance, were pushed out of the city centre, meaning thousands could not easily access their jobs servicing the many businesses in the area.

In Haiti, reconstruction plans to move communities to “new, safe cities”, meant moving people to distant camps, outside the capital, Port-au-Prince, where they did not want to be, said Alfredo Stein, an urban planning expert at the Global Urban Research Centre at the University of Manchester. Ex-residents continually attempt to return to the centre to try to re-claim their land.

Response challenges

Local authorities often struggle to respond quickly to resettlement challenges because of strict land-use regulations; lack of money to fund relocation; delays in getting official permission from regional or national authorities; and the high cost of building materials, said the IIED’s Satterthwaite.

After a disaster the national government may decide to improve building standards, as was the case in Pakistan following the 2005 earthquake, which can further delay rebuilding.

Local advocacy groups and housing associations are often best-placed to help communities, said ODI’s Pantuliano, as international NGOs often get confused about what role to play in resettlement.

But international agencies can also play an important role, she said. “We do not propose NGOs get involved in land reform, but they should intervene in issues that fall squarely in the protection mandate, such as documenting land rights or advocating for access to temporary and permanent land.” This work may involve land surveys, research, advocacy, and providing legal aid to vulnerable people to avoid land grabs, she told IRIN.

“We are trying to put this more at the heart of humanitarian organizations’ work... Post-tsunami NGOs woke up too late to these issues, despite local organizations pushing them to do something,” said Pantuliano.

What works

Cassidy Johnson, a lecturer in building and urban design in development at University College London, identifies two factors that can help displaced people exercise their right to their land: the presence of strong community action groups, such as slum-dwellers’ associations, which collectively rebuild and which have strong links to local government to enable them to lobby for their rights; and the existence of residents’ joint savings schemes which means there are funds to draw on for rebuilding.

This was the case in the Philippines, which is regularly affected by earthquakes, volcanic eruptions, typhoons, storm surges, landslides, floods and droughts. Here the Homeless Peoples Federation has helped communities resettle following five disasters from 2000 to 2008: Its 70,000 individual members collectively saved to rebuild post-crisis, and swiftly organized themselves into rebuilding committees, post-crisis, said WDR.

Local branches of the Red Cross and Red Crescent, with support from the British Red Cross, have also been active in securing land tenure rights for families post-disaster in the Philippines, said Pete Garatt, disaster response manager at the British Red Cross.

“The most successful [land rights] work is done by local groups - we have seen this in Democratic Republic of Congo, Burundi and Khartoum - as these issues were already on communities’ radar screens,” he told IRIN at the launch of WDR.

Wherever possible, communities should be encouraged to take the lead themselves, rather than waiting for others to respond, said Pantuliano. After the 2001 Gujarat earthquake, communities successfully reoccupied their old land because they got on with rebuilding permanent houses themselves, rather than waiting for government permission. “They left the government with little choice but to allow them to stay put,” she said.

Moving forward, the idea of “building back better” which has become standard government parlance after an emergency, must be redefined, said WDR. Rather than addressing purely better quality infrastructure, it should describe “land for the landless and homes for the homeless”.

And building back better must also stress that resettlements, if they must occur, are well-placed, added Pantuliano.

[This report does not necessarily reflect the views of the United Nations]

This report has some important messages including the powerful role of community in the process of rebuilding. From the True Value Metrics perspective, it is clear that knowledge about the community before a disaster will help enormously in guiding equitable rebuilding afterwards. The report also mentions the use of "rule of law" to facilitate land grabbing and benefits for those with social, economic and political power!

Sincerely

Peter Burgess

Global Health ... NGOs and community level initiatives

Dear Colleagues

The problems of global health are substantial ... and the decision making process about the allocation of financial resources to fund health sector activities is pretty much dysfunctional. I think most observers would conclude that the available resources could be used considerably more effectively.

This issue came to the to the front of my TO DO list with the following e-mail:

[afro-nets] NGOs and health systems strengthening (or weakening)

What sounds to be obvious – nongovernmental organizations working in the field of international health cooperation support and strengthen health systems – is not taken for granted. NGOs, “if not careful and vigilant, can undermine the public sector and even the health system as a whole, by diverting health workers, managers and leaders into privatized operations that create parallel structures to government and that tend to worsen the isolation of communities from formal health systems (…)”

This assessment is, at least, the starting point of the “NGO Code of Conduct for Health Systems Strengthening” first published in May 2008. The code intends to offer guidance on how international non-governmental organizations can work in host countries in a way that respects and supports the primacy of the government’s responsibility for organizing health system delivery.

A matter of course? Well, you can test it yourself, right now, if you like: How many of the following statements taken from the NGO code correspond with your organization’s standard?

1. “In areas where trained personnel are scarce, we will make every effort to refrain from hiring health or managerial professional staff away from the public sector, thus depleting ministries and their clinical operations of talent and expertise.” (yes? no? not sure? not relevant for you?)

2. “We commit to limiting pay and benefits inequity between expatriate and national, rural and urban, and ministry and NGO workers. We encourage compensation structures that provide incentives for rural service and disallow gender-related disparities.” (yes? no? not sure? not relevant for you?)

3. “We recognize that management capacity in Ministries of Health is often limited. Rather than building parallel or circuitous structures around inadequate capacity, we commit to strengthening governments’ ability to operate effectively and efficiently.” (yes? no? not sure? not relevant for you?)

4. “We strengthen the capacity of communities to take responsibility for and ownership of their health development, and to become partners with government in the health system, while holding governments accountable for their human rights obligations.” (yes? no? not sure? not relevant for you?)

5. “We actively advocate with civil society, local institutions and donors for policies and programs that strengthen health systems overall.” (yes? no? not sure? not relevant for you?)

6. “We commit to designing their activities and programs so that they reinforce primary health care, foster equity and community involvement, and are generally replicable and financially sustainable over time.” (yes? no? not sure? not relevant for you?)

So, are you happy with your score? 6 out of 6? Congratulations! But nevertheless, you might be interested to further discuss the task of contributing to building public health systems and doing no harm. The members of the MMI Network members will meet on 5th November in Amsterdam in a workshop on "Health systems strengthening", reflecting about the role of NGOs and of their particular organization in health systems strengthening.

Join us, if you like!

Thomas Schwarz,
Medicus Mundi International Network

My interest was further stimulated with this additional e-mail.

There is room for reflection in this message.

I appreciate the concern of Medicus Mundi International that raised this sensitive point.

I would suggest to them to broaden their discussion when they'll meet in Amsterdam. A 'new' aspect of health care delivery in many poor countries is the role played by the *Private* *sector*. It is widespread, day by day,rapidly. A vivid example is here in Nyala where one can see plenty of private doctors,local healers, private clinics,private hospitals,private pharmacies,plenty of drugs and plumpynut....but still children do die from malnutrition and common diseases . A drug for any illness is not the correct approach,I think you agree.

We should be together to declare with one voice that : children under fives and pregnant women should receive FREE SERVICE. Under any circumstances, by the government clinics or by the non for profit clinics:always,always FREE! including medical consultation and drugs prescribed. As it is for vaccination.

Dr. Massimo Serventi
Nyala Pediatric Centre
Italian Hospital

I have added to the conversation with the following message:

Dear Colleagues

I am glad this subject has come up.

Work that I have been doing over the last five years to understand the progress and performance of the global health malaria control sub-sector suggests that way too much of the global health money is being consumed at the "top" of the sector and far too little funding is getting to strengthen community level healthcare. This is the same issue in many different parts of the health sector ... many different diseases ... and in both rich developed countries and poor developing countries. Most decision making about resource allocation is driven by the goals of management, whether it is a big NGO, pharmaceutical company, a health ministry, a hospital or a network of doctors.

The needs of beneficiaries are poorly represented in part because the prevailing systems of metrics do not include any metrics about the "value loss" associated with poor health status of a single individual and in aggregate for the community. This gets addressed in The Burgess Method of True Value Metrics.

The good news is that there are thousands of NGOs interested in health care activities ... but they are not delivering their services very effectively where they are most wanted. Bottom line, nobody knows where they are working and what they are doing. Nobody seems to know where they would be most needed and could be doing the most good. If there were metrics that showed at the community level what the needs are, and what health care services including government and NGOs are present ... and what they are doing ... and what still is left needing to be done, we might make some meaningful progress.

This should not be an idealogical argument about public or private sector ... free or paid ... but about needs, resources and how to get the best possible outcomes.

As it is ... there will be a meeting in Amsterdam of this network of NGOs. I hope that they enjoy themselves ... and look forward to learning of any steps forward to better performance that they are able to make!

Sincerely

Peter Burgess

There is a pervasive problem throughout the field of socio-economic development ... a widening gap between those that are at the "bottom" with very limited education and skills and those that are experts giving advice and planning solutions. Unless the people at the "bottom" are part of the solution ... and help to satisfy their own critical needs ... a welfare system of development assistance rapidly runs out of resources. This should be obvious ... but it is not the way assistance is being programmed!

Peter Burgess

Haiti ... the cholera outbreak

Dear Colleagues

The news of cholera in Haiti is very bad news ... and we have to hope that the outbreak will be contained. I am not optimistic, however. It seems that the pace of everything in Haiti has slowed down in the past six months ... certainly relative to the urgency in the first weeks after the earthquake.

Up to now my efforts to see more transparency and accountability in Haiti have come to nothing ... almost nothing, shall we say! Some of the slow-down may be attributed to the need to have elections, but by no means all of the apparent lethargy is because of this. Some of the slowness is because it takes time to remove the constraints on progress that are part of the general governance situation in the country. Whether or not this will get any better after an election is not at all clear.

I am really disturbed by the statistic quoted in news stories that there are more than a million people living under canvas in Port-au-Prince and the surrounding area ... and not too many stories coming out of Haiti about much practical rebuilding yet!

There is still a case to be made for accountability in this society.

Peter Burgess

Microfinance ... Is it moving in a dangerous direction?

Dear Colleagues

I have been very concerned about the evolving nature of the global microfinance industry for quite a long time ... perhaps about five years. This is about the time the mainstream banking and finance sector became interested in microfinance, as they identified the possibility of profit in a new asset class.

The bankers and financial experts argued that the microfinance sector's need for capital could only be satisfied by significant access to the capital markets ... and for this, microfinance institutions needed to be profitable.

It is clear to me ... and it is the very foundation of the business model for microfinance championed by people like Muhammad Yunus, founder of the Grameen organization ... that microfinance uses money as a part of a program that aims to improve the quality of life of poor people. When the Grameen initiatives started in the 1970s ... together with BRAC and others ... the work was clearly "social" in nature and it was "sustainable" because the money being used did not simply disappear as it did in every other of the development initiatives being funded.

My own perspective was that microfinance was a palliative ... making poverty more livable, but not enough to make a difference to the community as a whole. I saw microfinance as a positive intervention, but not a sufficient intervention. I argued then, and argue today that microfinance in the Grameen mode is desirable as part of a portfolio of development interventions in a community.

I have never argued for growth of microfinance in a "for profit" mode as a desirable development intervention. For me this is an institutionalized version of the "money lender" that the Grameen model interventions sought to eliminate. I have argued for more development investment, because most communities are sadly lacking in a lot of the underlying infrastructure that would help people to progress out of poverty.

I have also argued that there needs to be better socio-economic performance metrics so that the performance of society can be tracked and the impact of various interventions seen in an objective way. Without metrics about value, the big banks and their money are going to swamp initiatives that are merely trying to get more economic benefit into the hands of poor people who are doing all they can to work themselves on to the bottom rungs of the socio-economic ladder!

The following was written by a colleague a couple of days ago ... following up on an essay he wrote for Microfinance Focus Magazine a year before!

Editorial: AP Microfinance Crisis – a signpost ignored
Saturday, October 23, 2010,

Microfinance Focus, Oct. 23, 2010 : A year ago, Microfinance Focus Senior Analyst, Daniel Rozas, published an article raising a warning flag about a developing bubble in Andhra Pradesh. Rozas wrote:

“The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.”

That spark has now been ignited. Whether the flames can be put out quickly enough to prevent disaster is by no means assured. We hope they will be. But it is also deeply disappointing to see the sector having come to this point. After all, there was no lack of recent examples to learn from: the US financial market, Bosnia, Nicaragua, Morocco, Pakistan, Kolar, and even Andhra Pradesh back in 2007. So why are we here?

At the surface, it seems that Indian MFIs were taking steps, having formed MFIN earlier this year with the explicit objective of developing lending standards, including caps on total debt levels for clients. It sounded reasonable. But whether these actions were driven by real recognition of the risks, or simply visible motions to quell concerns raised by RBI and others, it’s apparent that they were not driven by any sense of urgency. MFIs were simply too busy to implement real changes.

SKS was too busy with its IPO. Other large NBFCs were too busy trying to catch up to SKS. Regulators were too busy worrying about profits and interest rates. Meanwhile, growth has continued unabated, including in Andhra Pradesh. Seems everyone was so preoccupied trying to win the race that they failed to see the cliff up ahead.

We are hopeful. Disaster may yet be avoided. And as soon as it is, we hope that – finally – MFIs will grow up and realize that the status quo is no longer tenable. And we hope they will seriously sit down with real regulators (as opposed to wolves disguised as state politicians) and find solutions that will finally put an end to fly-by-night operations, unconscionable collections practices, and dangerously weak lending standards. For if they fail to heed even this signpost, MFIs will deserve the fate that will undoubtedly await them next time around.

This is the year old article. Since this article was written there has been the SKS IPO and it is going to be interesting to see whether this proves to be a "last hurrah" for the hard profit wave of microfinance or is the beginning of something that ends up rather like the global sub-prime mortgage fiasco that still has a long way to go before it gets cleaned up.

Is There a Microfinance Bubble in South India?
Tuesday, November 17, 2009,
By, Daniel Rozas , Microfinance Consultant

By most standards, microfinance is a young sector, and in many countries it can be said to still be in its infancy. Yet its continuing spectacular growth, especially in India, should give one pause – every time promoters celebrate another multi-million-client threshold, I wonder – how many more such thresholds are left? How do we know when we’ve arrived?

This is not a philosophical question – normally, markets send signals. New customer demand drops. Prices fall. Margins decrease. However, credit markets are funny animals – the hopeful, exuberant part of our human nature dictates that, when presented with the opportunity, we tend to overestimate our repayment capacities and borrow beyond our means. And when we can borrow from one lender to repay another, we can stretch the cycle out even further. The market signal gets delayed, while a bubble builds – when the signal does come, it is in the form of the bubble bursting. Students of the US housing crisis can tell you – it is a most unpleasant signal to receive. I vividly remember the day in January 2007, when I first learned of the unusual delinquency patterns emerging in the US subprime market – at the time this affected only a small proportion of loans within a relatively small subsector of the mortgage market, and few thought then that this presaged a crisis that would engulf the entire mortgage market, let alone the global economy. Yet even though subprime lending had subsequently all but vanished by spring of 2007, it could not prevent the worldwide tsunami from crashing down nearly two years later. Such is the nature of bubbles.

The trouble is, determining whether we are actually in a bubble is no easy task. A look at the US stock bubble of the late 90s and the housing bubble of ’04-07 shows a familiar pattern – the eager participants are hypnotized by the glitter of their apparent success, the “wise seers” seek ways to explain visible deviations from the norm, while the few lone voices calling for a time-out are made outcasts of society. Yet when the bubble finally bursts, everyone adopts the common refrain: why didn’t “they” (the government, the corporations, the media) do something – the bubble was so obvious!

Estimating Microfinance Market Capacity

One way to determine whether there is a bubble in microfinance is to ascertain market capacity (number of potential microfinance clients), then compare that to actual penetration. However, determining capacity is hardly an obvious task. In 2006, in outlining their vision for the next ten years, Rhyne and Otero included a table with a simple ratio of borrowers/population. Back then, Bangladesh had a 9.2% penetration, and the authors suggested that that may be “an upper bound for very large national penetration of microfinance.” Here’s the same table three years later. Note that since then Bangladesh has grown over 60% in penetration, while three additional countries have either reached or breached the boundary suggested by Rhyne and Otero. But what do these numbers tell us? If 9% penetration is not the upper bound, maybe 16% is? Or perhaps 30%? To get a better idea, I created a simple model for estimating the upper bound of market capacity. This is only a crude model – a more robust version would require more detailed market data, however it still provides useful insight.

The model is presented below – it uses the same borrower/population metric as above, with additional adjustments for three factors (the full sourcing and description of the assumptions is provided in the excel file, at the end of the article# :

1) Gender – since microfinance lending is mostly to women,
2) Age – to exclude the very young and very old, and
3) Wealth/financial access level – to exclude those outside the MFI target market. The $1.50/day measure is a close equivalent of the widely used figure of 600 million poor in India.

In addition to the assumptions buried in these three components, there are two additional issues that the model doesn’t capture: first, not all potential borrowers can be actual borrowers, i.e. not everyone needs to borrow all the time; and second, multiple borrowing skews the numbers as well, since the same customer gets counted multiple times. Despite these issues, the model can serve as an indicator about what’s happening in the markets and as a tool for identifying potential bubbles.


My calculations show that Bangladesh is fairly saturated, with market penetration approaching capacity. India, on the other hand, is a much more complex picture. It’s well-known that microfinance penetration in India has an extremely uneven geographic distribution – while its largest state, Uttar Pradesh (and a number of others, mostly in the north), is relatively unserved, the southern state of Andhra Pradesh (AP) and its neighbors show a very different story. Frankly, the numbers there concern me – AP has more microfinance clients than any other country in the world except for Bangladesh; it shares the distinction as the most penetrated market in the world, on par with Bangladesh; and most disquieting, the state was already at 6% over-capacity a year ago (the table uses 2008 data). Explaining these numbers without allowing for extensive multiple borrowing is indeed a challenge.

Frankly, I think this is about the strongest evidence of a bubble one could hope to find using publicly available data. When coupled with the current repayment crisis in several districts in the neighboring state of Karnataka (which has similar penetration numbers as AP), it also becomes difficult to ignore. The most commonly used arguments against the bubble theory in south India – that the isolated districts in Karnataka represent only a slither of the microfinance market and repayment rates remain otherwise high – shows only that the bubble hasn’t yet burst, not that it doesn’t exist in the first place. Another argument that has been advanced by Vikram Akula in his letter to the editor of the Wall Street Journal is that multiple borrowing is not a cause for concern, citing as evidence the Karuna Krishnaswamy 2007 study that found multiple borrowers have equal or better repayment rates compared to their single-borrower counterparts. Since multiple borrowing is a core element of what I argue is an existing bubble, a bit of discussion on the subject is warranted.

Conducted during a period of high economic growth in India, the Krishnaswamy study found that multiple borrowers, representing 7-10% of clients in his sample, consisted primarily of highly motivated entrepreneurs seeking to raise more capital than what was offered by any one MFI. This is unsurprising – due to the nature of their cycle-based lending model, MFIs knowingly underfund their borrowers, thus assembling funds from multiple MFIs is a logical strategy that Krishnaswamy suggests is simply a replacement for the informal funding sources the individuals would have tapped otherwise. This is also consistent with the money management practices documented by Collins et. al. in Portfolios of the Poor. However, as the market heats up and multiple borrowing becomes increasingly widespread, the number of multiple borrowers grows beyond these stand-out individuals – just a few months ago on the CGAP blog, N. Srinivasan stated that 25% of borrowers in urban and peri-urban areas have 5+ loans, while 3 loans is the average for all borrowers. The immediate risk is that some of these borrowers may be falling into a debt spiral, borrowing from one MFI to repay another. However, the less immediate but greater risk is that increasingly many clients are carrying debts that leave little room for absorbing even relatively moderate economic shocks. Multiple lending on such a large scale has a minimal track-record, and the examples that exist (e.g. Bolivia in 1999) should not inspire imitation. By ignoring clients’ outstanding debts, MFIs in India and elsewhere are abandoning their responsibility for prudential lending.

What Does the Future Hold?

Let me state upfront that even if one accepts the existence of a significant microfinance bubble in South India, that doesn’t guarantee that Andhra Pradesh or any other geographic area is bound to have a crisis. However, I would argue that these areas show vastly increased sector-wide risk, and thus, significant probability of a large-scale crisis. In fact, the Krishna district in AP already had a repayment crisis in 2006, and though many attribute it to political interference, a number of voices have pointed out that politicians were tapping into existing borrower resentment towards the MFIs – after all, it’s hard to inflame a happy crowd. Moreover, among the other countries with high microfinance penetration, Bosnia and Nicaragua are already undergoing repayment crises. Given these examples, risk managers should heed carefully the community aspect of microfinance, which makes the sector so effective during normal times yet can also turn what otherwise would manifest as default spikes into en masse defaults that can engulf entire countries. The normal rules of risk management don’t apply then – of all their problems, the one US banks don’t have to deal with is heavily distressed American borrowers taking to the streets demanding cancellation of their debts.

As I had stated earlier on, it is impossible to prove that a bubble exists while one is still in it – the best one can do is point to data that suggests it may be happening. I can’t predict whether the microfinance bubble I believe exists and continues to grow in Andhra Pradesh and other south Indian states will deflate quietly or burst spectacularly. The outcome depends partly on luck and exigent circumstances, and partly on the actions of the MFIs themselves. In their pursuit of growth, many MFIs have continued to add large numbers of new customers in Andhra Pradesh and other highly saturated regions – I believe that is irresponsible. While rapid growth in the north is a commendable strategy for continuing expansion of financial access, pursuing the same in the south (with the exception of remote, still unserved areas) puts short-term gain not only above the long-term financial soundness of the sector, but, more importantly, above the long-term interests of the very poor the MFIs are seeking to serve. The spark that sets off a large-scale delinquency crisis can be anything and could come at any time – a rapid drop in economic growth, a populist political movement, a religious decree, or a collections effort gone bad. One can’t control the spark, but one can control how much fuel that spark can ignite.

With microfinance, we can’t afford to hope that there will be no spark. For when it does come, I’ll shed no tears for investor losses, nor for MFI managers’ pain – it’ll be the global unbanked poor who I fear will find themselves without financial access once again. India is no Bolivia – if the bubble bursts there, the entire global microfinance sector will find itself reeling. When the media swoop in for their favorite headline buzzwords, and the killer banes of illiquidity and capital flight seize the sector, there will be no rescue from development agencies then. Instead, one will hear the righteous indignations of politicians decrying “deceptions” and “manipulations”. And they will be right – microfinance rests on its reputation as a socially motivated industry, and when the biggest market in the sector comes crashing down from a crisis of its own making, it’ll bury that reputation and the rest of the industry with it.

***

About the Author : Daniel Rozas is a microfinance consultant based in Brussels. He worked in the US mortgage finance market for most of the past decade, including during the peak of the crisis last year. More recently he has been providing consulting for microfinance and development finance companies around the world, and has just published an in-depth study of MFI liquidations. Daniel’s background in finance spans a number of areas, including risk management, business strategy, and IT. Currently he is also associated with Microfinance Focus .