Innovations Special Edition Annual Meeting 2009

innovationsDavos-Klosters 2009 An MIT Press Journal

Special Edition for the World Economic Forum Annual Meeting 2009

Social Innovation in aPost-Crisis World

Lead Essays

Social Innovation in a Post-Crisis World Klaus Schwab & Hilde Schwab

Social Ventures as Learning Laboratories J. Gregory Dees

Macro Impact on Microfinance Roshaneh Zafar

A Bank as Courageous Investor Ellen Seidman & Ron Grzywinski

The Upside of the Downturn Peter Blom

Cases Authored by Innovators

Power Play Rory Stear and Kristine Pearson

Ending Dependency Cosmas Okoli

Empowering the Rural Poor to Develop Themselves Bunker Roy

Garden in the Desert Ibrahim and Helmy Abouleish

From Fear to Hope Karen Tse

Perspective on Policy

The Resilience Imperative Philip Auerswald and Debra van Opstal

FEATURING SCHWAB SOCIAL ENTREPRENEURS

TECHNOLOGY | GOVERNANCE | GLOBALIZATION

EditorsPhilip AuerswaldIqbal Quadir

Contributing EditorFrancois Bonnici

Senior EditorWinthrop Carty

Associate EditorsMiriam AvinsElizabeth Dougherty

Consulting EditorsChristian DuttweilerHelen Snively

InternsAna AganJustin Lee Huang

Chairman of the Advisory BoardJohn Holdren

Advisory BoardLewis BranscombSusan DavisBill DraytonRobert FroschJohn GibbonsAnil GuptaDaniel KammenDon KashDavid KelloggNeal LaneEric LemelsonMonique MaddyGranger MorganJacqueline NovogratzR. K. PachauriGowher RivziRoger StoughKaren TramontanoJames TurnerXue Lan

Editorial BoardDavid AudretschMichael BestMatthew BunnSusan CozzensMaryann FeldmanFrank Field IIIRichard FloridaKeenan GrenellJames LevittMartin MalinPeter MandavilleJulia Novy-HildesleyWilliam J. NuttallDavid ReinerKenneth ReinertJan RivkinSteve RuthPeter SpinkFrancisco VelosoNicholas VonortasYang Xuedong

PublisherNicholas Sullivan

Innovations: Technology | Governance | Globalization is co-hosted by the Center for Science andTechnology Policy, School of Public Policy, George Mason University (Fairfax VA, USA) and the BelferCenter for Science and International Affairs, Kennedy School of Government, Harvard University(Cambridge MA, USA). Support for the journal is provided in part by the Lemelson Foundation; theSchwab Foundation for Social Entrepreneurship; the Ash Institute for Democratic Governance andInnovation, Kennedy School of Government, Harvard University; and the Center for Global Studies,George Mason University.

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Introduction

3 Philip Auerswald and Mirjam Schöning

Lead Essays

7 Social Innovation in a Post-Crisis WorldKlaus Schwab and Hilde Schwab

11 Social Ventures as Learning LaboratoriesJ. Gregory Dees

17 A Bank as Courageous InvestorEllen Seidman and Ron Grzywinski

23 Macro Impact on MicrofinanceRoshaneh Zafar

29 The Upside of the Downturn: How Sustainable Banking Can Deliver a Better FuturePeter Blom

Cases Authored by Innovators

33 Power Play: Freeplay Energy and the Freeplay Foundation Expand Access to Energy, Information, and EducationRory Stear and Kristine Pearson

61 Case discussion: Freeplay Energy and Freeplay FoundationJohanna Mair and Kate Ganly

67 Case discussion: Freeplay Energy and Freeplay FoundationChristopher Bull

71 Empowering the Rural Poor to Develop Themselves:The Barefoot ApproachBunker Roy

98 Case discussion: Barefoot College of TiloniaJohn Elkington

innovationsTECHNOLOGY | GOVERNANCE | GLOBALIZATION


107 Ending Dependency: MAARDEC Takes a Multi-Dimensional Approach to Rehabilitation ofDisabled NigeriansCosmas Okoli

121 Case discussion: MAARDECAmos G. Winter and Amy Smith

125 Garden in the Desert: Sekem Makes Comprehensive Sustainable Development a Reality in EgyptIbrahim and Helmy Abouleish

153 Case discussion: SekemWilliam J. Baumol

160 Case discussion: SekemAyman El-Tarabishy and Marshall Sashkin

169 From Fear to Hope: Upholding the Rule of Law via Public DefendersKaren Tse

195 Case discussion: International Bridges to JusticeKenneth Neil Cukier

Perspective on Policy

203 Coping with Turbulence: The Resilience Imperative

Philip Auerswald and Debra van Opstal

About Innovations

Innovations is about entrepreneurial solutions to global challenges.

The journal features cases authored by exceptional innovators; commentary andresearch from leading academics; and essays from globally recognized executives andpolitical leaders. The journal is jointly hosted at George Mason University's School ofPublic Policy, Harvard's Kennedy School of Government, and MIT's Legatum Centerfor Development and Entrepreneurship.

mitpress.mit.edu/innovations

Everything flows, nothing stands still.

—Heraclitus, ca. 500 BC

Turning and turning in the widening gyre,The falcon cannot hear the falconer;Things fall apart; the centre cannot hold…

—William Butler Yeats, “The Second Coming,” 1920

That change is a constant is one of the most enduring ideas in human thought. Thetension between creation and destruction is among the most fundamental themesin human history. Yet each era must once again come to terms with change. Eachhistorical moment requires a new language, a new lens.

We are, right now, in the midst of a global shift of epic proportions. Not onlyis change occurring—as it always has—it is occurring with greater volatility, andgreater reach, than ever before. As a consequence of the wrenching turn taken bythe global economic system in the past six months, millions of the world’s citizensmay descend, or return, into poverty—an alarming reversal in the progress madeover the past quarter century in advancing the human condition. To make mattersworse, a widespread economic slowdown will certainly reduce the resources avail-able to create new opportunities, at the very time when such investments are mostneeded.

This year’s annual meeting of the World Economic Forum in Davos-Klostersbrings together some of the world’s most adept and experienced change leaders,yourself included. The collective task facing those assembled (and the global arrayof institutions you represent) is a monumental one: nothing less than “Shaping thePost-Crisis World.”

The Schwab Foundation for Social Entrepreneurship, in partnership withInnovations journal, has produced this collection of readings with one goal: tointroduce into the conversation components of a new language to describe thechallenges ahead, and to offer for your use the rough cut of a new lens throughwhich you may perceive elements of a solution. The language centers on the words“social innovation”; the lens is designed to help us all perceive the mechanisms ofresilience in times of disruptive change.

This special edition includes five lead essays from thought leaders and out-standing social entrepreneurs commenting on the challenges of the moment; fivenarratives authored by innovators describing successful approaches to shaping

© 2009 Philip Auerswald and Mirjam Schöninginnovations / Davos-Klosters 2009 3

Philip Auerswald and Mirjam Schöning

Introduction

4 innovations / World Economic Forum special edition

“post-crisis” or otherwise desperate environments; and a “perspective on policy”essay describing the imperative of resilience as it applies to companies and govern-ments.

Klaus Schwab and Hilde Schwab set the stage by highlighting how the currentfinancial crisis has demonstrated the interconnectedness of even the most abstractparts of the economy with the immediate human realities of societies across theworld. As pioneers in the terrain that links economy to society, social entrepre-neurs offer business models with proven impact—organizational prototypes thatdemonstrate how companies, government, and civil society can work in partner-ship in times of duress.

Greg Dees describes how social ventures serve as learning laboratories—devel-oping and testing innovative solutions to social problems. This exploratory andexperimental aspect of the work of social entrepreneurs is particularly valuable intimes of crisis.

The ensuing lead essays are authored by social entrepreneurs describing howthree financial institutions have thrived in times of uncertainty by focusing ontheir beneficiaries and their social impact:• In 1996, Roshaneh Zafar started the Kashf Foundation as the first sustainable

microfinance institution in Pakistan. In 2008, Pakistan faced a rise in politicalviolence, the assassination of the opposition party leader, and was on the brinkof a food crisis as food and fuel prices soared. Zafar describes the multifacetedchallenges her foundation and other such institutions face when credit is notavailable on global capital markets and their clients face increasing poverty.

• ShoreBank understands how to respond to catastrophe: it was founded in 1973to respond to the housing crisis that emerged in the 1960s and pioneered com-munity development banking as one of the original lenders to “risky” clients.Ron Grzywinski, a co-founder of ShoreBank, and Ellen Seidman, the bank’sexecutive vice president, share their decades of experiences of running a bankoriented toward its clients and mission, and their strategies for assisting thoseaffected by the collapse of the property markets.

• Peter Blom explains how Triodos, a successful, sustainable bank, has remainedbuoyant despite the international banking crisis, through a commitment to mak-ing money work for positive social, environmental, and cultural change.

The cases that follow, each authored by an innovator, reflect the reality thatcrises of different scale and scope are a regular feature of the human experience.Crises are occurring every day in households, communities, countries, and regionsacross the globe. Some crises are caused by nature and some by humans; some arecaused by lack of political power and others by its abuse; some are crises of actionwhile others are crises of neglect. As we face a new crisis marked by its global scopeand potentially enduring consequences, we have much to learn from innovatorswho in other circumstances shaped their environments to improve lives:• Rory Stear and Kristine Pearson have applied Freeplay’s electricity generation

technology to promote tolerance through radio in post-genocide Rwanda, to


Introduction

bring education about HIV/AIDS to isolated communities in sub-SaharanAfrica, to carry news to refugees in places ravaged by disaster or war, and to pro-vide safe illumination to communities far removed from the amenities andopportunities of the global economy.

• Bunker Roy has stubbornly insisted on the principle that people who live in poorplaces are in a better position to perceive, develop, and scale solutions to the dailycrises that define poverty thanare privileged outsiders; inapplying this principle he hasenabled the development, overmore than thirty-five years, ofthe Barefoot College of Tiloniain Rajasthan, India.

• Cosmas Okoli sought first toend the daily trials he faces as aperson with disability inNigeria. When he had some suc-cess, he undertook immediatelyto assist his fellow Nigerianswith disabilities to find theirown paths toward diminishedreliance on their communities.The result is MAARDEC—amodel for technical ingenuity,community action, and politicalengagement in the service of themore than a billion peopleworldwide who suffer from aphysical impairment.

• Ibrahim and Helmy Abouleishchose some of the most aridland in Egypt on which to buildtheir “Garden in the Desert.”Over thirty years, this father-and-son team worked withother family members and com-mitted employees to build an improbable experiment in organic farming into amajor international company. Today Sekem boasts market-leading products andan exemplary commitment to the lives of its workers, the communities withinwhich they operate, and the country that is their home.

• Karen Tse visited Cambodia in the post-Khmer Rouge era and saw a justice sys-tem in chaos. Given the turmoil of the preceding decades, the disarray Karen wit-nessed was understandable, but to her it was unacceptable. So she founded

innovations / Davos-Klosters 2009 5

This special edition includesfive lead essays from thought

leaders and outstandingsocial entrepreneurscommenting on the

challenges of the moment;five narratives authored by

innovators describingsuccessful approaches toshaping “post-crisis” or

otherwise desperateenvironments; and a

“perspective on policy” essaydescribing the imperative of

resilience as it applies tocompanies and governments.


International Bridges to Justice with the aim, quite simply, of ending the routineuse of torture in police interrogations, not only in Cambodia, but around theworld.

Finally, in the essay that concludes this special edition, one of us (PhilipAuerswald) joins with Debra van Opstal of the U.S. Council on Competitivenessto describe how government and business alike can, and must, reassess goals andsystems of incentives to ensure that, in the future, resilience is as much of a prior-ity as growth has been in the past.

The current global transformation is challenging people in board rooms andat dinner tables around the world to review assumptions about the future and torethink strategies. Who anticipated the present? Who can see the future? As thehighest flyers will readily attest, turbulence makes novices of everyone.

The essays and narratives that follow are not recipes, and this is not a cook-book. But we do hope that you will find in these pages some insights that you willsavor and share, narratives that will give you a taste for social innovation, and astock of knowledge that will inspire you to envision creative solutions to globalchallenges.

Whether a coming generation enjoys feast or famine depends to a substantialdegree on whether you and others in positions of leadership succeed or fail inshaping the post-crisis world in which we have, quite suddenly, found ourselves.

—Philip Auerswald and Mirjam Schöning

Philip Auerswald is a Founding Co-Editor of Innovations, an Assistant Professor andDirector of the Center for Science and Technology Policy at George Mason University,and a Research Associate at Harvard University’s Kennedy School of Government. Hewelcomes your feedback and suggestions for partnership. He can be reached at <[email protected]>.

Mirjam Schöning is the Senior Director of the Schwab Foundation for SocialEntrepreneurship. She can be reached at <[email protected]>.

Both Professor Auerswald and Ms. Schöning welcome your comments and proposalsfor partnership.

Acknowledgements

The Schwab Foundation for Social Entrepreneurship and Innovations thank theWorld Economic Forum for their support and partnership in the production ofthis special edition. We also, and importantly, thank François Bonnici, who con-tributed substantively to the production of the special edition and ably managededitorial communications. Finally, we thank Helen Snively and Dody Riggs, whocontributed to the effort their considerable talents as editors.


The current financial crisis has clearly demonstrated our global interdependence.It has also shown us that the economy and society are closely interconnected, withimpacts reaching even the most marginalized populations in society. The economyis not in an independent realm, contained and limited in its impact on society. Itis, in fact, integral to society. We therefore need to reshape our economy to servesociety more broadly. We have already been provided with revolutionary socialinnovators who have been reshaping this relationship between society and theeconomy. To support these social entrepreneurs and promote their vital models ofsustainable social change, we established the Schwab Foundation for SocialEntrepreneurship ten years ago. Pioneering social innovators from the SchwabFoundation’s community of leading social entrepreneurs have shared their per-spectives in the special edition of this journal.

The considerable economic difficulties facing the world in the coming yearswill have an impact on our collective efforts to address social and environmentalissues. Given the turbulence in the global financial system and its consequences forthe global economy, even more people around the world will be facing such dev-astating problems as unemployment, poverty, and hunger as global trade shrinks.With economies in recession or with diminished growth, and with an increase ingovernment debt from financial bailouts in many countries, it is likely that expen-ditures on local and international social programs will diminish and new projectswill be shelved for several years.

In the present era of concurrent economic, social, and environmental chal-lenges, the need for innovation is greater than ever to offer resilience in turbulenttimes and seek new opportunities and strategies for social transformation. Despiteagreement from public and corporate sectors alike on the need for innovation tosolve the complex national, regional, and global challenges, significant barriersremain. As the world’s institutional, legal, and regulatory frameworks are reviewed,we should seek to understand how to facilitate the work of innovators, particular-ly social entrepreneurs who innovate in the broader public interest.

© 2009 Klaus Schwab and Hilde Schwabnnovations / Davos-Klosters 2009 7

Klaus Schwab and Hilde Schwab

Social Innovation in a Post-Crisis World

Professor Klaus Schwab is the Founder and Executive Chairman of the WorldEconomic Forum and Co-Founder of the Schwab Foundation for SocialEntrepreneurship. Hilde Schwab is the Chair and Co-Founder of the SchwabFoundation for Social Entrepreneurship. KickStart, ShoreBank, Aravind, andNarayana Hrudayalaya are all part of the Schwab Foundation's community, repre-senting a group of 154 leading social entrepreneurs from 45 countries.


In its efforts to depoliticize international problems and reform the way thatmultilateral negotiations take place around global challenges, the World EconomicForum has proposed a new global cooperation system that leverages technology,diversity, and trust to support, not replace, existing governance structures andinternational institutions. The World Economic Forum has created a GlobalAgenda Council of experts selected by peer review, which includes scientists, econ-omists, academics, business and civil society leaders, to address 68 of the mostpressing issues. The intention is to create a network of around 1,000 GlobalAgenda “trustees” who will develop into a central intelligence hub to provide earlywarnings and solutions to major international problems. Already, 700 global

experts have come together, at theSummit on the Global Agenda inDubai in November 2008. Whilethere is significant promise in bring-ing together the foremost experts oneach one of the issues, the realbreakthrough was in cross-linkingall the experts from different disci-plines and sectors, given the inter-linked nature of the challenges theworld faces. Social entrepreneursstand at the nexus of many of these

issues.Social entrepreneurs can readily provide key insights into many of these glob-

al challenges, as they have proven solutions that have already been implemented atsignificant scales where many experts and international agencies have failed in thepast. In addition to a dedicated Global Agenda Council on SocialEntrepreneurship, the Schwab Foundation has strategically positioned socialentrepreneurs in numerous other councils, in addressing issues including water,energy security, health care, and financial empowerment. They can connect globaldecision-makers to a rapidly changing world that today is more bottom-up thantop-down.

In the financial services sector, where derivatives and other financial instru-ments received much attention from investors seeking new frontiers for profit,many important social innovations have emerged over the last few decades, creat-ing enormous social and economic value. Novel banks, such as the Grameen Bankin Bangladesh, have led many others in the field in providing microfinance at scaleto millions of borrowers who would not be deemed creditworthy by most tradi-tional banks. Meanwhile, in the U.S., ShoreBank began as one of the originallenders of housing credit to poor communities and provided financial backing toinvest in and regenerate communities. "In Europe, Triodos Bank has flourished onthe principle of sustainable and ethical banking. In this journal's special edition,Peter Blom elucidates why Triodos is somewhat impervious to the current down-turn and continues to prosper.


The economy is not in anindependent realm,contained and limited in itsimpact on society. It is, infact, integral to society.

Social Innovation in a Post-Crisis World

All three of these financial institutions developed long-term relationships oftrust with their clients and investors, motivated by principles of trust, transparen-cy, and sustainability. The reason the banks existed was to serve their clients, notonly to enrich their shareholders. In other words, they were mission driven, notprofit driven, and they realized the importance of remaining solvent and liquidwith a healthy balance sheet. As a result of these trust-based relationships and afocus on the broader impact of their investments, all three institutions continue toprosper despite the international banking crisis we are experiencing today.

Will such socially or ethical-ly oriented businesses, andthose that serve the economicgroups at the base of the pyra-mid, prove to be resistant to oreven thrive in the currentdownturn in the global econo-my? As yet, there is no evidenceof the downturn’s impact onsocial entrepreneurs—and themicrofinance industry has notreported any negativeimpacts—it may be partiallyresilient to the current volatility,as its clients at the lower end ofthe global income scale showrobust reliability.

In this special edition of Innovations, Ellen Seidman and Ron Grzywinskidescribe ShoreBank’s resilience and innovation in dealing with the housing andmortgage crisis in the U.S. The ShoreBank Corporation, headquartered inChicago, is a US$ 2.6 billion company that owns, operates, invests in, and advisesdevelopment banks around the world. In 2007, as the signs of the housing marketcollapse became evident in the U.S., ShoreBank realized it needed to interveneearly in order to protect its communities from facing foreclosures as paymentsincreased. To refinance many home loans that had been issued by unscrupulousnon-bank lenders, it launched its Rescue and Prevention Loan Program, reachingout to those at risk and doing in-depth underwriting. Default rates in its portfo-lios have remained below 2% and the bank continues to turn a profit; its mission-focused lending is also its most profitable.

Although the current economic downturn will create further challenges forsocial entrepreneurs in gaining access to credit, working capital, and philanthrop-ic funding, it is also a time of opportunity for social innovators. The world nowrecognizes that it needs revolutionary and ambitious approaches to revitalize oursocieties and economies. Traditional philanthropy or corporate social responsibil-ity may become more attracted to the strategies of social investing because of itsemphasis on cost-effective social impact and preservation of capital. Social entre-


Our belief in the power ofsocial innovators lies not only

in the direct impact of thegoods and services their

organizations deliver, butparticularly in the role theyplay as catalysts for broader

social transformation.


preneurship provides a powerful opportunity to deliver meaning at a time whenother “returns” seem less appealing.

The past year saw turbulence beyond the financial sector, with insecurity andviolence emerging afresh in places like Kenya, Pakistan, and India, in addition tothe ongoing conflicts around the world. There is also much to learn from studyingsocial entrepreneurs working in these environments, who have developed strate-gies of resilience and have had to innovate to continue their missions under suchconditions.

This journal has previously profiled KickStart and its founders, Martin Fisherand Nick Moon. KickStart designs, produces, and sells appropriate technologies torural entrepreneurs in some of the world’s poorest markets in Kenya, Tanzania,Mali, and Burkina Faso, allowing them to start small-scale businesses. It has helpedto start 73,821 new businesses and has created US$ 81 million a year in new prof-its and wages as people in Africa use its products.

When the post-election violence erupted in Kenya, hundreds of thousands ofpeople were displaced; farming ground to a halt, and severe food shortages result-ed. Even more people lost the ability to support their families and were driven intopoverty. Although the violence was politically motivated in Kenya, it emerged frompoverty and inequity and a sense of despair. Many companies would have packedup and left amid this turmoil. Instead, KickStart launched a major new programcalled Imarisha Maisha (Swahili for “improve” or “strengthen your life”) to helpKenya get back to work and to kick-start the recovery. By collaborating with reliefagencies in the areas most impacted by the violence, using live demonstrations andradio advertisements, it got the “back to work” campaign well on its way to sup-porting over 17,000 people through the irrigation of 5,000 acres of land. Theincreased food production from this land also helps to lower the cost of fruits andvegetables for hundreds of thousands of Kenyans.

Our belief in the power of social innovators lies not only in the direct impactof the goods and services their organizations deliver, but particularly in the rolethey play as catalysts for broader social transformation. ShoreBank arose out of ahousing crisis in the U.S. in the 1960s; as the first community development finan-cial institution in the U.S., it served as the model for a federal program that spear-headed the proliferation of such community development banks across the US.Meanwhile, in India, two leading social innovators have proven that low-cost mod-els of private health care can be sustainable and profitable: Dr. GovindappaVenkataswamy established Aravind Eye Hospital, and Dr. Devi Prassad Shetty builtNarayana Hrudayalaya for cardiac care.

Social innovators have proven to be models of success in uncertain marketconditions and in unstable environments. Their accomplishments and resilienceare a guiding light in a dark time when we desperately need ways to tackle multi-ple economic, social, and environmental challenges. All of us—governments, busi-ness, academia, and citizens—must commit to bolstering innovations in the pub-lic interest to guide us through these turbulent times.


We have seen that the function of entrepreneurs is to reform or revolu-tionize the pattern of production...

—Joseph A. Schumpeter, Capitalism, Socialism, and Democracy

If ever the world needed new patterns of production, it certainly does now—dur-ing the worst financial downturn in decades. Innovations, developed and tested byentrepreneurs, will help us respond to the challenges of the crisis and move into anew era of prosperity.

Entrepreneurship is part of the solution to the crisis, but, ironically, it was alsopart of the problem. Capital market innovations, such as interest-only adjustablerate mortgages and credit default swaps, helped to revolutionize the pattern ofproduction in credit markets, resulting in permanent damage. Innovation can berisky business, especially if the innovators and early adopters are focused only onwhat is likely to be profitable for them in the short term. These capital marketinnovations present a worst-case version of Schumpeter’s idea of “creative destruc-tion.” In this case, the harm from the destruction exceeded the value of the cre-ation. That is not the kind of entrepreneurship we need more of.

What we need now is entrepreneurship that creates greater long-term valuewhile drawing on fewer resources and generating fewer destructive consequences.We need business entrepreneurs whose innovations will jump-start the economy,create jobs, and cause minimal disruption. We need more of the non-destructivecreation that Columbia professor Amar Bhide has written about.1 We also needmore social entrepreneurship.

© 2009 J. Gregory Deesinnovations / Davos-Klosters 2009 11

J. Gregory Dees

Social Ventures as Learning Laboratories

J. Gregory Dees is a Professor in the Practice of Social Entrepreneurship and NonprofitManagement and is the founding Faculty Director of the Center for the Advancementof Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business. In2007 he received a Lifetime Achievement Award from the Aspen Institute and Ashokafor pioneering work in social entrepreneurship. He is co-editor, with Jed Emerson andPeter Economy, of Enterprising Nonprofits (Wiley, 2001) and Strategic Tools forSocial Entrepreneurs (Wiley, 2002). He is also a member of the World EconomicForum's Global Agenda Council on Social Entrepreneurship.


RECOGNIZING THAT SOCIAL PROBLEMS ARE MORE PRESSING THEN EVER

Nowhere is this kind of value-creating innovation more important than in ourefforts to tackle pressing social and environmental problems. This is where socialentrepreneurs come in. They reform or revolutionize the patterns for addressingsocial issues. They measure their success in social impact. Social entrepreneurshiphas not gotten as much attention as business entrepreneurship and is not as wellsupported, but it is extremely important to the quality of our lives on this planet.It is particularly important in times like these, where financial pressures are likelyto make social problems worse. As economies shrink or, in the best cases, growmuch more slowly than previously expected, we can anticipate increases in pover-ty and unemployment.

This will exacerbate the many problems associated with poverty. Fewer peoplewill receive adequate health care. Because of the financial burden that formal edu-cation can place on parents, fewer children will attend school. Tensions and vio-lence may increase as the poor compete for jobs and income opportunities, as theydid recently on the border of Zimbabwe and South Africa. Progress will be lost, asfamilies that have been successful in moving out of poverty fall back into it.Though carbon emissions should decline with declining economic activity(though the dropping price of oil complicates matters), any decline is unlikely tomake an appreciable dent in the growing problem of global warming. As govern-ment, business, and household budgets tighten, costly environmental protectionand clean-up efforts are in jeopardy. With declining oil prices, the economics ofalternative energy may become less attractive.

Because many social and environment issues are time sensitive, failure to rec-ognize the importance of social entrepreneurship and provide adequate supportfor such efforts during this downturn would be a serious mistake. Damage will bedone that cannot easily be undone. Social entrepreneurship is not a luxury thatcan be suspended while we wait for the economy to turn around.

FOSTERING A VIBRANT SOCIAL LEARNING LABORATORY

Social entrepreneurs offer us a learning laboratory: they develop and test innova-tive solutions to social problems. As with any form of innovation, it is impossibleto know in advance what will work. This is especially true when “working” involvesreducing or solving a social problem. Only by fostering a wide range of experi-ments can we hope to find which proposed solutions are viable, cost-effective, andscalable. This is the beauty of the small, new, resourceful ventures that social entre-preneurs tend to create. As Stanford economist Nathan Rosenberg and his co-author L. E. Birdzell, Jr., have argued,“New enterprises are useful devices for exper-imenting with innovation, because they can be established on a small, experimen-tal scale at relatively low cost and therefore in large numbers, and their efforts canbe intensely focused on a single target.”2 Independent social entrepreneurs have

J. Gregory Dees


greater flexibility to experiment, uninhibited by the biases, standard operating pro-cedures, bureaucracy, cultures, strategic commitments, and other rigidities com-mon in established organizations of all kinds.

Because of their local knowledge and motivation to find solutions to socialproblems, social entrepreneurs see and construct opportunities that governments,corporations, and profit-seek-ing business entrepreneursmiss. Consider 2006 NoblePeace Prize winnersMuhammad Yunus andGrameen Bank. When Yunusconceived the idea of GrameenBank, with its focus on micro-credit and its cost-effectivepeer-group business model, hewas driven by the desire to alle-viate poverty. The Bangladeshigovernment, the banks, theinternational relief agencies,and local business entrepre-neurs did not see this as anopportunity. Yet, microfinancehas grown to be a business thatnow attracts mainstream banksand profit-seeking business entrepreneurs. The business opportunities in microfi-nance were neglected until social entrepreneurs, such as Yunus and the other pio-neers of microfinance, spent decades demonstrating its viability as a market.Grameen has been free from outside funding for over a decade while serving mil-lions of customers in Bangladesh and inspiring replications around the world.Only now are markets responding to this opportunity.

PROMOTING RESOURCEFULNESS AND CREATIVE BUSINESS MODELS

As a matter of necessity, entrepreneurs, social or otherwise, have to be resourceful.They become quite skilled at doing more with less and at attracting other people’sresources to their ventures, directly or through partnerships. This resourcefulnessis reflected in their creative and pragmatic approach to business model design, asillustrated by Grameen’s use of borrower peer groups and its very low-cost struc-ture.

It is useful to think of social venture business models as running along a spec-trum, from fully reliant on philanthropy and government subsidy at one end tofully commercial at the other. In recent years, many social entrepreneurs have beendriving toward the commercial end of that spectrum to reduce their dependence


Because of their localknowledge and motivation to

find solutions to socialproblems, social entrepreneurs

see and constructopportunities that

governments, corporations,and profit-seeking business

entrepreneurs miss.


on philanthropic or governmental subsidies. Commercial strategies are not opti-mal for all social ventures. The business model has to align with the strategy forsocial impact, but when possible, social entrepreneurs do work to create sustain-able, scalable ventures. For-profit ventures, social business ventures, and hybridventures that mix elements from the philanthropic and commercial worlds havebecome common.

For instance, Water Health International is a for-profit social venture thatcombines an innovative, relatively low-cost technology for water purification inrural areas of developing countries with an innovative business model in whichvillages finance the purchase of the equipment and the villagers pay a small fee forthe clean water they use. VisionSpring is a nonprofit example of creative businessmodel development. It provides low-cost reading glasses, a productivity-enhanc-ing product, by buying the glasses produced in China and selling them throughmicro-franchisees, who live in the villages of the countries where it does business.Thus, it provides affordable glasses and creates income opportunities for its visionentrepreneurs.

The emergence of for-profit social ventures and the increase in nonprofits gen-erating earned income are controversial, but this kind of experimentation is essen-tial if we are to find ways to improve the productivity of the scarce resources wedevote to social problems. When it works (i.e. aligns with social impact), it leads toa more effective allocation of scarce philanthropic and government funds. Thesesubsidies can be freed up to flow to the organizations and causes that need themmost. Through creativity in business model development, social entrepreneurs arecrafting more sustainable and scalable innovations.

SCALING IMPACT AND SHARING KNOWLEDGE

While it is essential to support the early-stage innovations that make up the “learn-ing laboratory” of social entrepreneurship, the real value comes in what societydoes with the results of that learning laboratory. Value is created when successfulinnovations are identified and then scaled or replicated to maximize their impact.It is important to note, however, that not every successful social innovation (suc-cessful in the sense of achieving its intended social impact) is amenable to scalingor replication. Local successes sometimes depend on rare conditions, scarce skills,or inefficient business models. Innovations need to be evaluated not just on theirsocial impact, but also on their transferability and cost-effectiveness, and on theorganization’s readiness for a scaling or replication effort. However, with the rightkind of rigorous due diligence, key resource providers (particularly philanthro-pists, social investors, potential corporate partners, and government funders) canidentify viable candidates for scale or replication and provide the support theyneed to achieve widespread impact. In a time of financial crisis, this disciplinedapproach is even more important. It may be hard to pick a few “winners” for

J. Gregory Dees


major investment, since everyone is well intentioned, but it is essential to capturethe value of the experimentation.

The second way to reap value from this learning laboratory is to harvest thelessons from both the successes (scalable or not) and the failures and to share thisknowledge with those who can put it to good use. Tremendous waste occurs in thesocial sector when knowledge is not captured and shared effectively. No one likesto admit failure, and few are willing to open their failures to inspection. Even thesuccesses are rarely analyzed in a critical way that can contribute to a commonbody of knowledge. However, the learning laboratory is more likely to yield effec-tive scalable innovations in the future if the players in the laboratory know enoughnot to repeat past failures and can find ways to build on past successes. This is arole for universities, consultants, associations, think tanks, and journals, such asInnovations.

TAKING SOCIAL ENTREPRENEURSHIP SERIOUSLY

The current financial crisis will force us to be smart about our investments insocial change. This could be a healthy development for social entrepreneurship,provided that philanthropists, social investors, governments, corporations, andother key players actively foster a vibrant learning laboratory of social entrepre-neurs, assess the results of these experiments, support the scaling or replication ofhigh-leverage ventures (those that promise greater social impact per unit of finan-cial investment), and collaborate with efforts to capture and share knowledgealong the way. Leaders in any society have much to gain from taking the conceptof social entrepreneurship seriously and providing social entrepreneurs with thesame kind of disciplined strategic support that they provide for innovation inbusiness.

1. See Amar Bhide, The Venturesome Economy: How Innovation Sustains Prosperity in a MoreConnected World (Princeton University Press: Princeton, 2008), especially Chapter 13.

2. See Nathan Rosenberg and L. E. Birdzell, Jr., How the West Grew Rich (Basic Books: New York,1986), p. 276.


ShoreBank is an American bank born during an earlier housing crisis. The 1960swere a period of intense racial turmoil in the United States, especially in northerncities. Chicago was no exception. Between 1960 and 1970, Chicago’s South Shoreneighborhood—full of lovely apartment buildings and solid single-family houses,bordering both Lake Michigan and the city’s famed park system—changed fromnearly all white to nearly all African-American. House prices plunged, businessesfled, and credit was virtually unavailable. And in 1972, the community’s last bank,South Shore National Bank, announced it was moving downtown after losing halfof its deposits and shrinking to $40 million.

In 1973, Ron Grzywinski (one of the co-authors of this essay), MaryHoughton, and two now-deceased partners, were running a small business loanunit for African-American borrowers at Hyde Park Bank in the university neigh-borhood just north of South Shore. Their positive small business lending experi-ence convinced the group that providing full, respectful banking services to com-munities like South Shore could both stabilize the community and release theentrepreneurial energy of those who now called it home. Putting their reputationson the line, and using $800,000 in equity from ten socially oriented investors, thefour founders bought South Shore National Bank.

The group chose a commercial bank as the vehicle for social investment andcommunity change for two complementary reasons. First, banking services wouldbe both sustaining and sustainable for the community in the long term. Second,they reasoned that if they used a standard, well-known, highly regulated corporatestructure, their success would demonstrate to an audience far beyond Chicago thatproviding banking services to communities like South Shore was more than a feel-good proposition—it was commercially viable. At the same time, investors recog-nized the importance of patient capital that expected most of the bank’s profits tobe reinvested in the community rather than distributed and that did not expect abonanza by selling out.

© 2009 Ellen Seidman and Ron Grzywinskiinnovations / Davos-Klosters 2009 17

Ellen Seidman and Ron Grzywinski

A Bank as Courageous Investor

Ronald Grzywinski is Chairman/CEO of ShoreBank Corporation. He was selected bythe Schwab Foundation for Social Entrepreneurship as an Outstanding SocialEntrepreneur in 2007.

Ellen Seidman is Executive Vice President of ShoreBank Corporation and was thechief regulator of the Office of Thrift Supervision during the Clinton Administration.


Fortuitously, the Federal Reserve Board of Governors had identified commu-nity development as a permissible activity of bank holding companies in 1970.This let ShoreBank Corporation strategically complement the services provided bythe core commercial bank. The holding company structure has in the past includ-ed a nonprofit job-training organization and a for-profit real estate developmentcompany. It now includes not only another commercial bank (in the PacificNorthwest, focused on environmental sustainability) but also four nonprofit loanfunds, a for-profit international consulting company, an international equityinvestment management company, and two cutting-edge nonprofits that helpguide commercial bankers in the United States and the developing world to better

serve people and commu-nities like thoseShoreBank itself serves.

ShoreBank’s first twodecades were character-ized by experimentation,failures as well as success-es, and slow growth. Inthe early 1990s, the largebanks in Chicago becameinvestors, recognizing thatan investment in a spe-cialized urban bankwould help them meettheir obligations underthe CommunityReinvestment Act, federallegislation requiringinsured depositories toserve low-income geogra-phies within their marketareas. By 1995, the bankboard recognized that thebank’s long-term success,

as well as its ability to continue to experiment and diversify, required a much larg-er asset base. The bank doubled its size by purchasing another community bankthat served Chicago neighborhoods near and like South Shore. At the request of,and with the capital support of, leaders in Cleveland and Detroit, the holding com-pany also expanded into similar neighborhoods in those cities.

The strategy was successful, and over the next decade, ShoreBank was able toprosper, grow, and continue experimenting. Its signature product is support forentrepreneurs, almost entirely either African-American or immigrant, who buyand rehabilitate small apartment buildings. Its success is due to its deep local mar-


ShoreBank has always done in-depth underwriting, a criticalelement of sustainablehomeownership. The bank doesn’trely on credit scores. Instead itasks: What is the customer’sincome, and how steady is it? Howmuch are they paying on theirmortgage? What do insurance andproperty taxes cost? What are theirother debts? How many people arethey supporting?


ket knowledge and skilled relationship banking. Borrowers complete high-qualityrehabilitation of apartments that rent at affordable prices.

ShoreBank also began to do more single-family lending. Our philosophy hasmuch in common with all quality community banks: know and care about yourcustomer, because both of you have a strong interest in the customer’s success inrepaying the first loan, growing net worth, and becoming more successful. Webelieve that customers deserve a complete look at their finances to determinewhether they can afford the loan they need to buy the property they are interestedin. ShoreBank makes only long-term, self-amortizing, fixed-rate mortgage loans,and it makes them to responsible investor-owners as well as to owner-occupantsbecause there is substantial demand for quality, affordable rental housing. Theresult: a charge-off rate on owner-occupied houses even today of only 15 basispoints, compared to the average for our peers of 32 basis points.

As the current decade unfolded, the bank’s lenders began to notice some trou-bling signs. Homeowners and buyers were being inundated by primarily non-local,non-bank lenders offering single-family mortgage products that would have beenunsafe for anyone, but especially for borrowers with tight balance sheets and mod-est incomes. ShoreBank could not compete with those offering “no down payment,low monthly payment” loans whose payment would increase dramatically sixmonths to three years after the loan was originated, and depended for repaymenton being able to refinance. We stayed in the market and had some success, butbecame concerned about the damage being done to our communities as houseprices climbed to unsustainable levels, supported by mortgages that were alsounsustainable.

By 2007, foreclosures in Chicago had started to increase dramatically; asbankers who cared deeply about our communities, we knew that more drasticmeasures were needed. In September 2007, we launched the Rescue andPrevention Loan Program with the goal of reaching at least 1,000 of the more than10,000 families in our communities who had mortgages they would not be able toafford when their payments increased. We wanted to find them before they got intotrouble, and to refinance as many as possible into quality long-term mortgagesthey could afford, consistent with the safety and soundness standards of a com-mercial bank.

The Rescue and Prevention Loan Program has five critical elements: outreach,in-depth underwriting, loans that sustain homeownership over the long term,counseling, and funding. Through August 31, 2008, we have made 137 loans underthe program, for a total of almost $25 million. We are able to refinance almost 70%of those who apply.

Finding borrowers who need and can benefit from our program is not easy.Many borrowers who have “exploding” adjustable rate mortgages or mortgagesthat don’t include an escrow for property taxes don’t realize the trouble they couldbe in until after it happens. And borrowers in our communities, as in communi-ties around the country, are both proud and scared; the combination makes themreluctant to reach out until they are desperate, and by then it is far more difficult



to help them. So we assembled a well-trained, community-sensitive marketingteam. That team has done 40 formal outreach seminars and meetings since theprogram started, but they also operate informally: the head of mortgage lendingnow goes to church several times on Sunday to make sure the community knowswhat we have to offer.

ShoreBank has always done in-depth underwriting, a critical element of sus-tainable homeownership. The bank doesn’t rely on credit scores. Instead it asks:What is the customer’s income, and how steady is it? How much are they payingon their mortgage? What do insurance and property taxes cost? What are theirother debts? How many people are they supporting? In the Rescue and PreventionLoan Program, the bank pushes its underwriting standards a little further thanusual in terms of traditional debt-to-income and loan-to-value ratios.

Rescue Loans are funded largely through a high-yield savings account, an on-line savings account that pays depositors a market rate of interest (currently 3.5%)and attracts both new and existing account holders who are interested in support-ing our social mission. The bank has raised more than $27 million in depositsthrough this mechanism, and deposits have held stable since the bank lowered theinterest rate from an initial premium rate. A low interest rate $15 million depositfrom the MacArthur Foundation will cover some of the bank’s loan losses and pro-vide funds for low-interest-rate, deferred-payment second mortgages. The supportfrom MacArthur is particularly welcome, as the current crisis has resulted in anincrease in ShoreBank’s charge-off rate on all 1- to 4-unit properties (both owner-occupied and rental) from a historically low 16 basis points annually to 86 basispoints today.

ShoreBank’s response to the current mortgage and housing crisis representsthe same spirit that gave birth to ShoreBank: a strong belief by the bank and bysocially-interested investors across the country that lower-income neighborhoodsand the people in them can thrive. What they need is a combination of patient cap-ital, financial discipline, and entrepreneurial creativity. In ShoreBank’s case, actingon that belief has resulted in 34 consecutive years of profitable operations, growthto $2.6 billion in total assets, current capacity to advance about $450 million annu-ally in new community development and/or environmental loans, and participa-tion in a growing global network of social enterprise.

* * * *

So far we have discussed why and how ShoreBank has stepped up in its communi-ties in response to the ongoing U.S. mortgage crisis. ShoreBank is one of approxi-mately 50 certified Community Development Financial Institution banks; thereare about 150 certified credit unions, and 600 non-profit loan funds. The CDFIshave a primary purpose of service to low- and moderate-income communities.They are tied closely to these communities not only through their loans, but alsobecause their boards and employees are members of the communities. They aresmall institutions and almost always hold—and thus retain the risk of—the loans



they make, rather than selling them into the capital markets. This gives them boththe insight to understand what is happening in the neighborhoods, and the incen-tive to help their customers succeed—and to work with them quickly when theyrun into problems.

More far-flung organizations and those that do not serve lower-income neigh-borhoods did not have either this knowledge or—having apparently disposed ofthe risk of default—the incentive to help fix the problems that were frequently oftheir own creation. The result was that they encouraged and facilitated the devel-opment and exponential growth of the “originate to sell” model of mortgagefinancing. Under this model, mortgage brokers sold unsuitable, often predatory,mortgage loans funded through the capital markets rather than by deposits thatdepended for repayment on constantly increasing house prices.

Some have blamed the mortgage debacle on the Community ReinvestmentAct’s (CRA) requirement that banks serve low- and moderate-income communi-ties. Federal bank regulators have all firmly stated that CRA was not responsible forthe sub-prime debacle or its broader implications. While lower-income andminority communities were disproportionately the victims of predatory financing,these loans were widespread. The vast majority were made to borrowers and incommunities that were never the focus of CRA, and they were mostly made byindependent mortgage bankers who are not subject to CRA.

ShoreBank is by far the largest of the CDFI institutions, and while several oth-ers hold and/or manage assets of more than $500 million, the industry as a wholehas under $20 billion under management. Looking more broadly, the 7,700 banksand thrifts in the United States with under $1 billion in assets—the standard,though by no means perfect, definition of a community bank—have $1.5 trillionin assets. In contrast, home mortgages outstanding in the United States totaledapproximately $10 trillion. Of these, approximately $900 billion were sub-primemortgages, the sector most in crisis. While ShoreBank and other mission- andcommunity-oriented institutions can help individual families and businesses intheir communities, the crisis truly exceeds their capacity.

The larger lending organizations, which originated, packaged, sold and nowservice the loans most at issue, must step up, as must the government, in a mannerdifferent from what they have done to date. While house prices had clearly beeninflated far beyond intrinsic values, and needed to decline, governments at all lev-els and lenders must step in to dampen the dangerous downward spiral in whichforeclosures depress property values which in turn generate further foreclosures,especially as the economy has fallen into recession. Lenders and servicers mustmodify loans to standards of affordability. Governments must work with lenders,developers, and community organizations to keep properties occupied even if theloan defaults and to quickly put vacant properties back into service or—in over-built or depopulating areas—to demolish them. And we must all take advantage ofthis situation to rebuild financially strong and environmentally healthy communi-ties for all Americans.


Throughout 2008, Pakistan’s economy shadowed the meltdown of the globalfinancial system; however, certain elements of the economic set-up here have espe-cially affected households at the bottom of the pyramid. Over the past year, thePakistani economy has faced many challenges including a growing fiscal deficit, aplummeting exchange rate, and increased inflationary pressure caused by risingenergy and commodity prices. The Sensitive Price Index (SPI), which measures abasket of goods related to food items, has been growing at an average rate of 31%this year, while energy prices have risen more than six-fold. According to the lat-est inflation monitor report from the State Bank of Pakistan (October 2008), theSPI will continue to increase, in contrast to the global decline in commodity, oil,and food prices. In Pakistan, prices of most food items, including wheat, pulses,rice, vegetable oil, and vegetables, continue to rise substantially. Wheat prices alonehave contributed 15.9% to the SPI and will likely continue to exert this pressure inthe coming months, given the devaluation of the rupee and Pakistan’s growingreliance on food imports. Furthermore, the report tells us, inflation is having aregressive impact on low-income households.

The relentless increase in food prices has quickly eroded the purchasing powerof low-income households, which tend to spend a large proportion of their incometo meet their basic consumption needs. For example, Kashf Foundation researchhas shown that on average, low-income households are spending 66% of theirhousehold income on food. In other words, they are highly food dependent, andin the long run the rise in food prices can seriously damage their nutritional intakeand in turn their health, thus perpetuating endemic poverty.

The current economic scenario creates a multidimensional dilemma formicrofinance institutions (MFIs). MFIs traditionally provide financial services tothe “unbanked,” households that are not included in the documented and formaleconomy. Microfinance includes a broad range of demand-oriented services,including but not limited to credit, savings, insurance, and remittances. The sec-

© 2009 Roshaneh Zafarinnovations / Davos-Klosters 2009 23

Roshaneh Zafar

Macro Impact on Microfinance

Roshaneh Zafar is the Founder and Managing Director of Kashf Foundation based inPakistan. Zafar is a Schwab Social Entrepreneur, an Ashoka Fellow, and a SkollFellow. She is a member of the Gender Gap and the Financial Empowerment GlobalAgenda Councils of the World Economic Forum. Ms. Zafar has also been awarded theTamgha i Imtiaz, one of Pakistan's highest civilian awards, by the President ofPakistan.


tor has evolved from a basic focus on micro-credit only to a focus on inclusivefinancial services, to enable low-income households to make better and moreinformed financial decisions.

The key question to ask is this: How are the growing economic crisis and theinflation in food prices, affecting microfinance operations, and how will thatprocess continue? They are having at least four distinct impacts.• The first is on the ability of low-income households to make payments on their

existing loans, which could in turn damage the portfolio quality of outstandingloans.

• The second impact could be on the demand for loans: given the impact ofinflation and the decline in the exchange rate, people will need larger loans toset up small businesses. Meanwhile, more and more households may dropbelow the poverty line, thus enhancing the overall demand for financial servic-es.

• The third impact is related to the ability of MFIs to raise funds for lending in avery tight and illiquid financial environment; this could in turn limit the abilityof MFIs to provide their clients with long-term and continuous access to finan-cial services, thus negating the impact microfinance can have on poverty in theshort run.

• The fourth impact occurs as rising food prices affect the ability of householdsto invest in the future of their families, as they have less ability to invest innutritional intake, health care, schooling, etc. Traditionally, microfinance hasimproved the lives of clients’ families, bringing them better nutrition, healthcare, and the chance for children to attend more years of school.

To understand the first impact, consider the case of Bank Rakyat Indonesia(BRI), a publicly-owned commercial bank with a large micro-loan segment, dur-ing the Far East financial crisis of 1997-98. During the height of the financial cri-sis in Indonesia, when many private and public financial institutions were beingliquidated, the BRI’s micro-loan portfolio remained viable, and it was able to rideout the storm. In fact only BRI’s corporate lending segment was restructured,given its many non-performing corporate loans; it was then merged with otherbanks. It is well known that BRI’s 3 million borrowers continued to repay theirloans throughout the crisis; today BRI is rated among the highest-earning banks inAsia, with an ROE of 28%. The BRI example shows that, to some extent, microfi-nance clients are decoupled from the formal economy, given the nature of theirbusinesses and their overall economic status.

In Pakistan, the portfolio quality for MFIs continues to be sound overall, with3.1% of the portfolio at risk for the sector, compared to 2.1% for Asia as a whole.However, other aspects need to be considered to help MFIs manage the current cri-sis and to ensure that the portfolio quality remains strong. In times like this, it isimportant to remain prudent and to focus on ensuring long-term and transparentrelationships with clients. Kashf has evolved a clear and strong code of consumerprotection that focuses on three principles—truth in lending, non-abusive or non-

Roshaneh Zafar


coercive recovery practices, and customer care—in order to promote robust client-staff relationships. Moreover, being prudent means curtailing innovations inproduct lines and not offering new financial products right now. In fact, we hadplanned to scale up two new products in 2008: a home improvement loan and amandatory health insurance scheme. Though both of these products were wellreceived in a stable financial environment, we have rolled them back until thecountry’s economic situation improves.

To understand the second impact, Kashf Foundation recently conducted astudy on the impact that food price inflation has had on our clients; the results arein Table 1 above. We found that microfinance clients are not only demanding larg-er loans to help sustain their businesses, but are also requesting more loans so theycan establish more businesses per household as a mitigating step. The food pricespike has forced many Kashf clients (99% of them women) to take on new jobs, inaddition to running their own businesses, in order to contribute more to theirfamily income. Sixteen percent of the clients we surveyed have even establisheda new business to increase cash flow. This trend will certainly increase the demandfor loans.

Keeping these trends in view, Kashf has slightly increased its initial loan size,from $125 to $190, to account for the impact of inflation on the purchasing powerof the rupee. Furthermore, we are looking at ways to bring down transactionalcosts for clients and are currently engaged in an extensive process of re-engineer-


Table 1. How Clients Cope with Food Inflation.

Source: Kashf Food Security Survey, August 2008.


ing to improve our product features and procedures and to make them more clientfriendly, while at the same time providing adequate risk-management tools.

The third impact, as mentioned earlier, results from the current lack of liquid-ity in the capital markets and the inability of MFIs to raise money from commer-cial sources. In the beginning of 2008, liquidity quickly dried up in the financialsector as the State Bank of Pakistan enacted a tight monetary policy. Unlike 2007,when the Foundation was able to raise $32 million in the commercial market tomeet its growing capital needs, in 2008 access to finance was highly constrained.In March 2008, therefore, Kashf decided to revise its target of reaching out to550,000 clients by December 2008, aiming instead at 350,000. In addition toreducing our growth target, we established a higher cash reserve ratio to ensurethat our institution would remain liquid and able to meet our refinancing needs atthe end of the year.

Inflation was also affecting the cost of our operations: funds cost more andsalaries rose, along with transportation and utility costs. Despite the pressure onits own-lending rate, the Foundation did not increase its interest rate to its clients;this did not seem politically prudent, given the highly inflationary environment.As a result, our financial viability has fallen, and our overall financial sustainabili-ty has suffered. In the long run, we will need to adjust the rates we charge ourclients, but for the moment we have decided to continue with our previous pric-ing and plan to seek grant funding to enable us to manage the current financialdeficit in 2009.

Previous impact assessments of Kashf Foundation have revealed that with sus-tained access to financial services, over 30% of microfinance clients are able tomove above the poverty line within three years. In fact, repeated access to smallloans has helped to build up the confidence of thousands of women and their fam-ilies and has restored dignity and pride at the grassroots level.

Consider Salima, who has had to contend with a range of difficulties and trau-mas. Her husband was a drug addict, which made him extremely violent and abu-sive towards his family. Seven years ago Salima heard about Kashf Foundation andtook out a loan of $75, which she used to purchase cloth and stuffing materials tomake children’s toys. She was able to earn $75 to $100 per month from her firstventure. She took out further loans to expand her business and was able to increaseher returns rapidly. Today this has enabled her to send all her children to school,and her two elder sons have finished high school.

The success of Kashf Foundation’s ground-breaking work in Pakistan can beseen in the story of Salima and its impact on the lives of its clients’ children.

However, as our survey found, 79% of clients now eat significantly less thanbefore the current inflationary trend began, and 29% reported that they had gonehungry for one to four days. A full 97% said their families were getting less nutri-tion, especially because they were eating fewer fruits and vegetables. As we allknow, malnourishment and undernourishment lead to poorer health, lower pro-ductivity, and other problems. In the long run, this trend could have an impact on

Roshaneh Zafar


the overall financial performance of low-income households and could thus drivedown the quality of the portfolio.

It is worth reflecting on the BRI case again to understand how microfinancecan help sustain clients in this current economic crisis. During the financial crisisin Indonesia, a key reason for BRI’s success was the 23 million low-income depos-itors who continued to save with the bank to manage uncertain future cash flows.With this purpose in mind, Kashf Foundation has recently sponsored the KashfMicrofinance Bank Limited, which will provide low-income households with theopportunity to open deposit accounts. Kashf Microfinance Bank’s other sponsorsinclude International Finance Corporation (IFC), Shore Cap International and theWorld Women Banking Equity Fund in the U.S., and Triodos Bank in theNetherlands. It is well known that societies that save are more likely to build strongeconomies. By providing low-income depositors with the opportunity to save andto borrow, both Kashf Foundation and Kashf Microfinance intend to promote“Prosperity with Dignity” all across Pakistan. Jointly, the two organizations will beable to provide financial services to over 1.5 million poor households by 2012.

Such is our goal, despite the world financial crisis.


Sustainable banking has been developing for decades, but it has accelerated rapid-ly as the financial crisis has taken hold. Why? What makes these apparently uncon-ventional financial institutions more crisis-resistant than their mainstream con-temporaries? And can they offer a viable alternative, plotting a path for the futurethat other banks can follow?

Sustainable banking is becoming a significant force in the world’s financialmarkets. The ten best known sustainable banks in the developed world have assetsof around $30 billion, not including the much wider-reaching, more mainstreaminstitutions like the co-operative banks. These commercially solid, growing banksfocus on financing environmental projects, social entrepreneurship and commu-nity businesses. Even though they operate in emerging markets, microfinancebanks have realized extraordinary growth rates in both volume and profit. Thetotal assets of all microfinance providers are estimated at $50 billion; they serve150 million people in the developing world.

As the sustainable banking industry has flourished, so have some of the keyinstitutions driving it. Triodos Bank is one. Founded in the Netherlands in 1980,today it has offices in five European countries. Over two decades the bank has builtassets under management of almost $5 billion, and grown by 25% per year, deliv-ering a consistent profit. It has almost 10,000 sustainable businesses and projectsin its loan book and close to 200,000 customers. Investors, customers and com-mentators alike are increasingly familiar with this kind of solid growth. Perhapsmore surprising, these organizations have been propelled forward by the creditcrunch and the turbulence that followed it.

That Triodos has been able to side-step the worst impact of the crisis, and pros-per despite it, is not a matter of luck. As the core of our banking, Triodos financessustainable businesses delivering clear social, environmental and cultural benefits.

© 2009 Peter Blominnovations / Davos-Klosters 2009 29

Peter Blom

The Upside of the DownturnHow Sustainable BankingCan Deliver a Better Future

Peter Blom has been CEO & Chairman of the Executive Board of Triodos Bank since1997. During that time he has led Triodos Bank Group from a start-up to a globalbank with nearly €4 billion assets under management. Blom was recently awardedthe Dutch Royal distinction of Knight of Oranje Nassau for his contribution to socialbanking and sustainability.


As such, it is directly connected to the real economy, only financing businesses andprojects that provide services and products that people need. In essence, Triodosoffers basic banking. A decent profit, a strong capital base (15% BIS-ratio) and astable funding base from savers’ deposits are integral parts of our businessapproach. And we think this straightforward model is the way banking should be.

Investing depositors’ money in packaged and repackaged sub-prime mort-gages is precisely the opposite. The issue is not so much the sub-prime mortgageitself. It’s the demise of the relationship between bank and homeowner,inescapable in arrangements involving the iterated bundling of loans, that has ledto such catastrophic consequences for the markets and millions of people connect-ed to them. Banks bundled these mortgages together and sold them to ‘the market’but the buyer had no idea what to do if the borrowers failed to pay interest ormissed their repayments. The relationship between borrower and lender was lost,and we’re now living through the consequences.

HOW DID WE GET INTO THIS MESS?

For many years basic banking—raising deposits and granting loans—has meanthigh operational costs for banks, and limited profits. Shareholders came to expectever-increasing returns, and substantial management bonuses created incentivesfor the banks that delivered them. Together they created a voracious appetite forever more profitable products and services. This shifted the average bank’s empha-sis away from basis banking and the real economy, into potentially lucrative butmore complex and less transparent products. Securitization of assets became com-mon, creating markets for Collateralized Debt Obligations (CDOs) and thus cre-ating massive profits—as long as a volatile market continued to go up.

This approach led to unprecedented profits—and also to the enormous lossesbanks face today. Banks like Triodos, which were not prepared to invest in theseriskier complex leveraged financial products, have fared much better. Indeed, at theheight of the crisis, Triodos Bank grew its deposit base by 15% in just two months.Many of these new customers are increasingly savvy about what a bank should, andshouldn’t, do. People who used to be sceptical about smaller banks now under-stand that staying close to the real economy is safer than being big and involved inglobal markets for leveraged financial products.

Another factor helped determine which banks won and lost in the financialcrisis: whether or not they are listed on a stock exchange. Triodos Bank deliberate-ly chooses not to be listed, not least because the conventional shareholder relation-ship is anonymous. Instead, Triodos wants to be close to its shareholders andexplain its long-term strategy. While our shares aren’t liquid on an exchange, theyare issued and can be sold on a match bargain market. And the principle used tocalculate their price is based on the value of the underlying businesses we finance,not on the vagaries of market sentiment. The quality of our loan portfolio deter-mines Triodos Bank’s value, not the market. This approach is straightforward,

Peter Blom

The Upside of the Downturn

grounded in real companies and the people who run them, and prevents specula-tion.

In contrast, listed banks have to fight the perception of being weak as stockprices drop. And, because they’ve dropped so far, depositors have become anxious,transferring their money quickly via the internet. This left some banks facing sys-temic problems and needing government intervention to rescue them. These prob-lems have a profound impact on the public, making increased regulationinevitable. Because, if nothing else, the financial crisis made it abundantly clearthat the financial markets are not able to regulate themselves.

WHAT DOES THE FUTURE HOLD?

How can we learn from what has happened and change the way we handle ourmoney, so our banks can become the solid pillars of our financial system and notthe biggest threat to its longer-term health? And is there a role for sustainablebanks like Triodos?

The past few calamitous months show that banks are not just ordinary busi-nesses with money as their core product. Money, especially savings, is fundamen-tal to the way we live our lives—just like clean drinking water, electricity, health-care, and education. In this sense the banks provide a public service, looking afterour money when we’re not using it and allowing us to send it to each other. But ifwe do not want to nationalize these core functions, we need bank regulation thatis clear and linked to a reliable savings guarantee program, one that protects savers’money should a bank go under.

The only way to make sure this happens is to separate basic banking from theextraneous financial functions now offered by so many modern mainstreambanks. To regulate savings, loans and payment facilities and call the institution thatprovides them a bank is simple, transparent and makes a depositor’s guaranteescheme affordable. Other functions, like insurance and investment banking needto be kept separate. This should be the first challenge for governments and regula-tors alike.

WHAT SHOULD WE EXPECT OF OUR BANKS?

A solid banking sector is needed to finance solutions to the real problems we face,especially climate change and poverty. Worldwide, a significant and growingminority of people want to invest their money in a more sustainable future andneed the banks to help them do it. They should respond, not least because theycan. Instead of generating artificial profits from complex financial instruments andunacceptable risks, banks are in a unique position to facilitate lasting change.

The paradigm taking over now, whether we like it or not, is that financial cap-ital is no longer the limiting factor for growth and prosperity. We need a new, bet-ter balance between the three key elements of production: natural resources, labor



and capital. Despite the financial crisis, we’re not short of money; we just have tomake better use of it.

Banks play a critical role in this process. Sustainable banks, including microfi-nance banks in emerging economies, have proved that their core business works.They service their customers, helping them to become successful social entrepre-neurs and contributing to sustainable development. They are profitable, socialinnovators in the financial sector. Three important lessons can be learned fromtheir success:

Sustainable banks focus on the relationship with their customers. They insti-tutionalise the relationship between the depositor and the borrower, not just withmoney but by highlighting the interdependence between the two. The result iscommitted depositors who understand what their bank is using their money for,and borrowers who feel supported by it. Equally important, the increasingly con-troversial reward systems that offer inflated financial bonuses need to be informedby the ‘value’ of relationships, not just transactions.

Sustainable banks know their shareholders and most are not listed. The rela-tionship with their shareholders goes well beyond a financial return. Instead,shareholders and sustainable banks share a common mission. This makes themextremely robust in the face of external shocks, and shocks don’t come much big-ger than the current financial crisis. Questions of ownership are critical. Eitherbanks can choose not to be listed, or they can choose to follow clear, strong codesfor socially responsible shareholding, so shareholders know exactly what they’reletting themselves in for if, and when, they invest.

Sustainable banks are about core banking. They focus on the sectors they knowwell, financing businesses in the real economy. And they provide inclusive finan-cial services in emerging markets for poor but commercially astute people. Theirsuccess highlights the need for a regulatory framework that makes sure banks onlywork in savings, loans and transactions creating capital as a buffer for depositors—the core business they came from, and know best. If that approach is implement-ed consistently the banks will start to make the margins they need to deliverhealthy, effective and key banking services.

The frontrunners in this field are all established, solid, profitable and fast-growing banks. Brought together, they could be a powerful force for change. So, inMarch of 2009, we plan to do just that at the inaugural meeting of what will be theGlobal Alliance for Banking on Values. The new group’s goal will be to show theworld just what is possible if banking moves from a place of opportunistic self-interest, to serving the public and meeting the greatest challenges of our time.

Peter Blom

Thirty-five percent of the world’s population has no access to electric power.Another 35 percent has access to electricity, but only intermittently. Only the 30percent of people residing in the world’s wealthiest places can rely on electricity asa dependable resource for life and work.

For places without power, the existing energy options are biomass, candles,kerosene, and batteries. These sources of energy are not just unsustainable, they areactively destructive. Household dependence on biomass cook-stoves depletesforests, contributing to erosion, threatening ecosystem viability, and exacerbatingthe adverse impacts of climate change. Candles and kerosene are costly; keroseneis also a hazardous chemical inappropriate for household storage. The healthimpacts of relying on these energy sources are severe. The pollutants released fromthe burning of biomass and kerosene within households constitute the world’s

© 2009 Rory Stear and Kristine Pearson.innovations / Davos-Klosters 2009 33

Rory Stear and Kristine Pearson

Power PlayFreeplay Energy and the FreeplayFoundation Expand Access to Energy,Information, and Education

Innovations Case Narrative: Freeplay Energy and Freeplay Foundation

Rory Stear is the co-founder and chairman of Freeplay Energy. Stear is a member ofthe London chapter of the Young President’s Organization; serves on the Dean’sCouncil of Harvard’s John F. Kennedy School of Government and the advisory boardof the business school at Nelson Mandela University; and is also aCNN/TIME/Fortune “Principal Voice.”

Kristine Pearson is the CEO of the Freeplay Foundation. She serves on the Women’sLeadership Board of Harvard’s Kennedy School of Government and was honored withthe James C. Morgan Global Humanitarian Award in 2005, presented by the TechMuseum of Innovation. In 2001, representing the Freeplay Foundation, she acceptedthe first Tech Museum Award in Education.

In 2003, the Schwab Foundation for Social Entrepreneurship recognized Pearson andStear as Oustanding Social Entrepreneurs. In 2007, TIME magazine selected them as“Heroes of the Environment.”

Pearson and Stear have been married since 1995.

34 innovations /World Economic Forum special edition

leading air pollution problem, responsible for more than two million prematuredeaths globally per year.1

Among the sources of energy on which the majority of the people in the worlddepend, disposable batteries are arguably are the worst of all. Batteries are energysinks, since they require 50 percent more energy to be produced than they will everreturn. When used, they become dangerous pollutants—more toxic even thankerosene. By concentrating energy in a condensed form, they facilitate the concen-tration of power within households; in many places, men routinely take the batter-

ies with them when they leavethe house to ensure that womenor children do not “waste” thevaluable energy resource in theirabsence. As a consequence of thehigh cost and otherwise undesir-able characteristics of batteries,household appliances thatdepend on batteries drain thefamily of resources rather thancontributing to their enhance-ment.

The urgency of providingthe majority of the world’s pop-ulation with reliable and sus-tainable energy sources cannotbe overstated. Power means pro-ductivity, and productivitymeans progress. Recent develop-ments in the world economyhave only served to underscorethe interdependence of the glob-

al economy. A central element of this interdependence is that the world’s wealthi-est 30 percent will face diminished prospects if we do not find ways to include the70 percent who continue to be either imperfectly integrated into the world econo-my, or are excluded altogether.

The Freeplay Energy Group is the developer and distributor of technology andproducts that deliver the energy to excluded and marginalized members of theworld’s population. Freeplay Energy has developed and marketed self-sufficientproducts that harness human, solar, and rechargeable energy to power durableportable devices, from radios to lanterns to mobile phone chargers. The FreeplayFoundation, an independent but related organization, is a pioneer in makinginformation and education accessible through sustainable energy. Together, thetwo organizations—one a for-profit company, the other a not-for-profit founda-tion—share a common mission of energizing development by empowering peo-ple. Over a period of 13 years, Freeplay Energy has sold well over five million prod-


Thirty-five percent of theworld’s population has noaccess to electric power.Another 35 percent has accessto electricity, but onlyintermittently. Only the 30percent of people residing inthe world’s wealthiest placescan rely on electricity as adependable resource for lifeand work.

Power Play

ucts, of which hundreds of thousands have gone to underserved and neglectedpeople in the developing world, largely through the efforts of the FreeplayFoundation. Freeplay’s technology is the product of three distinct phases of devel-opment, each of which has been patented successfully. With a global scope of oper-ations that has included the U.S., Europe, Africa, India, and China, Freeplay PLCconducted a successful stock offering on the AIM (London Stock Exchange) in2005. In July 2008, Freeplay Energy was created out of Freeplay PLC as a privatecompany.

This case narrative tells the story of the Freeplay initiatives. The first half of theessay is authored by Rory Stear, the co-founder and co-chairman of the FreeplayEnergy Group. The second half is authored by Kristine Pearson, the CEO of theFreeplay Foundation. The authors have been married since 1995.

PART I. BY RORY STEAR.

I hail from Port Elizabeth, South Africa. Starting at age 18, I worked my waythrough a series of entrepreneurially based businesses—a mobile disk-jockey oper-ation that provided entertainment at parties and a somewhat primitive sportsmarketing business, to name a couple. Eventually I started a restaurant with afriend. We ultimately sold that business. From the experience of that sale, I notonly accumulated my first real capital, but also realized that many other peoplewished to sell food service establishments like my own. Since I knew somethingabout the industry by then, I began to broker a lot of those sales. Subsequently, Ibranched out into brokering sales of other kinds of businesses, and then mergedmy operation with a national operation belonging to a friend of mine. As a fifty-fifty joint venture, we ran a brokerage fee-based business, buying and selling enter-prises across South Africa.

Our business received an unexpected boost in 1990 when Nelson Mandela wasreleased from prison. Mandela’s release, and the election that was expected to fol-low, had a chilling impact on South Africa’s business climate.2 As emigration fromthe country surged, many South African business owners were suddenly interest-ed in selling. (Potential buyers were not as numerous.) During that period, ChrisStaines, who would come to play a major role in the Freeplay story, came to workfor me in the Cape Town office of my business brokerage. Staines came from theUnited Kingdom, and knew a lot about mergers and acquisitions from working insome of the bigger accountancy houses there. In 1993, the assassination of ChrisHani3 caused the pre-election environment of South Africa to worsen, and Stainesreturned to England. We maintained a formal business relationship, however. Sincewe wanted to be more than a South Africa based operation, Staines began watch-ing for deals that came available in his region.

As the election approached, it became apparent that Mandela and the ANCwould win. As a result it was a time of hope and opportunity. From a business per-spective, for the very first time we could look to Africa as a market, which duringapartheid was largely closed to white South Africans like me. In an enormous



stroke of luck, on April 15th, 12 days before the general election, Staines saw a BBCtelevision program in England called Tomorrow’s World that featured a Britishinventor who had come up with a concept called a “clockwork radio.” This radiohad gotten nowhere close to being a commercially viable product, but had provenan engineering principle of harnessing human energy using wound metal coil. (Seetext box below titled “Freeplay Driven.”) A series of companies had declined theopportunity to acquire the rights to the technology. When Chris saw the TV show,he phoned me and asked, “What do you think of this?” We acted immediately inorder to beat others who had seen the program. Staines met with the inventor justtwo days later on April 17th with a business plan in hand that he had written withmy input. We struck a deal. At a moment when a market comprised of 660 millionpeople was about to open to commerce from South Africa for the first time, wewere newly in possession of a technology for a hand-crank radio that we theorizedcould, to a substantial, extent obviate the need for batteries across an entire conti-nent.

We sought to develop our newly acquired technology and added to our initialmomentum throughout the rest of 1994, by acquiring our first sum of money froma very unlikely source: the U.K.’s Overseas Development Administration (nowcalled the Department for International Development [DFID]). Staines had filledout and submitted a huge number of forms to receive a grant from DFID, andAndy Bearpark, then the Head of Emergency Preparedness, had happened to lookat them. Following the Rwandan genocide and aware of the role that radio hadplayed in the crisis, Bearpark had seen the power and relevance of the medium.Having funds available he gave us a grant of £143000 to commercialize the prod-uct. Additionally, Hylton Applebaum, who headed the foundations for Liberty Lifeand Liberty International in South Africa, invested a million South African randtoward setting up the company, marketing the radio, and developing the technol-ogy. Based on this initial progress and with the encouragement of KristinePearson—who had a much better sense for the needs of Africa than I did—in late1994 I left the corporate financing firm in which I was involved and I began towork on the radio project full time.

We never intended to manufacture our products ourselves; indeed, whenHylton Applebaum from Liberty Life invested, he had done so on the basis that wewould manufacture abroad in a low-cost manufacturing environment.Manufacturing in South Africa was difficult because the unions that had playedsuch a positive role in the struggle to bring down apartheid in South Africa werenow approaching business owners with a militant attitude. Our new venture wasup against a wall, though. Originally intending to manufacture in China, we soonfound that to produce there we would need to order a minimum of 30,000 units.With a new technology previously untested in the market, we weren’t sure that wecould sell even that minimum amount, nor did we have enough working capital tocarry so much inventory. South Africa seemed like our only manufacturing option,despite its drawbacks and the many cautions we received from senior figures in theSouth African business community.


Power Play

Applebaum was, and is, an incredibly creative guy, and he stepped forwardwith an idea. Seeing the situation, he suggested that we create a workforce utilizingthe constituents from one of the organizations his foundation financed: the dis-abled movement of South Africa. Committing a million rand to us (which becameshare capital in the company owned by the disability movement), Applebaumstarted the partnership with that community to manufacture the hand-crank radio


The Origin of the Freeplay Foundation

The foundation was born out of the realization that the self-powered technolo-gy and the radio it powered weren’t getting to the people who needed it the mostand who could afford it the least. In 1997, we began to grapple with the dilem-ma of how we would remain true to our initial vision of bringing our radio toAfrica and how we could broaden the social mission that was at the core of ourbrand. Almost all of our sales at that time came from the U.S. and the U.K. at anaverage price between $50 and $70. I responded to this with the idea of estab-lishing a complimentary non-profit organization that would operate independ-ently from us. At the start, there was a lot of resistance to this concept. Even asI was pitching the foundation at a board meeting, I noticed one of the directorswho represented a corporate investor write a note to his colleague, which said,“This is the dumbest idea I’ve ever heard.” From his paradigm of how business-es work, this was just ludicrous; but we managed to convince the great majorityof the board to do this, and the foundation was successfully established in theU.K. in 1998.

The first trustees of the Freeplay Foundation were civil society leaders whohad expressed support for Freeplay and its technology, like Terry Waite, BillLeeson (the founder of War Child*), Andy Bearpark, Hylton Appelbaum andBaroness Lynda Chalker. We set out to find a director, a process that progressedalong an interesting trajectory that led to my wife, Kristine Pearson, organizingthe foundation and formulating its goals using her extensive knowledge of anexperience in Africa. Kristine initially started as director for a three-monthinterim basis working pro-bono while taking a sabbatical from her professionalconsulting position. In the meantime, the board and its trustees would find afull time director who had experience running a non-profit. Ultimately, Kristinetook on the job of CEO; as a result, what it is, what it does, how it does it, andwhat issues it attacks today are all things she and her team identified. With thefoundation we began to address the issues of how to get Freeplay technology intothe hands of the people who most needed them [See Part II, by Kristine Pearsonfor more on the Freeplay Foundation].

* Founded by Bill Leeson and David Wilson in 1993, War Child assists children affected by vio-lent political conflict in regions around the world.


in South Africa. As a consequence of that expeditious partnership we received anastounding amount of positive press coverage.

On the marketing side, we enjoyed another stroke of luck when the BBC trav-eled to South Africa to film an episode of the television show Q.E.D. that featuredour new venture.4 Shot in June of 1995 in Cape Town, the show was a phenomenalpiece about how Staines and I had put together the company. They interviewedHylton Applebaum and spoke to Dr. William Rowland, the blind head of the dis-ability movement in South Africa. By chance, we even managed to feature Mandelacommenting on our innovation at a breakfast meeting we had set up with him forthat purpose. This 30 minute video provided us with an enormous amount ofpublicity and was a turning point for the company. But it was also pure luck, as wehadn’t formulated or employed a strategy to attract the coverage.

All of the positive press that stemmed from the Q.E.D. documentary had thepivotal result of introducing us and our product to new partners who would helpto build Freeplay. Among them were Gordon and Anita Roddick of The BodyShop.5 Having seen the Q.E.D. documentary in 1995 when it aired, GordonRoddick contacted me. In late 1995, he came to see me in South Africa, initiallyexpressing interest in the project because of the potential it had to benefit theKayapo Indians of South America, a people whose cause he had taken up. To helpus, he invested $500,000, which bought him a share of the company. (Since then hehas thrown us several lifelines at our moments of most pressing financial need.)Other investors would join Gordon during that period, including GeneralElectric’s Pension Trust Fund, Worldspace Inc., and Zephyr Management throughtheir South African Capital Growth Fund.

Also during this time, we began to make lasting relationships with supportersof the technology and our commitment to realizing its potential in the developingworld. Among those supporters is Terry Waite,6 who today remains active with theFreeplay Foundation. I met Terry at a trade show in the U.K. in 1997, where he toldme story about being given a transistor radio late in his time spent in solitary con-finement. Desperate to keep the batteries from running out, he would listen foronly a couple of minutes a day to hear the news, knowing the proper time from thepublic call to prayer. To me, this was such a powerful story about the limits of bat-teries and what the technology of radio could be without them. Terry and I becamefriends after that, and in 1998, we invited him and Nelson Mandela (two of theworld’s most high-profile former detainees) to open our second factory in SouthAfrica. To staff this factory, we again received the help of Hylton Applebaum, andthis time employed rehabilitated offenders and abused women. The opening ofthis factory and the attention it received established our firm social commitment,and we continued to find new avenues for getting our responsibly manufacturedproducts into the hands of those who needed them the most. (See text box abovetitled “The Origins of the Freeplay Foundation.”) However, the core values thatinspired these actions would face tough tests as the new millennium approached,when the model we relied on began to unwind.


Power Play

Y2K Reveals a Bug in the Freeplay Business Model

In 1999 and 2000, the Freeplay company reached a new turning point, as we mademajor transitions and faced squarely some significant obstacles that brought ourcompany to the brink of collapse.

Like almost all technology companies, we were losing a substantial amount ofmoney on every dollar we made because of tremendously high costs, particularlyin research and development (R&D). The R&D expense alone made doing busi-ness unfeasible, as we, like many of our other high-tech contemporaries, tried tonavigate through the new market space without any sense of its size. In 1999 oursales reached a peak of $37 million, but we lost $6 million. This problem was onlyexacerbated in 2000. The primary driver for our sales in North America (whichrepresented about 60 percent of our total in 1999) had been Y2K preparedness—the phenomenon prior to the turn of the millennium wherein many believed thata computer glitch would cause a complete shutdown of the world’s network infra-structure. The wind-up radio would help during such a crisis by operating with-out power from the primary grid. However, by January 2, 2000, everyone realizedthat the clocks hadn’t stopped. At Freeplay we had underestimated the impact thatthe evaporation of Y2K sales would have on our revenues. Suddenly our warehousewas full with $12 million worth of inventory.

Despite these major problems, we were slow to respond. Positive press had putus in a state of denial. BusinessWeek had just recognized Chris Staines and I amongthe “Entrepreneurs of the Year” for 1999.7 Groups invited me to speak at theirevents. We were hailed as archetypal “children of the new economy.” But amidst allthe acclaim, we faced the hard fact that our vertically integrated business modeljust wasn’t working. An operation like ours wasn’t sustainable. Would we go for theeasy option and sell the business, leaving it to someone else to figure out theanswers to the challenges we faced? Would we do nothing and go out in a blaze ofglory? Or would we start to make the really tough choices required to make ourbusiness sustainable?

In trying to figure out our next step, we spent about $500,000 on detailed andextensive market research to assist us in determining if the technology we haddeveloped and the products it powered was viable in the future. Information wereceived from the U.S., U.K., and Germany suggested that we had something valu-able, but we had to bring down the price, which meant lowering our costs. Ourorganizational model as it existed covered every aspect of product developmentand production: we conducted the research on the technology, undertook theproduct design, managed the manufacturing, and shipped to our own warehousesin the U.K. and the U.S. Furthermore, since South Africa lacked any consumerelectronics industry of note, we had to import and pay cash for all of the parts forthe radios. This translated into a need for a huge amount of working capital inorder to keep the business going. The bottom line was that we had to identifyaspects of our organization where we could spend less through outsourcing, inaddition to partnering with other companies to boost our income.



The solution we came up with was to trim the company down to its “core com-petencies.” We retained our R&D because we believed, and still do, that we are thebest in the world at harvesting human energy, storing it, and controlling its releaseto power our products. We also determined that we were, at times at least, worldclass product developers (although then, and now, I held the view that our prod-ucts could benefit from a bit more “sex appeal”—as with an iPod, once you see it,you just have to own it.) At the junction of R&D and product development, wedetermined that we had an excellent track record of taking technology and puttingit into appropriate products, particularly in the developing world—notably, theLifeline radio and Kristine’s work with the Foundation. (See part II of this casenarrative.)


Freeplay Driven: The Evolution of Freeplay Technologies

The development of new Freeplay products has closely followed the innovationsin the technology used to power them. This technological development haslargely centered around the relationship between the harvest of energy fromexternal sources, like wind-up energy and solar, and the efficient storage andrelease of that energy. A “negator” arrangement powered the first Freeplayradios, as a pre-formed flat metal band, tightly coiled around a storage spool,winds around another spool as the user cranks the radio. As the metal bandreturns to its original form, power is transferred to a DC motor that acts as agenerator, earning the product the nickname of the “clock-work radio” for itsmechanically oriented configuration. Designed to power the radio at full vol-ume, any excess energy accumulated by playing the radio at a lower volumewould charge a capacitor, and the power release from both the capacitor and thespring powered the radio. The second Freeplay radio also included a solar panel.

Rechargeable batteries with an extremely long lifespan, referred to as NiMH(Nickel-Metal Hydride), became affordable in the late 1990’s, and replacedcapacitors as the main storage mechanism in Freeplay’s first flashlight. Theincandescent bulb employed by the light required a steady voltage in order toavoid drastically reducing the life of the light bulb. Freeplay designers providedthis by placing the battery in parallel to the generator and coil, ensuring that thelight drew a steady stream of power from the battery itself.

The greatest technological innovation employed by Freeplay in its next gen-eration of products eliminated the need for the coil entirely. Known as directcharge, this system generates electrical power through the immediate conversionof human energy to electricity, which is then stored in a battery. Direct chargetechnology rectified many of the drawbacks of the coil system, such as size,weight, and the possibility of breaking the radio by winding it counter-clock-wise. Efficiency improved from 40% to an overall more than 70%, and allowedfor a wide range of generator sizes. This system, in combination with the intro-duction of LED (light-emitting diodes) light bulbs for lighting devices, acts asthe primary power generation system currently employed in Freeplay products.

Power Play

Partnering with other organizations for marketing and distribution were crit-ical as well. Although we had to control the sales process, we didn’t need to doeverything ourselves. In 2000, we began to identify those organizations that hadhuge distribution networks, products that complimented ours, and thus withwhom we could co-brand. I ultimately concluded a deal with Coleman for thecamping and outdoor market, and together we produced the Sentinel Flashlightand Outrider Radio, which utilized our new direct-charge technology. We alsosigned an agreement with Motorola to bring a phone charger to market, brandedas “Freeplay Driven.” Finally, we concluded negotiations with Swiss Army Brands.However, after the attacks of September 11, 2001, that company faced the biggest


The current suite of products offered by Freeplay give the user the option ofcharging the battery in a variety of ways, including solar, hand-crank, and evenplugging directly into the outlet. Products designed for the home, emergencyreadiness, or outdoor use include the Jonta heavy-duty flashlight, the Indigolantern, and the Eyemax and Summit Radios. Other products, including theFreecharge and the Weza foot-powered generator, provide portable energy gen-eration for emergency or development use. The Lifeline and Scout radios, inaddition to the ECO charge LED flashlights, play crucial roles in aid projects inAfrica and India, and illustrate Freeplay’s continued commitment to bringingrenewable energy products to those who can use them most.

Among our hurdles were our still relatively fresh deals with Motorola andColeman. Partnering with them was part of a very logical strategy for control-ling our margins, which on the manufacturing side we rectified by moving outof South Africa, and on the sales side by partnering with the larger companieswho had established brands in industries where we believed we could have greatsuccess. In the particular cases of Coleman and Motorola, however, flaws in thespecific deals and problems within those particular companies prevented our co-branded products from really taking off. With both companies, which had hun-dreds of products each, we felt that we lacked input in the sales process. Theproduct designs on which we had spent so much money were in the hands ofpeople in those companies who simply weren’t accountable for their success orfailure, which I know now to be crucial. Additionally, Coleman had been takeninto bankruptcy by its struggling parent company, American Home Products.Motorola, on the other hand, was undergoing a major reorganization, and theteams of engineers in that corporation tasked with certifying and testing theFreeCharge for use with their phones had been scattered about the company. Sodespite the money we had spent designing the product, not to mention the enor-mous amount of publicity it was receiving (Time.com had named it one of2001’s Inventions of the Year),8 it never went to market. We terminated theMotorola relationship, and with Coleman we simply allowed the contract wehad with them to expire.


crisis in their history as they quite suddenly lost the core of their business: sellingknives in airports. Although they had some product extensions at the time, theyreinvented themselves as largely a luggage and clothing organization. With thischange in direction, our organizations mutually agreed to leave aside our plans forcooperation.

Starting in 2000, we began the most difficult component of our transition:outsourcing our labor. This meant closing our South African factories and movingour production to facilities in China. After having for a time been the darling ofthe South African media, I personally went to being a demon in no time at all. Irecognize now that we did handle the transition poorly. We were politically naïve,and in against pros—the unions were feeding out to the media the confidentialinformation that was being discussed in meetings. We looked insensitive, but Idon’t think anyone appreciated or gave us credit for the comprehensive efforts weundertook to find employment for every worker. To make matters worse, I had tobe in Japan during the latter stages of the negotiations with the unions, and soinstead of concluding the talks personally, I relied on the CFO of the company todo it. We might have been better off taking a very tough position by shuttering thebusiness and starting again, rather than attempting to do the right thing by every-one involved. I believed at the time that we had an obligation to staff and to cus-tomers. It was much more expensive to make the transition as we did, but ulti-


Figure 1. The Clock-Work Radio

Power Play

mately I believed moving forward and making it work was what we stood for as acompany, and that’s what we needed to do.

Moving our production out of South Africa remains one of the most difficultdecisions I’ve had to make. I do think that the transition ended up being prettywell structured, and that overall we did a whole lot right. But reading the SouthAfrican media at the time you would have gotten an entirely different impression.

Freeplay Goes Public

Following our transition, we continued to grow the company by developing newproducts, both on our own and in partnership with other companies and organi-zations. The Lifeline radio was among these new products. Developed specificallyfor the aid sector and with funding received from the Freeplay Foundation, we setout to create a radio against a design brief that the Foundation submitted to ourengineers in 2002. (See Part II of this case narrative for more on the Lifeline radio.)The technology that powered the Lifeline replaced the metal spring technology inthe original radio with direct charge, a concept we implemented in our new gen-eration of consumer products as well. Over the next couple of years, the designs forthe new suite of products had enormous potential to bring in new income,although we began to run into hurdles actually getting them to market.

An additional hindrance with which we had to contend came from our agree-ments with shareholders. We addressed this hindrance and regained more controlover Freeplay’s business by entering the public market in the United Kingdom inMarch 2005. Before the public stock offering we had three different classes ofshares belonging to different investors. By going public, we replaced the three class-es of shares with ordinary shares only. Additionally, the public offering raised cap-ital that allowed us to take the products we’d developed and put them into produc-tion; while we were still private we didn’t have enough money to invest in takingour product development into the next phase. By selling shares publicly, we couldget the product to market, in addition to making money available for me to hiresome of the executives that I needed. We had to retire our existing shareholders’agreement for the sake of the growth of the business. The new arrangement gaveus flexibility. We’d been hampered as a consequence of negative control from biginstitutional investors; with the new structure we no longer had to ask permissionfor every strategic decision. As a public company, Freeplay’s board of directorscould run the company as they saw fit.

The markets, however, do shine bright lights on a business. Slow sales in 2005,coupled with the enormous cost of R&D for new products, made for a difficulttransition. We improved sales in the years following the public offering, and in aneffort to further improve our share price and continue to grow the company weacquired Dixie Sales, a distribution operation in Greensboro, North Carolina. Thiswould not only appease the market but also help to develop those aspects ofFreeplay that I believed to be the most vital—brand, and distribution. Technologyalone can be something of a red herring, even for a company like ours. Even thebest ideas can’t get off the ground if distribution isn’t right and the brand isn’t



built. With Dixie, we acquired an excellent foundation to ensure that this key boxwas checked for Freeplay.

A Breakthrough Partnership in India

In addition to the acquisition of the distribution company, Freeplay made anoth-er tremendous step in 2006 when it entered into a fifty-fifty joint venture with theNarang Group in India to do business in that country. I had been interested inIndia for a long time because I felt that our products met the needs of that marketvery appropriately, but in India a domestic partner is crucial. Even major corpora-tions like General Motors and Coca Cola went in and were carried out on a stretch-er because they hadn’t started by making the appropriate partnerships. By chance,Freeplay’s own opportunity for building such a relationship came in February2006 at the Global Leadership Conference of the Young Presidents Organization(YPO), of which I am a member. There Devin Narang, the head of the NarangGroup in India, had been introduced to Freeplay products from some demonstra-tions we had given, and instantly understood that this was potentially very lucra-tive for the Indian market. Devin is also a member of YPO and had acted as pres-ident of his family’s company, which had specialized for many years in India in thebrewing industry. They had just sold those holdings to SAB Miller, and the com-pany was well-structured to enter a new sector. Devin and I developed a greatfriendship, and in October 2006 we announced a fifty-fifty joint venture betweenthe Narang Group and the Freeplay Energy PLC to start Freeplay India, whichwould get our renewable energy products into the Indian market. I served on theboard of that company from the start, and was excited about the real opportunitythat India represented for us to redirect our business to where we had alwaysintended—the developing world.

Earlier this year (2008), I became frustrated that Freeplay’s share price wasn’tgoing anywhere, despite the inroads we were making in India and a huge orderthere from the Indian Farmer’s Fertiliser Cooperative (IFFCO), which represents55 million Indian farmers. Although we were moving in the direction I thoughtwas right for the company, I knew it would take some time to unlock that poten-tial. In the interim, we would still face the obligation to report earnings to the mar-ket every six months. In an effort to circumvent this pressure, I devised a strategywhereby the public Freeplay company would sell the Freeplay business entirely.Our Indian partner, Devin, made an offer, financed in part by our major customerIFFCO. A colleague and I, representing the public company, negotiated with Devinand reached an agreement whereby the public company sold Freeplay Energy forcash while Devin would also take all the Freeplay related debts off the public com-pany’s balance sheet. After closing the deal, I negotiated to purchase a bigger stakein Freeplay than I ever had while it was publically held.

Now Freeplay Energy is well capitalized, and by doing business in India, weavoid most import duties by manufacturing locally. (See Text Box, “The PressuresToward the Charitable Model,” for more on the impact of duties.) I can increasethe focus on Africa once again, and spend more of my time in the aid and human-


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itarian sector without having to worry about presenting to shareholders skepticalabout the pace of building a business focused largely, but not exclusively, on thedeveloping world. What remains of the public company now is an investmentholding vehicle with Dixie Sales as currently its sole operating company. (Thetrademark and our production business now belong to the new, private Indiancompany.)

In India, where energy poverty is also a major issue, we’re well-positioned withDevin’s huge network and our very appropriate technology to take advantage ofthe tremendous opportunities in a very large market. We’ve done specific productdevelopment for India’s needs, and will focus more on self-powered lighting prod-ucts that are simpler and cheaper than existing options. The lighting productscould subsequently obviate the rationed kerosene prevalent in rural areas, savingbillions of dollars of subsidy expense per year for the Indian government andaddressing many of the health issues associated with kerosene use. Another oppor-tunity exists in powering cell phones: India adds seven million new mobile usersevery month. In rural areas, Freeplay can be a part of that dramatic increase inconnectivity with the technology we’ve already developed for other markets.

All this happens as we continue to do excellent business in the developedworld, where the focus is less on self-powered technology and more on appropri-ate energy usage from a multitude of renewable energy sources. In the energy envi-ronment of those regions, the crank acts as a backup where one can charge theradio or light by plugging it in. We’re utilizing solar technology as a power sourceusable even for digital radios—devices that in the past have used far more powerthan a traditional radio, but which we’ve managed to redesign for substantiallyimproved energy efficiency. We have a partnership with Roberts Radio in the U.K.for Digital Audio Broadcasting (DAB) radio products that rely on this technology;we have applied the lessons we learned from our past partnerships in structuringthis new arrangement.

Over the 13 years that Freeplay Energy has been in existence, learning has beenthe primary constant. After many attempts, we have finally reached a point wherewe can truly unlock the potential of the technology that motivated us to launch thecompany in the first place. Technological innovation can do a tremendous amountof good for people in poor places, but only if the products of innovation are com-mercially viable and thus reliably accessible to those who need them most. Havingbeen a pioneer in energy technology, Freeplay is now poised be a pioneer in ener-gy impact.

PART II. BY KRISTINE PEARSON.

“Yesterday I didn’t know anything, but tomorrow, I will know everything,”announced Fatima, a 60-year-old grandmother of 24 who had never before owneda radio.

Fatima’s exclamation of hope and possibility last year impressed upon me theurgency of Africa’s need. Africa has once again been left behind, this time missing



the Information Revolution. Historically, the great inventions pass Africa by. Thefirst sub-Saharan African city to use the printing press, Cape Town, did so in 1806,more than 350 years after Gutenberg invented it. Engineers built the first electricpower grids to serve households and businesses in Europe and the United Stateswell over a century ago, but even today more than 500 million Africans have noaccess to modern energy. By 1904, millions of Americans were using the telephone,but it has only been in 21st century, and thanks to cell phones, that most Africanshave had the opportunity to benefit from telecommunications. Computer useexploded in developed countries in the1980s, but in sub-Saharan Africa, where lessthan 5 percent of the population has access to the Internet, the impact of the com-puter revolution remains to be felt. It is this historic knowledge gap—this energyinequity—that I am seeking to narrow through the work of the FreeplayFoundation.

My involvement in the Freeplay Foundation developed as something of anaccident, but it’s certainly been no mistake. As a girl growing up in Sacramento,California, I never traveled beyond a week-long vacation in the family station


Famed Kenyan distance runner Tegla Loroupe, the author Kristine Pearson, and 60year-old grandmother Fatima with her Lifeline radio.

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wagon to Disneyland. But nevertheless, I fell in love with Africa on the glossy pagesof National Geographic.

When I completed university, my curiosity to explore and understand othercultures became so intense that I set off on my own. As a young woman, in 1986 Ispent three months traveling alone in East and Southern Africa, and I knew that Ibelonged there. (Since then, I’ve been fortunate to travel to more than 90 coun-tries, each one giving me a deep appreciation of the strength and dignity of thehuman spirit.)

I immigrated to South Africa in 1988, at the height of the country’s politicalcrisis. I moved to Africa not as a humanitarian aid worker, but as someone whointrinsically recognized the enormous potential of women to shape the future ofthe continent. I arrived passionate about role and potential women and created aconsultancy specializing in the development of women in business. That led to myappointment as an executive with a large banking group involved with creatingsweeping change-management initiatives that affected thousands of employees.

In 1998, Rory, my husband and the co-founder of Freeplay Energy, approachedme to lead the newly formed Freeplay Foundation. I thought it would only be tem-porary—lasting until the foundation’s board could install an experienced non-profit CEO. But I had believed in this technology and encouraged Rory from thestart—I knew that what Freeplay sought to achieve was appropriate and impor-tant. Taking the job would not only alter my worldview. It would define my life.

The penny dropped while sitting on the ground with rural women in a tradi-tional mud and thatch village in Mozambique early in 1999. They told me thatmen had money and they bought radios and the batteries to power them. Womentold me that men even removed batteries from their radios so the women couldn’tuse them. This meant that the men controlled access to listening and that there wasa good chance that the women weren’t hearing important, possibly life-savingradio programs. I realized then and there that if women had unfettered access toinformation, Africa and the poverty that besieged it could have a different out-come—and this radio could help improve the lives of millions. Women are thevery foundation of African life, especially in rural areas. They grow crops, rear chil-dren, collect firewood, cook food, raise animals, and care for the ill. But what manydon’t do is go to school and become educated as males do. I saw that Freeplayradios could provide to women an essential tool to rectifying this imbalance: infor-mation. If we could just get the radios into their hands, they would gain greatercontrol and freedom in their lives.

Millions of dollars are invested each year in important developmental radiocontent aimed at the poor; however, what is the point of programming if you can’thear it? I agreed to take on the role of CEO based on these realizations, and set thefoundation on a course that would empower key constituencies—women and vul-nerable children—to access the information they needed to make more informedchoices and decisions. Ten years later, the Freeplay Foundation has worked in morethan a dozen African countries, is a registered non-profit on three continents, andhas assisted an estimated ten million people. We partner with organizations rang-



ing from national governments and international corporations to in-country localcharities, and we work across many disciplines including health, education, agri-culture and disaster relief. We regularly refine our methodologies for applyingFreeplay technology based on radio usage and distribution.

Although, due to our successes, Rory and I might be seen as pioneers in thesocial enterprise sector, I don’t feel that I did anything especially remarkable. I’vethought creatively about how to achieve the goal of the foundation despite theconstraints that have arisen, and tried to conceive of new solutions through theinnovations that technology can provide for those who need it. In the case of theLifeline radio especially, the force of new ideas in technology and product designhave won enormous support, illustrating for me how resonant the concept isamong so many even in the age of nanotechnology!

Early Involvement in Africa and Child-Headed Households

Asking the right questions and active listening are paramount in the developmentsector. This has been clear to me from our first major project, when thousands ofFreeplay’s original hand-crank radios were distributed to Mozambicans displacedby the catastrophic floods in 2000. The relief community justifiably focused onproviding food, clean water, and medicine. But when interviewing flood-displacedpeople myself, they told me how frightened they were and that they wanted to


Masaii women listening to a health program broadcast in the Masaii language inKenya.

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know what their government was doing, but had no way of finding out. Theywanted to know how to locate relatives from whom they had been separated, ifmore rains would come, when they could return home, and to how to replace lostidentity documents. This illustrated to me how vital basic information is to thosewho have lost everything and face an uncertain future. In refugee camps, rumorsare rife, and radio also provides a reliable, and cost-effective way to reach displacedpopulations immediately. But refugees don’t have batteries at hand and there isn’texactly a kiosk to buy them. The solution was for Media Action International9 tocreate informational programming for the displaced in their own languages and touse our radios to hear it on demand. Freeplay radios played a critical role in therelief efforts that year.

I truly began to internalize the power of radio while working on an early proj-ect in Rwanda with children who headed their own households. In 2000, few wereaware that disease and conflicts unfolding across sub-Saharan Africa were causingan added crisis by orphaning millions of young people throughout the region.Family systems were collapsing, and many children became caregivers of parentswho were dying from AIDS, or lived in a house without any adult at all. Little haschanged in 2008. These children often exist in destitution. Traumatized from theirloss, they face discrimination and exploitation, and most are malnourished. Theyreceive scant outside financial or psycho-social support. The heads of households,some as young as nine (and mostly girls), must eke out a living on the land, fetch-ing water and firewood, cooking and doing whatever they can to keep their fami-lies alive and intact—often without the most basic of necessities. Where they getthe courage to cope and carry on, I just don’t know. I was astonished, and still am,by their resilience and their efforts to better their lives. Although no one reallyknows the number of orphans in sub-Saharan Africa, the best estimates are morethan 42 million. Surely this is the first generation in the history of our world, thatI am aware of, that must raise itself.

We became involved early on in this issue in Rwanda, where original-modelFreeplay radios were distributed to these young families. I interviewed dozens ofthe child recipients, and their feedback was contrary to what I expected. When Iasked what they listened to, they all said, “the news.” They wanted to be informed,to increase their knowledge, to get ideas and feel empowered, which resonated sostrongly in an environment where the children didn’t trust the adults aroundthem. In post-genocide Rwanda, they said that their adult neighbors treated thembadly, but with the radio, the adults would come over, listen, and become friends.Some children even suggested that the radio was like a parent or brother. Anotherfavorite show was a health soap opera drama called Urunana, broadcast in the locallanguage, Kinyarwanda, which has a child family woven into the storyline. Notonly could the young listeners learn about HIV/AIDS, but they also related to thechallenges the soap opera’s child characters faced, and the program thereby helpedprovide the guidance they were missing. They also wanted to listen to practicalprograms on farming, peace and reconciliation, children’s rights, and, of course,like everyone, they wanted to hear weather reports. When they did listen to music,



it was most often gospel, where they could sing along, feel closer to God, and feelhope for the future. They all said that the radio eased their isolation and helpedthem to feel safer and more secure at night. Most told me that they listened to theradio the entire time they were awake.

Children as Design Consultants and the Birth of an Idea

However, those original radios had serious limitations. The handle would windonly in a clockwise direction and if it was turned counterclockwise, it would break.Also, children snapped off the antennae and used it to herd goats or to stir the foodin their cooking pot. For those to whom the radio played such an important role,a breakage was devastating. It made me realize that we needed to design a radiothat would overcome the limitations of those original black spring-powered radiosand create a new one specifically engineered for children living on their own, aswell as for distance education.

I asked these users what would be the “perfect” radio. They wanted a radio thatdidn’t need batteries, that could play for many hours with loud voices they couldunderstand, would be easy to operate, and wasn’t black (it got too hot to hold whenin the sun). Girls told me that if it was shaped like a handbag they could carry it


A girl following the radio teacher, Mrs. Musando, and writing numbers on the black-board in Lusaka, Zambia. The “mentor” or voluntary teacher looks on. The distanceeducation program, "Learning at Taonga Market", is a collaboration between theEducation Development Center and the Ministry of Education.

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Kerosene’s Deadly Side Effects

The World Bank estimates that 780 million women and children worldwideinhale kerosene fumes that are the equivalent of smoke from two packs of ciga-rettes a day. Two-thirds of female lung cancer victims in developing countries arenon-smokers. In Africa, local health workers cannot perform even basic proce-dures effectively after dark without light. Pit latrines have been built acrossAfrica to combat diseases, but many people still use buckets by their bedside atnight for toilet use. There are risks like snakes and other dangers—real or imag-ined—just walking to a toilet in the dark. Children are afraid to walk at nightwithout a light. Malaria kills more than a million children each year in Africa,and mosquito nets, though effective, may catch fire if a candle or kerosene lampis placed too close to the net. In South Africa alone thousands of shacks catch fireeach year, claiming the lives of between 2,500 and 3,000 people. Many thousandsmore suffer serious burns, which carry lifelong physical and psychological scars.Children drink kerosene believing it to be water.

In the last year, we undertook lighting needs assessments of very poor andvulnerable families (child- and granny-headed households) in rural and urbanslum areas in South Africa. We found that child-headed families mainly depend-ed on the generosity of neighbors for candles and matches. Only in householdswith a live-in grandmother, who received a government pension, did we findthat families could afford to burn kerosene. Children described how they had toshare a candle to study, either by taking turns or cutting it in half. If childrenstudied by kerosene, they complained that they could only do so for a few min-utes at a time, citing the noxious fumes and their eyes becoming red and sore.Many commented on how “stressed” they felt when using candles or kerosene.

To diminish dependency on fuel-based lighting and toxic batteries, theFreeplay Foundation is working to provide lighting solutions that rely on effi-cient and bright light emitting diodes (LEDs) powered by a robust hand crankand coupled with solar power. The first of our new range of portable lightsources, called Lifelights, has recently been field tested in South Africa. For thisproject, we’re working to move beyond women’s participation as only con-sumers. We plan to launch a sweeping effort called “Women Lighting Up Africa,”in which women will be engaged in every step of our Lifelight effort. It willincorporate replicable, scalable micro-lending and micro-business schemes forAfrican women to start their own small energy businesses to rent or sellLifelights and power low-energy devices. With World Bank DevelopmentMarketplace funding, we piloted an income-creation initiative in Rwanda,whereby women used a Freeplay foot-powered generator to earn fees for charg-ing cell phones, small LEDs, and other devices. “Women Lighting Up Africa”would build on those successes and lessons learned.


into the fields so they could listen while they were farming. My interviews and theirsuggestions would drive the birth of a radio that would correct the faults of theoriginal design and would be called the Lifeline.

I returned from my interview trip in late 2000 committed to developing thisradio. Few people, with the exception of Rory and my team, thought this idea hadtraction or a market. It would be fair to say that I responded like a single-mindedzealot. But the idea made sense to me. And to its credit, the Lifeline radio has hadan unbelievable impact since I launched it in a Tanzanian refugee camp in 2003.Aid and development organizations working in Africa recognize the Lifeline as avaluable tool in their arsenals, and seldom a week goes by that the foundation isnot asked to donate Lifeline radios to some good project or another.

The development of the Lifeline radio began with an unexpected success—winning the first Tech Museum of Innovation Award for Technology BenefitingHumanity in November 2001. I had learned about the award, brand-new that year,24 hours before its submission deadline. My colleague, Michelle Riley, and I


A Rwandese secondary school boy studying by his Lifelight. It replaced a kerosenelamp made out of a tin can, which stung his eyes and made his throat hurt from thenoxious fumes.

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dropped everything to submit a paper on the concept of what would become theLifeline radio. The committee named us as finalists, but I doubted whether in thehigh-tech heartland the judges would “get” analogue radio. They did, and we usedthe $50,000 grant to fund the research and development of the radio. FreeplayEnergy’s engineering team was true to the design brief created by the children inRwanda, and every progressive prototype of the radio was field tested in focusgroups of Rwandan, Kenyan, and South African orphans who had little or noexposure to technology. I learned only afterwards that our Lifeline project teamhad instinctively followed the Lemelson Foundation’s proven “Idea to Impact”process.10 The funding from the Tech award, combined with additional grants fromVodafone Group Foundation, Anglo American, Leonard J. Fassler, and technologypioneer Brad Feld, enabled the Lifeline to progress from concept to market in just24 months. Exactly two years after the Tech Award application was submitted,Devotte Hafashimana, a shy 17 year-old Burundian refugee living in a Tanzanianrefugee camp, became the first Lifeline radio recipient as part of a Voice ofAmericasponsored project.


These Weza pioneers in Zambia earn income from charging cell phone and other smalldevices


The Many Facets of Energy Poverty

With our Lifeline radio efforts solidly in place and growing in communicationsprojects across Africa, it was clear we had to continue to innovate if we were tobegin to close the gap, especially for the abjectly poor. In 2007, my attention turnedto another energy inequity, specifically how the Freeplay Foundation could helplight up Africa. My own evenings in the dark in Africa showed me the link betweenenergy poverty, lighting, and the pressing issues of health, education, and produc-tivity in rural communities. Something as simple and straightforward as safe light-ing could transform people’s lives immediately.

The overwhelming majority of Africans lack access to modern energy. Theyspend anywhere from 15 to 40 percent of their meager incomes on candles andtoxic kerosene (a diesel fuel) and batteries for flashlights. Forests are denuded inthe quest for firewood for cooking, which also provides residual lighting.Furthermore, the majority of Africans live near the equator, where the sun risesand sets at the same time every day. People have to finish up their activities beforethe sun goes down, and after a hard day of scratching out a subsistence living, arural African has little light remaining to study, read, or undertake income gener-ation tasks like sewing or weaving. The brunt of energy poverty, like all aspects ofpoverty, is borne by girls and women. Self-powered lighting could provide addi-tional productive hours each day for those who have so little.

Lighting projects that utilize Freeplay technology are progressing through theirdevelopment stages, and I have continued to plan for new product development


Pokot women under a tree in the West Pokot district of Kenya. This was the first radiothat they had ever owned.

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opportunities. For example, we are adapting the Lifeline radio to include MP3capability to help revolutionize rural information delivery. The content possibili-ties for an MP3-enabled Lifeline radio would be limited only by one’s imagination.Educational, agricultural, environmental, peace building, climate change, basicfinancial literacy, and health programming could all be recorded onto a memorystick. For rural schools, which depend on radio distance instruction, an MP3Lifeline radio could replay lessons on demand, and repeatedly for those with learn-ing disabilities, at a time convenient for pupils. Audio content from computers atrural telecentres and Internet cafes can be downloaded and played back later on amemory stick in local communities when they had time to listen.

The further extension of educational content is only one application of anMP3-enabled Lifeline radio. This innovative device will help bridge the gapbetween radio and the Internet, making pre-recorded content available on anysubject 24/7 without electricity or expensive disposable batteries. The introductionof recorded content to the Lifeline radio will significantly increase the effectivenessof reaching even larger populations, including those living in isolated areas andpastoral and nomadic communities in their own languages. Every technology hasits limitations, and radio is no exception—in some parts of Africa, reception canbe poor and inconsistent, especially in mountainous terrain and in stormy weath-er. The dependable wind-up and solar charging systems of the Lifeline radios willwork equally well with a low-power consumption MP3-enabled device. As was thecase with the successful Lifeline radio, the Freeplay Foundation believes there is asignificant demand for an MP3-enabled radio. We plan to begin field trials early in2009.

When products are developed for Western consumers, end-users are consult-ed, as companies don’t want to make mistakes in their highly competitive environ-ment. However, product options for “majority of the pyramid” end users are oftenlimited and of inferior quality. Our approach employs rigorous field trials in orderto fully understand for what purpose and how a radio or light is to be used, care-fully considering the ergonomics and other factors that impact a product and its


Gender Bias in ICTs

Gender bias remains a tangible issue in Africa with all information and commu-nication technologies (ICTs). Every technology has a gender bias in Africa, driv-en by restrictive cultural, traditional, religious and economic factors.Economically, women have less money for radio batteries, mobile phones, airtime and Internet use. Rural Internet telecenters have far fewer girls and womenusing them. Working in fields, households, and doing chores, they simply don’thave the time, and on the whole women are less literate than their male counter-parts. In any ICT initiative, including radio, the needs and circumstances ofwomen and girls must be considered and catered to in order to maximize theirchances for inclusion in all forms of information delivery and transfer.


use. The poor deserve quality, safe products and proper instruction in their use,whether it is a mosquito net, a solar home cooker, a lantern, or a radio.

The Difficult Path to Funding

I hadn't expected to have the level of emotional engagement with this work andthis also applies to fundraising which is a constant squeaky wheel. Designing pro-grams and implementing projects in Africa is deeply rewarding. Weeks can bespent putting your heart and soul into writing a proposal you know that wouldbenefit thousands of children. Then with all the 'warmth' of a bank manager, arejection email arrives from someone who may never have been invited into a ruralhome, met a child orphaned by AIDS, or even visited Africa for that matter. It is ademoralizing experience which is all too frequent in the non-profit sector. Manydonors demand low overheads but allow no way to recoup time and admin costson an unsuccessful proposal. It takes the same amount of staff time and resourcesto raise $10,000 as it does $200,000 and may attract the same reporting require-ments. I've encountered donors who have asked me to revise our proposals to suittheir own outcome needs. This would not happen in business when an investorinvests in a stock, as they wouldn't require the company to rework its business planto fit their special interests. Unrestricted funding allows a non-profit the flexibili-ty it requires, but is the most difficult support to obtain. From my vantage point,the donor relationship and sometimes even the project itself is most successfulwhen all parties treat each other with trust and as equal partners.

To ensure a more reliable income stream and to partially negate the reliance ondonor and grant income, we have established the for-profit Freeplay FoundationTrading Ltd. (FFTL). This trading company will procure all products for thehumanitarian sector for either by the Freeplay Foundation or other aid agencies.Profits earned will accrue to the foundation to support our work as unrestrictedfunding. Given the "hit" that charitable organizations will take in the near andmedium term due to the global financial crisis, this trading arm contribution willprovide necessary cover for our non-project overhead expenditure.

Non-profits rely heavily on sponsors and patrons, particularly during uncer-tain economic times. The Freeplay Foundation is very grateful to our strong sup-porters, including the actor Tom Hanks. Tom encountered Freeplay technology onhis own and has since helped to fund several Freeplay Foundation projects. Hetakes a real interest in the new applications of Freeplay technology, and is the pri-mary funder for both our lighting research and development and for the creationof the new MP3-enabled Lifeline radio. Tom provides priceless visibility by servingas our American Ambassador, which he has done since 2003.

Political and Bureaucratic Barriers to Development

The success, quality and vibrancy, of many community radio stations in Africahave a great deal to teach those in the development sector in other regions of theworld. As media has become liberalized both economically and politically on thecontinent, Africa has led the way in establishing community-based radio stations,


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which broadcast in local languages to nearby populations. Lifeline radio recipientstell us news programs are most popular, exemplifying my belief that having accessto information from diverse sources is a basic human right. However, control ofinformation for political aims persists in many countries, to the detriment of itscitizens who are left with hearsay, rumor and government propaganda. In addi-tion, male-dominated social structures may detour accurate and helpful informa-tion away from women and vulnerable children.

Mistrust of government-owned news sources is prevalent in many Africancountries, and it is no wonder then that when asked, many listeners choose foreignnews services like the BBC and Voice of America as their primary informationproviders. In Zimbabwe, any outside source of information accessible by the pub-


The Pressure Toward the Charitable Model

High import duties, corruption, bureaucratic barriers…the African economicenvironment is fraught with protectionism and inefficiency that close thosecountries to business, development, and the distribution of much needed goodsto an underserved market. In the developing world, price is everything, but mostproducts cost more in Nairobi than in New York because of the expense of wran-gling with inefficient bureaucracies and taxes. These forces make the charitablemodel the only alternative to organizations like Freeplay, and to this day theFreeplay Foundation, as well as other humanitarian organizations like theUnited Nations and the Red Cross, remain our biggest customers preciselybecause of their exemptions from duties. Even despite these exemptions, battleswith government customs in some countries make delivering needed productsto African communities an extremely expensive endeavor. Despite the incomegeneration aspects of many of the Freeplay Foundation’s programs in Africa, thepotential increased tax base is overlooked in favor of the short-term gain fromduties.

Although some argue that domestic manufacture avoids the high cost ofimporting, the scale of a country’s domestic market and the cost of importing adevice’s components when none are available in country must be taken intoaccount. The African continent contains an estimated 955 million people in 54countries, each with a sovereign government and bureaucratic apparatus withwhich one must deal individually.* India also has a high import duty, but has abillion people under one government. They have an enormous scale and adomestic manufacturing base, and Freeplay has an incredible opportunity inthat country to reach people who can benefit from our product and acquire it ata price they can afford.

* Almost 800 million people live in the 47 countries of sub-Saharan Africa, and the U.S. govern-ment expects the population to increase by one billion by 2020.


lic—and especially the Lifeline, with its two shortwave bands—could pose a threatto government control

In Kenya, during the political crisis following the disputed presidential elec-tions, I was pleased that our radios provided access to foreign news services whichoffered much needed, trusted information during a very unsettled time for thatcountry. However, the process by which the radios got into Kenya in the first place

illustrates how manyAfrican governmentshave made developmentwork and providingaccess to information likeclimbing a ladder withoutrungs. Late in 2004,10,000 Lifeline radios,jointly funded by theVodafone GroupFoundation andSafaricom Fondationlanded in Kenyan cus-

toms, where they languished for 30 months. A government ministry was deter-mined to extract more than $100,000 in duties from us. Despite filling out all ofthe forms according to their instructions, clear labeling in multiple languages thatthe radios were not for sale, together with reams of paperwork describing the var-ious humanitarian projects in which the radios would be used, the civil servantsremained intransigent and apathetic.11 More than half the radios were earmarkedto support the government’s own educational broadcasts, but no one cared.

The situation was outrageous. Amid claims of lost paperwork, expired forms,bureaucratic doublespeak, and months spent chasing up the finance ministry, Ibecame intensely disheartened. Regardless, we had a moral and ethical to both ourdonors and the people whom we sought to serve and we persevered. Finally, achange of ministers and support from more enlightened government officialssecured the release of the radios from customs without anyone asking for anythingin return. However, our entire distribution and training budget had been eaten upthrough this process. Vodafone Group Foundation generously made another grantthat enabled us to cover our local distribution and training costs. Unilever wasextremely helpful in assisting us with offsetting some of the transport costs, andwith the assistance of our partner organizations, like Plan Kenya, UNHCR, PATH,Tegla Loroupe Peace Foundation, and the Kenya Met Service, we were able to dis-tribute almost all 10,000 radios in three months across the country to impover-ished and underserved communities.

Reflections on the Foundation’s First 10 Years

In the ten years since I started at Freeplay Foundation, bureaucratic bottlenecks


AM, FM, and shortwave radioaren’t exactly sexy technologies,but ... radio remains the onlytechnology that has the potentialto reach entire populationsimmediately and cost effectively.

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like the one noted above have continued to be a threat to constructive developmentwork. But positive changes also have occurred. The social enterprise sector hasdemonstrated incredible potential, and market force trends for non-profits haveaccelerated the rate at which things get done and systems get changed. Despitethese changes in the global economy and innovations in the methods of philan-thropic organizations, we are still able to utilize an existing, perhaps almostantique, technology in new and innovative ways. AM, FM, and shortwave radioaren’t exactly sexy technologies, but despite the emergence of computer-basedplatforms for health and education, radio remains the only technology that has thepotential to reach entire populations immediately and cost effectively. It providesbenefits not easily measured, like easing isolation; providing safety, security, and avoice people can trust; feeling safe at night; and education about food, health, andtaking care of children and animals. Information and education spread via radiocan change people’s lives overnight, and a turn of a knob opens their world—pro-vided they have access. Therein lies the role for technology in transcending the lim-its imposed by energy poverty.

CONCLUSION. BY KRISTINE PEARSON AND RORY STEAR.

Our friend and mentor Anita Roddick long ago observed to us that business oftenmeasures the wrong things. In the journey we have shared over more than a decadewith Freeplay Energy and the Freeplay Foundation, we have had many occasionsto reflect on Anita’s insight.

For Freeplay Energy, the discipline of market acceptance has tested our strate-gic vision time and time again. At the outset we measured ourselves by the stan-dard of technical ingenuity. We focused almost entirely on developing market-leading technology. We grew rapidly, but neglected to assess risks to our businessmodel or to focus adequately on costs. Our learning over time has placed us in aposition to achieve the impact to which we have long aspired. We fully expect thatsuccess for Freeplay Energy in the future will be reflected in conventional businessmetrics, as the market opportunity we have the possibility to create is substantial.However, for Freeplay Energy just as for the Freeplay Foundation, we will certain-ly miss the mark, miss the moment, if our planning and self-assessment is focusedon quarterly reports to our respective boards.

For all of the emphasis that is rightly placed on the need for institutional sus-tainability, enduring as an organization still matters less than providing a qualityservice to people. At Freeplay Energy and at the Freeplay Foundation, we are veryserious about getting self-powering radios and lights into homes, and getting thekerosene, candles, and batteries out. Over the coming decade we look forward totallying with great pride the number of women, children, and men whose dayshave been extended, minds have been expanded, and opportunities have beenenhanced, thanks to our products.

But we are also serious about keeping with us the words, and the spirit, ofAnita Roddick. We are providing radios not for the hours of programming they



deliver, but for the feelings of pride, dignity, comfort, and empowerment that theradios offer. We are providing lights not for the increased average household earn-ings that can result from an extended workday, but for the moments of hope,promise, and happiness that increased opportunities create.

No one reading this essay will ever know the courage it took for a 17 year-oldboy to enroll in first grade radio school to get over his humiliation at not being ableto read money, or the anxiety of a tired schoolgirl trying to finish her reading les-sons before her stub of a candle burns out, all the while afraid she might fall asleepand accidentally tip it over while it is still burning. No one among us will likely feelthe anguish of a refugee who, having lost his home and been separated from hisfamily, is then deprived of any information that might be a guide to safety as a con-sequence of the simple fact of a dead battery. We believe that we will have succeed-ed when this and the many other human moments of angst, pain, and deprivationthat follow from energy inequities gradually resolve—like the system of apartheidwe saw crumble as this venture was born—into the fading scars of history.

Acknowledgements

The authors thank Adam Hasler, Winthrop Carty, and Philip Auerswald for theirassistance in preparing this case narrative.

1. John P. Holdren and Kirk R. Smith, “Energy, the Environment, and Health,” in The World EnergyAssessment: Energy and the Challenge of Sustainability, ed. Jose Goldemberg, New York: UNDevelopment Programme, 2000, pp. 61-110.

2. Nelson Mandela was released from Victor Verster Prison on February 2, 1990. Once freed, he againbecame active with the African National Congress in negotiating for multi-racial elections inSouth Africa and an end to apartheid.

3. Chris Hani, head of the South African Communist Party and a participant in the African NationalCongress’s negotiations for multi-racial elections, was shot outside of his home in Boksburg,South Africa on April 10, 1993.

4. Q.E.D. was a BBC science documentary that aired in the United Kingdom from 1982 to 1995. Theepisode “Clockwork Radio,” aired on August 8, 1995.

5. Gordon and Dame Anita Roddick, the now deceased founders of Body Shop International, havewide fame as supporters of environmental, animal, and human rights issues. Four out of thisyear’s five finalists for the U.K. Social Entrepreneur of the Year award noted Gordon as a support-er of their projects.

6. Hostage negotiator and special envoy to the Archbishop of Canterbury, Terry Waite became inter-nationally known when, between 1987 and 1991, he was held in solitary confinement as a hostageby the Hezbollah. He is now an active writer and lecturer on humanitarian issues.

7. “Freeplay’s Fast Track,” BusinessWeek, January 10, 2000, p. 82.8. “2001 Inventions of the Year,” Time.com, November 11, 2001.9. Registered in Berne, Switzerland in 1998, Media Action International is a non-profit organization

of professional journalists that monitors crisis reporting in the developing world to ensure itsaccuracy and compliance with international journalistic standards.

10. See “From Idea to Impact: Funding Invention for Sustainability” by Julia Novy-Hildesly,Innovations 1(1), Winter 2006, for more on the Lemelson Foundation and the “Idea to Impact”social enterprise model.

11. U.N. agencies have bi-lateral agreements with host nations and received duty/VAT exemptionsas a norm, but it is not always possible to partner with the UN.


Together the Freeplay Energy Group and Freeplay Foundation represent an excit-ing and dynamic case of social innovation and entrepreneurship. We haveobserved the Freeplay business model grow and change over the past five years,since we began teaching this case study in courses on entrepreneurial strategies forsocial impact at IESE Business School in 2003. The case is an important one forseveral reasons. As a complex illustration of social innovation in practice, it helpsus to understand the ways in which business and social goals can be both simulta-neous and complementary. It generates insights for education and for the nextgeneration of managers and entrepreneurs to adopt out-of-the-box thinking andto make the “social” in social entrepreneurship obsolete as entrepreneurship natu-rally comes to involve “social” opportunities. As a relatively new field of research,social entrepreneurship offers scholars a “source of explanation, prediction anddelight”;1 a unique opportunity to rethink assumptions and concepts from differ-ent fields of management and social science research. Theorists working on socialentrepreneurship will find that the Freeplay case helps us to identify key featuresof the phenomenon, each of them providing stimulating spaces for researchers,not only to contribute to emerging theory but also to enlighten and challenge ourexisting paradigms.

© 2009 Johanna Mair and Kate Ganlyinnovations / Davos-Klosters 2009 61

Johanna Mair and Kate Ganly

Social Entrepreneurship as Dynamic Innovation

Innovations Case Discussion: Freeplay Energy and Freeplay Foundation

Johanna Mair is Associate Professor of Strategic Management at IESE Business Schoolin Barcelona, Spain. She teaches corporate strategy and entrepreneurial strategies forsocial impact and has written numerous teaching case studies of social entrepreneursand their organizations including the Freeplay Foundation. In 2007 she was recog-nized as a “Faculty Pioneer” by the Aspen Institute and received the “Ashoka Awardfor Social Entrepreneurship Education”.

Kate Ganly is a research affiliate of the IESE Platform for Strategy and Sustainabilityand holds an MSc in Anthropology and Development from the London School ofEconomics.


Innovation

When Rory Stear recognized the potential of commercializing human-poweredwind-up energy, he saw a business opportunity in the field of renewable resources.However, he was also imagining a market in Africa that did not yet exist: he hadgrasped the power of the technology for use in contexts of deep poverty. The“innovation” in this case study has many different elements, but at its heart is Roryand Kristine’s ability to shape organizational vehicles that bring Freeplay productsto existing markets and also help to create new ones. The Foundation’s efforts tosupport and encourage energy “microentrepreneurs” supplying their communitieswith battery-charging services for their mobile phones or self-powered lightingproducts is one such example.

We view social innovation as the mechanism that defines social entrepreneur-ship. A mechanism that involves experimentation and leads to the generation ofsolutions to old and new problems. Although some persist in viewing innovationas merely limited to invention, we view innovation as a process that achieves goalsand objectives by rejecting institutionalized means and experimenting withunconventional, often unaccepted or deviant, practices and tools. In a recentpaper, Phills, Deiglmeier, and Miller2 reflect on the meaning of social innovationand see it as being composed of four basic elements: the process of innovating(generating a novel product or solution); the product or invention itself; the diffu-sion and adoption of the innovation; and the ultimate value created by the inno-vation. In the case of Freeplay, the invention itself, the wind-up technologylicensed by Rory Stear, becomes a significant social innovation only through theprocesses of developing products to satisfy social needs and solve social problems,and of creating different organizational vehicles, not only to bring those productsto existing markets but to diffuse the innovation throughout regions where mar-kets have failed. The overall value created by this type of innovation is far greaterthan the sum of its parts.

We must reshape our heroic view of innovation as “invention” and broaden thescope of what we consider innovative to include interventions for social good,whether they focus on technology, structures, or processes and mechanisms. Socialinnovation often involves overcoming important bottlenecks that prevent the mar-ginalized and the poorest from accessing the benefits of many technological andsocial advances. For example, the innovation of Aravind Eye Hospitals3 was theability to make eyecare affordable to even the most indigent patients and to extendits reach into rural areas without sacrificing quality. Freeplay further demonstratesthat products aimed at social good do not have to sacrifice aesthetics either.

Companies should take this type of social innovation seriously because it oftenprovides “proof of concept” in the most difficult circumstances: i.e., if wind-upradios can work in the remotest, most deprived areas of sub-Saharan Africa, theycan work anywhere. A similar case is provided by SEKEM in Egypt; if biodynamicagriculture can be successful on a large scale in the Egyptian desert, then it can besuccessful anywhere.4 Another reason why companies should look to social entre-



preneurs for models of innovation is their flexibility and ability to create the feed-back loops that allow organizations to scout for unintended consequences andrefine outcomes at an early stage of the innovation process, and to quickly inte-grate these refinements into product design. In the Freeplay case, for example,early feedback from Kristine and the Foundation on the fragility of radio aerials(and their attraction for other uses) led to a reengineering of the original Lifelineradio into something far more durable and user friendly.

Experimentation

Another key element of social entrepreneurship exemplified by Freeplay is that ofexperimentation. The case corroborates our view of social entrepreneurship as adynamic explorative space, not only in the realms of product and service offeringsbut also experimentation with business models, organizational forms and owner-ship structure. The experience of Freeplay demonstrates that social entrepreneur-ship business models are not static. We can see from the case history that there isa constant shifting of elements within the overall model, as well as reconfiguringof activities from R&D to distribution. Experimentation goes hand in hand withthe flexibility to rethink resource configurations and to change or adapt elementsof the business model to align more closely with long-term objectives. This is a fea-ture of Freeplay’s innovative approach.

Freeplay has experimented with many different organizational forms: first theFreeplay Group encompassed all the company’s activities; then the Foundation wascreated as a separate entity to fulfill a specific social mission. Following this, theprivate company underwent an IPO in order to raise cash and simplify the struc-turing of debt. Most recently, Stear has taken the business private again so that heand his business partners have more control over its strategic direction. Freeplayoffers perhaps an extreme case of experimentation with different organizationalforms, and, as such, it provides an excellent illustration of the wide variety of formsthat social entrepreneurial ventures can take. Social entrepreneurs are increasinglyexperimenting beyond the traditional non-profit and charity vehicles, especiallywith hybrid forms and partnerships. In fact, the organizational form itself becomesan important element or tool in the overall model for increasing social impact. Inother words, it becomes a resource that is integrated into the total business modeland must be aligned with the other elements and structures. A part of this experi-mentation with organizational form has been Stear’s tinkering with the ownershipstructure—something that is perhaps not yet resolved and may yet see more exper-imentation.

Resourcefulness

Given the limitations posed by raising funds, both through markets and privatesources, social entrepreneurs have to be particularly resourceful. In the early stagesFreeplay was able to access funds from different sources, such as the grant from theU.K.’s Overseas Development Administration (now called the Department forInternational Development [DFID]) to develop the wind-up technology. Today

innovations / Davos 2009 63


governments and multilateral institutions are offering funds to a wide variety ofactors and organizations developing market-based solutions to global social prob-lems. This trend is definitely a positive one. The World Bank’s DevelopmentMarketplace is perhaps the best known of these schemes and has, to date, support-ed 201 winning proposals by a broad array of actors, including NGOs, academicinstitutions, private businesses, and government agencies, as well as various part-nerships between each of the above. However resources, or at least financialresources, are not the bottleneck for developing solutions to social problems.Rather, it is the flow of new ideas and innovation—in the unconventional, behav-iorally deviant sense discussed above—that needs to be nurtured and encouraged.In this respect, it is therefore extremely positive that development funding is nowoffered on a competitive basis for good ideas and no longer based solely on therequirements of legal form (such as non-profit or NGO).

Partnerships

Among Freeplay’s various experiments with organizational structure was the deci-sion to carve out a completely new organization that could specifically pursue thesocial goal of bringing wind-up energy products to poverty-stricken parts ofAfrica. The resulting Freeplay Foundation has a non-profit structure and the mis-sion of “transforming lives through dependable, self-sufficient and environmental-ly friendly technologies”5 Not only has this enabled the Freeplay company to con-centrate on developing and marketing new products, it has also led to a productiveand symbiotic relationship with the Foundation that has resulted in considerablesales to the humanitarian sector. The Freeplay Foundation continues to be a sourceof innovation and creativity for the company by remaining close to low-income(and even no-income) potential markets and providing a link to the developmentsector, which represents a significant proportion of Freeplay Energy’s sales rev-enue. The Foundation also has an important role to play in accessing resources forfurther experimentation with suggestions for new products and new uses for prod-ucts developed by the company. The Foundation’s winning entry in the WorldBank Development Marketplace, for example, allowed the Foundation to pilot aproject to create micro-enterprises by equipping entrepreneurs with a Weza foot-powered generator that could charge mobile phones and batteries. This has led tofurther experimentation with Freeplay lighting products for a similar market.

The symbiotic partnership between the Foundation and the company allowseach the independence to concentrate on their core strengths: for Freeplay Energyit is product development and sales through existing market channels; for theFreeplay Foundation it is reaching the unreached with energy solutions that canhelp solve social problems.

We take a dynamic view on partnership. In the case of Freeplay, the synergy isgenerated from the flow of resources both up and down the value chain: theFoundation is able to distribute to unreachable areas downstream, while thestrength of the company is to push the technology frontier with product innova-tion upstream.



This kind of synergy leads to the fourth element of innovation identified byPhills and colleagues: the ultimate social value created, which can be multipliedthrough partnerships to produce something greater than the sum of its parts. Theimportant lesson here is that we should not view partnerships as static any morethan we see innovation or organizational form as static. Each partner developsover time. Thus, while we see Freeplay Energy experimenting with form and struc-ture, we also see the Foundation spinning off a for-profit arm to create a reliableincome stream through the sales of Freeplay’s humanitarian products to the devel-opment sector.

Positive examples of symbiotic partnerships involving social entrepreneurs arebecoming more and more common. There has been a trend towards cross-sectoralbusiness groups that combine non-profit and for-profit organizations under theone umbrella. This is exemplified by the SEKEM group, which consists of five dif-ferent companies selling different biodynamic products (from cotton to phy-topharmaceuticals), a non-profit entity committed to social development and acooperative formed by its employees. Another example is a recent Skoll awardee,Thailand’s Population and Community Development Association (PDA), whichmaintains a similar separation of business and non-profit activities so that the for-mer can provide a reliable and unrestricted income stream to the latter. One couldalso point to the synergy between Aravind Eye Hospital and its surgical productsmanufacturer Aurolab.

Even more encouraging is the increasing incidence of creative partnershipsand joint ventures between social entrepreneurial initiatives (particularly non-profits) and companies. An example is the partnership between the Bangladeshirecycler WasteConcern and the national fertilizer company MapAgro. Previousresearch6 has examined how WasteConcern sought a processing and distributionpartner for the raw organic compost it was producing from Dhaka city’s waste, andby so doing managed to build an entirely new (and profitable) market for organicfertilizer. We hope to see more innovation and experimentation with partnershipsalong these lines.

Learning

A final attribute we want to discuss here that is shared by social entrepreneurs isthe ability to learn from their mistakes and to incorporate learning strategicallyinto the business model.

Social entrepreneurs do not act in isolation. Rather, their actions are embed-ded in social and economic realities—the same realities that give rise to the kindsof social needs and market failures they are addressing. As a result, their actionstend to provoke and be affected by competitive forces. This is why it is importantto understand the dynamism that is an integral part of social innovation. Above all,the raison d’etre of social entrepreneurs is to trigger change.

Therefore their business models must be equipped to react to change.Moreover, because their social mission is ultimately what is at stake here, it is even



more important that the business models of social entrepreneurs adapt very quick-ly to changes in the competitive landscape. They must be able to judge opportuni-ties based on both social impact and the financial bottom line in order to be sus-tainable. This requires the kind of agility we see in Freeplay Energy and theFreeplay Foundation: the ability to rearrange activities, resource configurations aswell as competitive tactics while maintaining the anchor of a social objective thatdetermines long-term strategy.

In a fast-paced and ever-changing environment where opportunities constant-ly emerge and quickly cease to exist, an ability to adapt strategy and incorporatelearning is vital to long-term stability. We believe this should provide an encour-agement to social entrepreneurs to share their learning and, in particular, to share“what does not work.” Case studies such as this one offer an opportunity to bothpractitioners and researchers to do just that.

Conclusion

This case presents some of the most important elements of the phenomenon ofsocial entrepreneurship and offers a variety of insights into how innovation can beharnessed to fulfill both social and commercial goals. Freeplay exemplifies our cen-tral premise that innovation is far more than just “invention”: it represents anexciting space for experimentation and a dynamic strategy for achieving socialchange which can be seen as the ultimate value created by the innovation. In fact,it is the adherence to a social objective that not only determines strategy, but alsoprovides the authenticity to manoeuvre in the ocean of change that is the compet-itive landscape.

1. J. Mair and I. Marti,. “Social Entrepreneurship Research: A Source of Explanation, Prediction, andDelight,” Journal of World Business, 41(1), 2006, p. 36.

2. J. Phills, K. Deiglmeier, and D. Miller, “Rediscovering Social Innovation,” Stanford SocialInnovation Review, Fall 2008, pp. 34-43.

3. K. Rangan, and R. D. Thulasiraj, “Making Sight Affordable. Innovations case narrative: TheAravind Eye Care System.” Innovations, 2(4), Fall 2007, pp. 35-49,

4. I. Abouleish, and H. Abouleish, “Garden in the Desert: Sekem Makes Comprehensive SustainableDevelopment a Reality in Egypt,” Innovations, 3(3), Summer 2008, pp. 21-48.

5. Mission statement from Freeplay Foundation website:http://www.freeplayfoundation.org/who_we_are.html. Accessed: 11-14-08.

6. C. Seelos and J. Mair 2007. “Profitable Business Models and Market Creation in the Context ofDeep Poverty: A Strategic View.” Academy of Management Perspectives, 21(4), 2007, pp. 49-63.


As I read this case, it struck me that:• Tension arises when a social agenda competes with a business agenda,• Successful products absolutely must have good design, and• It is very difficult to get empowering technologies into the hands of those who

will benefit most.

BUSINESS MODEL

The serendipitous combination of media attention, famous personalities, andpolitical and market restructuring gave Freeplay the foothold it needed to becomea viable organization. But it was the ability to evolve its business model and prod-uct line that has given the enterprise a life of 14 years and will be the key to its con-tinued success.

Freeplay’s original business model was a single organization that used itsprofits from sales to those with sufficient means, along with donor funds, tosubsidize distribution to those who could not afford the technology. AravindEye Hospital, whose wealthy patients support operations for the poor,1 and OneLaptop per Child, with its buy one, give one approach, have shown some levelof success with this model in organizations where the social goals dominate.Freeplay, looking for a more balanced approach, recognized the need to sepa-rate the for-profit and nonprofit sides of its original organization and chose tomove to a strategic alliance of the two.

In The Collaboration Challenge, James Austin explores the creation ofstrategic alliances between nonprofits and businesses. He describes the stagesan alliance goes through, from purely philanthropic (typically one-way),

© 2009 Christopher Bullinnovations / Davos-Klosters 2009 67

Christopher Bull

Freeplay’s Dual Business Models Bring Good Design to Those Who Need It

Innovations Case Discussion: Freeplay Energy and Freeplay Foundation

Christopher Bull is a senior lecturer at Brown University working in the fields of mate-rial science, technology for development, and social entrepreneurship. He is involvedin several aspects of water and agricultural projects in Kenya and public health inMali.


through transactional (with a flow of resources in both directions), to integrat-ed, even to the point of having common board members. In this light,Freeplay’s example is striking. It chose to move from being fully integrated tohaving a more transactional relationship. The motivation, one might surmise,was to free both organizations to pursue strategies that best fit their specificgoals. The business side could make decisions with profit as the driver, usingaccess to market capital and having a clearer conscience about its manufactur-ing operations. The foundation gained the ability to raise funds directly andchoose partners and projects independently. Although the foundation is anentirely separate entity, it is hard to imagine that the talk in the Pearson-Stearhousehold does not frequently turn to the intersection of the two.

What is the symbiotic relationship between the organizations? The FreeplayEnergy Group (FEG) needs the Freeplay Foundation (FF) to help fulfill FEG’ssocial mission, to inform the design process, and to facilitate product distribu-tion. In turn, the foundation relies on FEG for funding and product. In somesenses, the foundation has benefited more from the alliance: it appears to havebeen relatively stable, compared to the rough ride FEG has endured over thepast ten years. That ride was the result of decisions it made about manufactur-ing, the vertical integration of the organization, and the business climate inwhich it has operated. Separating the organizations shielded the foundationfrom these issues.

What effect has the choice had on the impact of each organization? Thefoundation receives $230,000 annually from the business and, by having signif-icant input into its development, has gained a range of products (radios, elec-tric generators, and lighting) designed specifically for its clients. The business,on the other hand, struggles to retain clarity about its social goals and to sell theproducts it develops for the foundation in developed-country markets. Giventhe rapid change of technology and the changing web of needs and resources,it must continuously adapt.

DESIGN

Design is central to both organizations. Rory places research and developmentsquarely at the core of the business. Kristine points to understanding the user’scontext and needs as one of the foundation’s most important functions. The objec-tive is to deliver good technology (and perhaps something with “sex appeal,” asRory puts it) to an extremely broad range of consumers.

Consider that the amount of use a tool gets depends not only on its meet-ing the need but also on its look, feel, balance, intuitiveness, reliability, efficien-cy, and simplicity—and the list goes on. Add to this the more elusive qualitiessuch as the way it fits the context and the confidence it inspires. The relativeimportance of each of these qualities changes with the circumstances. A look at

Christopher Bull

Freeplay’s Dual Business Models Bring Good Design to Those Who Need It

Freeplay’s current mix of products shows a single function executed in two verydistinct ways. The Lifeline radio, distributed by the foundation, has toy-likequalities: it is big, boxy, and bright. It is designed to be used where people(some of them children) live and work. The radios designed for the E.U. andU.S. markets are small, sleek, and lightweight, designed to be carried away fromwhere people live and work.

Design problems are typically broad and complex; they become broaderand more complex for the 90 percent of the world’s population that typicallycannot pay for research, development, and industrial design. The problem maybe engaged from a variety of directions (technical, cultural, economic), eachwith its own advantages and disadvantages. Nick Moon and Martin Fisherfrom Kickstart,2 and Jan Chipchase from Nokia,3 have demonstrated the pivotalrole of participatory/inclusive design in the success of a product for this risk-adverse market.

Frequently, in products for those without resources, the aesthetic is utilitar-ian, with little thought given to what pleasure the user might find in interact-ing with the product. While this aesthetic might meet the need, it does notinspire the user, and hardly makes it a viable product in developed countries.When your market is as diverse as Freeplay’s, it is a great challenge to create onedesign that works across all contexts.

Empowering Technologies

The great potential for these products to transform users’ lives, powerfully broughtout in the stories of Terry Waite and Fatima, cries for action on many fronts. Whatis the best way to get the technology into the hands of the user? How can you do itin a way that addresses some of the gender bias? How can the cost be driven down?What is the most effective way to organize the endeavor? How do you developtrusted sources—sources that are perceived to be unbiased? Who defines theboundary between information and propaganda? Should the Freeplay radio beconsidered politically neutral or was the Kenyan ministry right in its assessmentthat radio would change the political landscape? The work of Freeplay illuminatesthe many and changing challenges in creatively addressing energy and informationpoverty; it gives hope that a host of well-designed products will be available andaccessible to help meet these challenges.

1 M. Ibrahim, et al, “Making Sight Affordable,” Innovations, 1(3), Summer 2006.2 M. Fisher, “KickStart’s Pumps Help Kenyan Farmers Transition to a Cash Economy,” Innovations,

1(1), Winter 2006.3 Sara Corbett, “Can the Cellphone Help End Global Poverty?” New York Times Magazine, April 13,

2008.


Two roads diverged in a wood, and I—I took the one less traveled by,And that has made all the difference.

—Robert Frost, “The Road Not Taken,” 1920

Empowering the rural poor means developing their capacity. It means developingtheir skills so they become competent decision-makers with the confidence to acton their choices. Thus far, conventional approaches to such empowerment havefailed. The approach that big donors and Western-conditioned experts have takento reach the poor—forget about allowing the poor to develop themselves—hasbeen patronizing, top-down, insensitive, and expensive. It excludes the marginal-ized, the exploited, and the very poor and keeps them from making decisions ontheir own. Thus it disempowers them, leaving them dependent and hopelessly illprepared to improve their lives. Moreover, these “patrons,” however well inten-tioned, have refused to learn from their mistakes. They are stuck in a rut thatwastes money on a process that simply has not worked.

But there is another way to empower the poor. It starts with giving the poorthe right to decide for themselves how they want to improve their quality of life.They must have the right to choose whether they want the urban experts to comeinto their villages with “modern” ideas. They must have access to information andknowledge and the right to decide whether they would like to be independent ofadvice and skills from outside when they already have such incredible technical,

© 2008 Bunker Royinnovations / Davos-Klosters 2009 71

Bunker Roy with Jesse Hartigan

Empowering the Rural Poor to Develop Themselves:The Barefoot Approach

Innovations Case Narrative: Barefoot College of Tilonia

Bunker Roy is the founder of the Barefoot College of Tilonia.

Mr. Roy and the Barefoot College are the recipients of numerous awards including theSkoll Award for Social Entrepreneurship, the Stockholm Challenge Award forInformation Technology, and the Tyler Prize for Environmental Achievement. Mr. Roywas also selected by the Schwab Foundation for Social Entrepreneurship as anOutstanding Social Entrepreneur in 2005.


human, and even financial resources within their own communities. They caneven decide whether some knowledge would be useful if they could adapt it toserve their needs. What they need is the opportunity and space to develop them-selves. When provided with that mental and physical space, the poor can achievewonders without any outside professional interference or advice.

The trouble is that, even though established approaches have failed to achievesustainable improvements, people are reluctant to turn the top-down process onits head and start from the bottom up. Few operational models provide a contrastthat demonstrates the alternatives. But outside the usual box are other more cost-effective approaches that draw more on the grassroots. There are ways to build onlocal knowledge and skills. And these approaches can be replicated on a large scale


Box 1. The Roots of Barefoot College

Registered as the Social Work and Research Centre (SWRC) in February 1971,the Barefoot College started in a small village called Tilonia 350 kilometerssouthwest of Delhi in Rajasthan state. The college began with no high expecta-tions. The idea was to listen and learn.

We wanted to get the farmer and the “professional” together so they couldinteract and learn and unlearn from each other. Though this was unheard of inthe early 1970s, we brought together a geologist, a geophysicist, a cartographerand a gentleman farmer in one place to address a need for water. We started witha survey of 110 villages spread over 500 square miles to examine their ground-water situation. In 1974 we submitted our findings to the government, whichused it as the basis for a decision to extend grid electricity to 100 villages in thearea where we were working. We were delighted that in two years we could makesuch a difference.

But with urban-trained professionals vastly outnumbering the rural col-leagues in the organization a crisis was inevitable: in ideology, in approaches, indecision-making, and in ways to manage the organization. Between 1977 and1979 this crisis resulted in many professionals leaving the organization, and wehad to look inward to see what strengths we had.

Also at about this time, in 1975, Yogavalli left Tilonia, as she got married.Subsequently, in 1975-1976, Shukla Kanungo had to leave SWRC, as she wantedto work in Sri Niketan in West Bengal; in 1977, Manya got married and leftTilonia; in 1983 Aruna decided to leave SWRC because she wanted to getinvolved in non-party political processes.

By 1978 we had antagonized the rural rich in the surrounding villages.Bypassing the rural hierarchy, we had gone directly to the rural poor to provideservices, thus creating tensions between the marginalized and the local politi-cians. By tackling corruption, we exposed ourselves to many questions in thestate assembly about our intentions and whether we were needed at all. Wantingto bring some change we had miscalculated on our timing and speed. It was too

Empowering the Rural Poor to Develop Themselves

by taking the poor into our confidence and reducing their dependency on inappro-priate knowledge, skills, and expertise from “outside.”

Since 1971, the Barefoot College has been pioneering such an approach. Bygiving the responsibility to choose and apply and adapt technology to rural com-munities, by handing over total control to barefoot educators, health workers,water and solar engineers with roots in the community, and by showing respect inthe faith and competence of ordinary people to provide tangible benefits to theirown people, we have shown there is a better way. Barefoot College has demonstrat-ed the enduring value of a process and system that is totally owned by the actualbeneficiaries.


soon to take on such serious challenges.A severe political crisis exposed our vulnerability as an organization. We were

far too dependent on the government. The place where we were working was anunused training center, which we had leased at 1 rupee a month. Our many ques-tions to the state assembly had made the bureaucrats nervous; it was only a matterof time until they sent a letter informing us that we had to leave. In 1978 the gov-ernment asked us to vacate the premises by January 1979 because they had decid-ed they would like to put it to some other use.

Fortunately, in September 1978, out of the blue, Robert McNamara (then pres-ident of the World Bank) and McGeorge Bundy (then president of the FordFoundation and former National Security Adviser to President Kennedy) decidedto visit Tilonia. They wanted to see how the poor lived. They spent two days livingas we did: sitting, eating, and sleeping on the floor, under the stars, and usingkerosene lamps for lighting. The government was horrified when they heard, butBob has said he remembers the visit fondly. Their visit made the government thinktwice. Tensions between Barefoot College and the politicians eased dramatically.Then, in January 1979, Mrs. Indira Gandhi came back to power and the order tovacate was cancelled.

In hindsight, had the Barefoot College not gone through these crises it wouldnever have come out as strong as it did. In the eyes of the rural poor we establisheda certain degree of credibility in taking on the local dominant political leadershipand surviving. As local people started to be a part of the collective decision-mak-ing process, the thinking within Barefoot College changed fundamentally. The col-lege recognized that its dependence on urban expertise and paper credentials diddamage to the mindset of the rural poor, in effect preventing them from comingout of poverty on their own.

We also decided to take on the local political structure by persuading the localstaff to run in the panchayat (village) elections as “independents.” The peoplecalled us the Green Party because we used a tree as our symbol. Our presence inthe political process shook the political environment when several of our candi-dates won.


The ideas have helped lift the marginalized communities out of poverty andgiven them tremendous hope. By bringing the value of community knowledge andskills into mainstream thinking in modern technology, engineering, and architec-ture, Barefoot College has revealed the relevance of development that is commu-nity owned and community managed. We have demonstrated what we mean bysustainability. We have shown that, as the late president of Tanzania, Julius Nyerereput it, “People cannot be developed. They develop themselves.”

ORIGINS OF THE BAREFOOT IDEA

In 1967, I went to live and work in the rural village of Tilonia in Rajasthan, India,after receiving the most elitist, expensive, snobbish private education that anyIndian could possibly receive. When I arrived, I remember being shaken by thequestions the elders asked me:

Are you running from the police? Did you fail in your examinations? Youdid not manage to get a government job? Is there something wrong withyou? Why are you here? Why have you come from the city to this village?There is no one here but the very old, the women, and the very young.The youth have left.

The youth had left to look for jobs—any job that would take them away from thevillage—because the predominant value system denigrated rural life, skills, andtraditions and offered little hope of improved incomes or quality of life. They hadcertificates in their hands from uninspiring mediocre technical institutes and col-leges located in small towns producing “graduates” by the thousands with highexpectations. These youths thought they were going to get well-paid, secure jobs inthe cities. Instead, they swelled the ranks of the educated unemployables living inthe slums in India.

Why unemployable? Because their paper degrees had no value. The certifieddoctors, teachers, and engineers produced by the thousands every year are paperexperts without any practical experience. They are caught up in a system that is notaccountable to the people it is supposed to serve and produces insufficient jobs toabsorb the number of job seekers. Civil engineers build roads that do not last;water engineers build tanks that collapse or crack or deplete the water resourcesand cannot be used; doctors focus on curative approaches and know little or noth-ing about preventive health. So in the absence of jobs but still hoping for any job,they live an inhuman existence in appalling urban slums. The humiliation andscorn they would face on returning to the village prevent them from going back.Anyone going back to the village is considered a failure and the shame is shared bythe whole family.

When the youth fled, they took with them the dying hopes of their parents—weavers, blacksmiths, potters, builders, carpenters, farmers—to pass on the tradi-tional skills to the next generation. They left behind not only their families but alsothe knowledge their elders had collected over the generations to adapt to local con-


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ditions. This was knowledge that no formal educational system valued, but it wascritical for developing a community with dignity and self-respect. The formal edu-cational system had made them look down on their own roots.

For me, living and working in the villages for five years as an unskilled laborerdigging and blasting wells and meeting with very ordinary poor people was anextraordinary experience. Between 1967 and 1971, I went through an “unlearning”process that provided the seeds for the humble beginning of the Barefoot College(see Box 1). Over the last 35 years, what we have “unlearned” is our gross underes-timation of people’s infinite capacity to identify and solve their own problems withtheir own creativity and skills, and to depend on each other in tackling problems.What I learned is that empowerment is about developing that capacity to solveproblems, to make choices, and to have the confidence to act on them.

By 1974, the idea of Barefoot College began to take a more concrete form.Aruna, my wife, resigned from the Indian Administrative Service (IAS) andbecame part of the Tilonia team. We were joined by Manya Jayaram and YogavalliRao, who both came from the Tata Institute of Social Sciences (TISS) in Mumbai,and together started a basic preventive health program. Shukla Kanungo, also fromTISS, helped start the Informal Education Program, which ran schools for childrenwho had dropped out of school. The night schools, aimed at children who areobliged to miss school in the daytime because they are performing essential tasksfor the family, were started in 1975.

On a different front, the college understood the specific real needs of the ruralpoor (see Box 2). These people needed to assert their identity and demonstratethat their knowledge and skills were not outdated, second-rate, or irrelevant. Theyneeded a college dedicated to their specific and special circumstances, and onelocated in a remote rural area. They needed a place where they could feel a senseof ownership, where their self-respect and self-esteem could be developed gradu-ally over the years. The Barefoot College acts as a counterpoint both to the incred-ible ignorance and arrogance the formal system displays and to its belief that it


Box 2. The Mission of Barefoot College

Barefoot College has committed itself to the following work in poor rural com-munities:•Raise the standard of living.•Improve the quality of life.•Upgrade people’s existing traditional skills and knowledge through training.•Guide the community in taking responsibility for providing some of these

basic services.•Struggle and campaign for justice and the rule of law.•Be transparent and publicly accountable to the community in whose name we

receive funds.

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makes an indispensable contribution to tackling poverty; in reality that approachis counterproductive, even dangerous.

WHAT IS BAREFOOT COLLEGE?

As an organization, Barefoot College is the only college in India that follows thelifestyle and work style of Gandhi. It is the only college built by the poor, for thepoor, and for the last 35 years, managed, controlled, and owned by the poor.Underlying the Barefoot approach is a firm belief in the knowledge, creativity,

practical wisdom, and survival skillsof the rural poor—possibly the onlyanswer to making communities self-reliant and sustainable. For anunemployed and unemployablesemi-literate rural youth to be pro-viding vital services in a village,replacing an urban, paper-qualifieddoctor, teacher, or water engineer is atotally revolutionary idea. And yet,this is what happens at the BarefootCollege every day.

It is the only college where paperdegrees, diplomas, and doctoratesare a disqualification because peopleare judged not according to theirdegree of literacy or academic dis-tinction, but by their attributes: hon-esty, integrity, compassion, practicalskills, creativity, adaptability, willing-ness to listen and learn, and ability towork with all sorts of people withoutdiscriminating. The term “barefoot”

is both symbolic and literal. Those who work, teach, learn, and “unlearn” and pro-vide a technical skill without a paper degree issued by the Barefoot College go bare-foot and remain so after they return to their own villages. Their goal is not tochange their lifestyle but to gain the basic skills they need to provide to their owncommunities a vital service, one that urban professionals are currently trying toprovide, most often unsuccessfully. Meanwhile they are maintaining a healthy andsustainable lifestyle for themselves and their community.

The Barefoot College is a radical departure from the traditional concept of a“college” because it encourages a hands-on learning-by-doing process of gainingpractical knowledge and skills rather than written tests and paper-based qualifica-tions. It promotes and strengthens the kind of education one absorbs from family,community, and personal experience. It deliberately confers no degrees, with a



view to reversing migration. If one can improve the quality of life in one’s commu-nity by providing a vital service, why would anyone in their right mind want to livean unspeakably miserable existence in the urban slums? In any case, because bare-foot professionals do not have paper certificates, no one in the urban areas, sadly,will seriously value their skills.

The ideology of the Barefoot College four key components: AlternativeEducation, Valuing Traditional Knowledge and Skills, Learning for Self-Reliance,and Dissemination.

Alternative Education

First, the Barefoot College demystifies education, taking Mark Twain to heart:“Never let School interfere with your Education.” Mahatma Gandhi believed thatgiving more importance, value, and relevance to practical skills and applying tra-ditional knowledge to solving day-to-day problems was essential for the develop-ment of rural India. Gandhi’s thoughts live on in the Barefoot College. Living con-ditions for everyone are simple and down to earth (literally!). Everyone sits, eats,and works on the floor. No one can receive a salary of over $150 a month.

Valuing Traditional Knowledge and Skills

Second, the Barefoot College gives priority to the ideas, thoughts, and wishes of therural poor. The college respects and emphasizes the importance of traditionalknowledge, skills, and practical wisdom. It values keeping the oral tradition alivefrom father to son. This type of education is deeply rooted in long experience fac-ing the challenges of living in particular circumstances and can never be replaced.The focus of the college is to make the young men, women, and children living inthe village aware of this precious resource so that eventually they will stay in theirvillages and not migrate to the cities to end up living in a slum.

This is a major reason why the college places no importance on urban expertswith paper degrees and qualifications who want to participate in it. In fact, peoplemay be disqualified if they have too many paper qualifications. Sadly, thirty yearsof exposure and experience in rural India has taught us that most people withhigh-level paper qualifications are unfit (and misfits) when it comes to living andworking in remote rural areas. They do not have the patience, humility, listeningskills, open minds, tolerance, or capacity to show respect for traditional knowledgeand skills.

Learning for Self-Reliance

Third, Barefoot College enhances the self-confidence and competence of the poor-est of the poor by providing them access to learning that enhances their ability toserve their own community, thus making them more confidently self-reliant. Overthe last 35 years, thousands of unemployed and unemployable rural poor havebeen selected and trained as barefoot educators and technologists.

The criteria for selection are simple. We select only those village youth—both


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men and women—who are illiterate, semiliterate, or barely literate and who haveno hope of getting the lowest government job. They have been trained as “bare-foot” educators, doctors, teachers, engineers, architects, designers, communicators,hand pump mechanics, and accountants. They have demonstrated that “experts”from the urban areas with paper qualifications are not really required to make vil-lages self-sufficient and sustainable because these trained “barefoot” experts can dothe work themselves.

Two important parts of the emphasis on self-reliance are decentralization andtransparency. The very structure of the college in Tilonia is decentralized: a full-time director is assisted by a team of people in charge of different sections, eachlooking after their work independently while consulting with colleagues whenneeded. Each person has their own budget and controls their own bank account.Once a month, the director meets with all the people in charge of the field centersas well as the sections to review the work done in the previous month and see whatneeds to be done next. At this meeting, they address problems of coordinationbetween the sections. All the decisions are recorded in minutes that are circulatedto everyone present.

Field Centers (FC) are situated in villages in all four directions from Tilonia inSilora Block Ajmer, a cluster of villages in Rajasthan where the organization isworking. Each field center has a campus and is based in a village. There a team,consisting of field workers and their coordinator, plan and implement communi-ty-managed initiatives at the village level. Each FC has a work radius of 15 to 25villages, where initiatives are taken up by village-level committees. At the regularmonthly meetings of their village-level committees, they endorse the collectivedecisions made to implement those initiatives.

The FC coordinators are collectively involved with the committees in organiz-ing those monthly meetings. The four most common types of committees are vil-lage water committees, village education committees, children’s parliaments, andwomen’s groups. In principle, the members of all the committees are the poorestof the poo,r and they include equal numbers of women and men. The committeeshave financial powers, and three members, including a woman, jointly operate thebank accounts. The affiliated Barefoot Colleges have integrated this process ofdecentralized decision-making as they collectively plan and implement their com-munity-managed initiatives.

Barefoot College also stresses transparency and accountability. It is the onlygrassroots organization in India that holds public hearings and shares usually con-fidential financial information with the community of all those associated with itswork. This information includes the sources of funding, the amounts received, andthe ways funds are spent. Staff bank accounts are also published. The organizationsassociated with the Barefoot College family believe we are accountable to fundingagencies and to the community in whose name the funds are received. All auditstatements are open to the public.



Dissemination

Last but not least, the college is being asked to replicate its approach all over Indiaand the world. So far, 20 colleges have been established in 13 states of India. Inkeeping with the Barefoot philosophy, each operates independently, defining itsown curriculum but keeping a few non-negotiable tenets at the core of their oper-ations:

Equality. All people in the college are equal regardless of gender, caste, ethnic-ity, age, and schooling. In practical terms, this means the college has no hierarchy.The founder and director of a college have the same say and status as the new bare-foot accountant who has just joined it and the physically challenged barefoot oper-ator who answers the phone.

Austerity. Everyone in the college receives a living wage, not a market wage. Themaximum wage anyone can earn is U.S. $150/month; the minimum is about halfthat at 73 Indian rupees per day. Living conditions focus on basic needs and aredesigned to minimize waste.

Collective Decision-Making. Decisions are made collectively, not by individualsin isolation. For example, the salary each person receives is decided on by everyonein the organization; the process is based on a points system in which each personevaluates himself and everyone else according to several criteria.

BAREFOOT BUILDS ITSELF

For several reasons, the timing was right to build a college with a difference. Therewas a general agreement that we should never allow the government to politicallyblackmail the college and apply pressure as it did in the late 1970s. We needed aplace of our own to give us the freedom to take up any cause, fight any battle, sup-port any community, defend any right, and carry out any campaign that wouldbring power and courage and hope to the rural poor.

The second reason was to demonstrate the value, importance, and relevance oftraditional knowledge, village skills and the practical wisdom of the poor. Weneeded to have a place where people around the world could come and see it forthemselves. Well before the college came into existence, the poor rural communi-ties had been able to preserve, encourage, and promote skill-building for barefootarchitects, both male and female. Now these architects undertook the building ofthe Barefoot College campus itself.

Work on the new Barefoot College campus began in 1986 and concluded in1989. Remarkably, it was designed and built by the very same poor, rural, oftensemiliterate villagers it trains. At Barefoot, a group of twelve barefoot architectslearned to apply their traditional skills to modern challenges while still maintain-ing their rural sensibilities about resources, tools, and technology. They designedthe main campus under the guidance of Bhanwar Jat, an illiterate farmer in Tilonia(see Box 3). Twenty village masons assisted. The campus, including 2,800 square



meters occupied by buildings and 35,000 square meters of land, cost $21,000 tocomplete.

The architectural team believed, like Gandhi, that there is a difference betweenliteracy and education. This is the philosophy that guided every step of the cam-pus’s construction and later all of the activities that would take place within it. Theteam’s own life education—the skills and techniques they learned from living andworking in their communities—had outfitted them with valuable knowledge andhad prepared them to work on the design and construction effort.

In this work, an ability to read and write simply was not required. For instance,the team refined and redrew plans and rough sketches on the ground and collec-tively approved the idea of accommodating traditional building techniques andspecific site issues. They measured the depth of wells and floor spaces using theirarms and hands and a traditional measure called the hath. A hath is about 18 inch-es, or the length of the arm from the elbow to the end of the middle finger.

The college community included male and female engineers, hand-pumpmechanics, traditional puppeteers, village masons, midwives, and night schoolteachers. They all sat down and contributed to the ideas that went into the conceptas well as the building of the actual college. They felt strongly that if they had tolive and work in the college, they had every right to design, shape, and build ittogether.

The buildings are located around traditional highly decorative courtyards. TheBarefoot architects insisted that the buildings face the wind, so that the natural cir-


Box 3. Bhanwar Jat’s Story

“Nobody in our family knows how to read and write. We are three brothers, allfarmers. We have 15 acres of agricultural land. Now all our children go to school.This is the first time such a step has been taken and I am glad. I joined BarefootCollege twenty years ago in 1977. I used to take water to the houses withKanaram and his donkey. Because I was a farmer I was asked to work on thefields to grow food for the Center. At that time I was working on the poultryfarm, looking after chicks for one year with Vasu. It was also my job to take peo-ple from the Center on a tractor to the night schools.

“In 1986 I was asked to build the New Center. I was—and still am—illiter-ate. But that did not worry me. I had already done so many jobs at the Center.This was just one more. It took one year to dig the foundation. I was asked tosupervise the work of about 50 rural masons and over 100 day laborers. It tooktwo years to build everything. An architect tried to draft blueprints but they werechanged so often that they were useless in the end. The project was a joint effort.Everyone who was going to live there was consulted. Everyone’s views had to berespected. So the location of doors, windows, and roads changed every day.Rafiq, the Muslim blacksmith, made the doors and windows in his rural work-shop in Tilonia.”


culation within the courtyards would keep them cool. The women wanted a placeto cook in the open courtyards, so one was provided. Local materials like stonewere used throughout the building process, with lime mortar for load-bearingwalls and stone slabs for the roof. Women drew on their traditional knowledge andmaterials for waterproofing the campus in a process that they insisted on carryingout in secret. To this day, except for unusually heavy rains, it has not leaked!

The Barefoot architects demonstrated that it was possible to use traditionalknowledge, local materials, and village skills. In the process, they showed how rel-evant and important their practical wisdom was for preserving and conserving thearchitectural skills that had been disappearing from most traditional communities.

With great foresight, the Barefoot architects connected the roofs of all thebuildings to collect rainwater in a 400,000-liter underground tank. This was quiteremarkable in the late 1980s, when many professional architects were still ignorantabout the importance of collecting rainwater as part of their basic designs. Seatingfor 2,000 people was constructed over the tank; it overlooks a stage where perform-ances (puppet shows, street theatre, musical evenings) are held regularly.

In this same project, village blacksmiths fabricated more than 70 geodesicdomes. The celebrated American architect Buckminister Fuller designed the geo-desic dome, but semiliterate architects and blacksmiths fabricated them on theBarefoot College campus, giving it a sustainable makeover. Deforestation is amajor threat in the area as traditional housing has made wood a scarce resource.Rafeek Mohammed and seven Barefoot architects developed and built domes fab-ricated from discarded agricultural implements, including bullock carts and pumpsections. The domes were covered with thatch, giving a traditional look to a newidea. Geodesic dome structures are currently being used for a pathology lab, meet-ing halls, a dispensary, a milk booth, and an Internet café; they have also been usedin the desert for a variety of purposes that have benefited thousands of people. Infact, some of these domes are collecting 200,000 liters of rain water in theHimalayas.

Barefoot College is also the only fully solar-electrified college based in a villagein India. Starting in 1989, barefoot solar engineers installed a total of 40 kilowattsof solar panels and 5 battery banks, each containing 136 deep-cycle batteries. Thesolar components (inverters, charge controllers, battery boxes, stands) were all fab-ricated in the college itself.

STRUCTURE AND FUNCTION OF THE COLLEGE

The process used to build Barefoot College reveals how involved the communityis in running it. Members of village committees are responsible for planning howto implement and monitor all the college’s initiatives. Once plans are decided onat the village level, they must be endorsed by members of the rural communities,especially the poorest of the poor, and all decisions are made collectively.

The village committees are responsible for the day-to-day administration and



have the financial power to purchase materials and disburse honorariums. Forexample, village water committees plan and implement the construction of rain-water harvesting structures in rural schools. They are involved in deciding on thelocation and site and in selecting the poorest of the poor to work as wage laborerson the construction.

In places where a piped water supply system has been installed, village pipedwater committees manage and control the systems, collecting monthly contribu-tions from end-users with tap connections. They are responsible for purchasing allthe materials and disbursing wages to those involved in construction and mainte-nance. Village environment and energy committees are involved in selecting semi-literate and literate men and women to be trained as barefoot solar engineers(BSEs). They are responsible for the day-to-day functioning of solar lighting units,collecting monthly contributions from end-users and disbursing honorariums tothe BSEs who repair and maintain the solar lighting units.

BAREFOOT FOCUS AREAS

Barefoot focuses inward on building itself, but it is primarily focused outward, tohelp rural communities thrive with dignity and self-respect. This involves commu-nity input based on assessment of their priority needs. Currently, Barefoot is focus-ing on six areas: education, drinking water, alternative energy, the environment,empowering rural women, and traditional communication.

Education

One focus area is education, especially training barefoot teachers, who are selectedby members of the rural communities where the night schools are situated. Mostoften, unemployed rural youth are selected to teach at the pre-primary and nightschools. Once they are selected they participate in an initial 30-day residentialtraining camp; then they start their involvement with children by teaching at thenight schools. They participate fully in deciding on the curriculum, which isdirected at practical learning that fits local circumstances and builds on localknowledge.

Barefoot College coordinates these night schools, which have been establishedin six states in India: Assam, Orissa, Uttranchal, Madhya Pradesh, and Bihar, as wellas Rajasthan. They form a network of more than 450 barefoot teachers, including100 women; their innovative educational process provides access to nearly 8,000children, including 6,000 girls. Nearly 3,000 boys and girls attend the more than150 night schools; most are shepherds who must attend to their families’ livestockduring the daytime, and who are coming to school for the first time. Rural youthwith disabilities fabricate all the teaching and learning materials for these schoolsout of waste; the list includes chalk, blackboards, seating mats, and even scienceteaching materials. The college collectively coordinates these night schools throughits affiliations with community-based voluntary organizations in the six states. InRajasthan, the night schools are coordinated by the Barefoot College in Tilonia.



In addition, a children’s parliament, consisting of representatives elected by thestudents, elects its own cabinet. It helps to supervise, monitor, and administer thenight schools. It meets monthly to discuss emerging problems and decide onaction. This gives the children very practical experience in governance.

Drinking Water

Another primary focus is on drinking water. Despite the popular belief that tech-nology is required to solve pressing water shortages, our experience is that villagerscan apply their own knowledge and know-how and succeed. For instance, manyengineers believe that problems of water shortage and potability can be solved onlyby building big, expensive, deep-well drilling rigs to tap groundwater or, alterna-tively, through piped water supply systems drawing on a permanent water sourcemany kilometers away.

Instead, Barefoot turns to the simple but effective system of rooftop rain waterharvesting (RRWH). This involves catching rainwater where it falls, using therooftops of schools and other buildings, and channeling it into underground leak-proof tanks made of locally available, low-cost materials. RRWH is a viable, low-cost way of providing drinking water and sanitation to remote rural communities.It has proven possible to collect and store 100,000 liters of rainwater at a cost of 10cents a liter.

While rural people have been harvesting rain water for centuries, the collegepioneered the widespread use of this practice to meet the drinking water and san-itation needs of hundreds of rural poor communities throughout India. The col-lege supports people in two types of rainwater harvesting. Most of the rainwater isharvested for drinking and sanitation, mostly from rooftops. In addition, smalleramounts are harvested to recharge the supplies of groundwater.

The benefits to communities adopting this scheme go far beyond water man-agement. Globally, many schools in rural communities lack water for drinking andsanitation. These schools typically do not have simple hand-flush toilets. This facthas educational implications: the lack of toilets keeps girls from coming to school,because they need the privacy a toilet can provide. But girls who do not attendschool are more likely to become mothers whose children who do not attendschool. In addition, for both boys and girls, the lack of water at school means theymust spend time fetching water instead of learning. Solutions based on localgroundwater or other water sources are often too costly and foster dependency onexternal resources, knowledge, and skills. A practical solution is for communitymembers to come together and contribute labor and materials to construct theirown RRWH structures.

All the night schools run by the Barefoot College have underground tanks col-lecting rainwater so that children have access to safe water and need not walk formiles to fetch water during school hours. The college’s night schools are housedmostly in buildings that house government primary schools during the day, as wellas community centers and geodesic domes the college constructed using commu-



nity contributions in cash, kind, and voluntary labor.Rainwater harvesting has also had a considerable impact on women and chil-

dren. Over the years, many rural women have showed their leadership potential atthe panchayat (local self-government) level. They have been elected to the pan-chayats as chieftains and ward members during the elections in 1995 and 2000. Inaddition, now that safe drinking water is available at schools, many more girlsattend, often double the previous numbers. Also, the daily attendance of both boysand girls throughout the year has increased by about 50 percent.

While these results have received recognition and acclaim in many quarters,the college’s work in RRWH has certainly met resistance from water planners andengineers across India. These water “experts” often advocate large and expensivesolutions based on the installation of hand pumps, raised water tanks, and pipedwater supply schemes. They tend to ignore or dismiss the much simpler, commu-nity-based method of rooftop rainwater harvesting.

For example, in the mountainous and drought-prone state of Sikkim, watermanagement used to involve allowing rainwater to flow down to rivers in the val-leys and then using heavy-duty pumps to propel the water back up the mountainthrough a series of pipes to provide drinking water to remote rural communities.Barefoot water engineers and community members of the village water committeesuggested to the chief minister of Sikkim that school children could be providedwith safe drinking water by using the school buildings themselves to harvest rain-water, but the state’s chief water engineer said the proposal was technically impos-sible. Using locally available building materials and the traditional knowledge andskills of the villagers in Sikkim, Barefoot architects constructed the first rooftoprainwater harvesting tank in the village of Sadam, located on a mountain peak insouth Sikkim. The tank, which has a capacity of 160,000 liters, was constructed insix months.

When they were done, the Barefoot College staff went back to the chief minis-ter of Sikkim and asked him to come inaugurate the system. He was surprised anddelighted, and agreed to bring his chief engineer along to show him this systemthat the engineer had declared technically impossible. As a result of the visit, thechief minister changed the state government’s entire policy. He immediately sanc-tioned the construction of 40 more rooftop rainwater harvesting tanks andapproved funds for rainwater harvesting in three schools.

Barefoot water engineers have built over 1,000 rooftop rainwater harvestingstructures in 17 states across India with a combined capacity of nearly 50 millionliters. This construction has provided gainful employment to more than 20,000villagers. If and when it rains each year, these systems meet the drinking water andsanitation needs of some 220,000 children in those communities. If the rain isinsufficient, the underground tanks can be refilled by water trucks for a part of theyear. This simple, cost-effective, centuries-old solution facilitates self-reliance.Local materials and labor can be used, and a village water committee can beempowered to control and distribute the water without depending on the outside



world for technical, human, or financial resources. It can bring together peoplefrom various communities and castes, both rich and poor.

Alternative Energy

The two previous focus areas rely largely on reviving and enhancing the practicaltraditional skills and knowledge of barefoot builders, hand pump mechanics,architects, and masons. In contrast, Barefoot College has recently drawn on itsexperience of providing solar electricity on its own campus, in order to embark onanother area. It is demystifying modern technology by bringing alternative energyto remote rural villages through solar electrification. Since 1986, the BarefootCollege has been promoting the use of solar photovoltaics on a colossal scale allover the country. Rural poor literate or semiliterate men and women from acrossIndia and beyond, with little or no educational qualifications, are learning to bebarefoot solar engineers (BSEs), installing decentralized solar units at the house-hold level. Taken in total, to date these BSEs have completed energy systems thatgenerate as much electricity as the largest centralized solar power plant in India,the 500 kilowatt plant in Maharashtra. In addition, the Barefoot systems benefitover 90,000 of the poorest households all over India (See Table 1).

In remote mountain villages, electricity is a scarce resource. People survive sixmonths of severe winter with temperatures reaching –40ºF, using only dimkerosene lamps and candles, huddled close to the community stove and sharingthe same room with their cattle. In villages in the Himalayas where communitiesdecided to install these systems, they selected 209 people, including 19 women, as


Table 1. Solar Electricity Systems, and Components, Installed in India byBarefoot College, Tilonia.


trainees. The trainees went to Barefoot College and trained to become BSEs. TheseBSEs have now electrified a total of 140 villages. They have installed solar units in10,000 households covering almost 574 villages across 16 Indian states. Monthlycontributions from each family for repair and maintenance, now totaling nearly$40,000, are being deposited in banks. Members of 139 village energy and environ-ment committees (VEECs) have been trained to monitor the work of the BSEs andmake sure the monthly contributions come in regularly.

It is impossible to describe the incredible change in the lives of over 15,000people who are now using fixed solar units and solar lanterns. To get a 20-liter jerrycan of kerosene they sometimes had to walk for two days; that kerosene also hadto last them a month. In a remote village in Ladakh, an old woman was asked howsolar electrification had benefited her. She replied with a shy smile, “For the firsttime I can see my husband’s face clearly in the winter.”

While improved lighting and heating is a great benefit, another priority is gen-erating employment through the use of solar energy. The BSEs have been trainedto fabricate solar water heaters and to use solar energy to dry vegetables. Solar-powered spinning wheels have given employment to over 200 women. Ten solarpower plants of 2.5 KW each, installed at the rural electronic workshops, have pro-vided power to fabricate charge controllers and inverters. Solar water pumps liftwater from the rivers to regenerate wastelands. The BSEs have constructed solarpassive houses that retain the heat of the sun when temperatures dip below freez-ing. In the mountains, these houses serve as schools so that children can go toschool even in freezing weather.

Environment and Climate Change Mitigation

Each focus area has multiple benefits. For example, the college’s work in water,alternative energy, and education also results in protecting and conserving fragilebiodiversity in the deserts of Rajasthan and all along the Himalayas. BarefootCollege workers conserve water resources and mitigate climate change. They alsomake every effort to reduce emissions of CO2 and related greenhouse gases.

The basic work of the college has other positive impacts on the environment.Solar electricity provides an alternative so people need not use trees and shrubs asfuel for cooking, heating, and lighting. Barefoot workers set an example of livingsimply and with austerity without abusing and exploiting the available water andland. Thus they promote these ideas among the people they meet. They also con-trol and minimize pollution by sharply reducing the consumption and use ofdiesel and kerosene for basic needs. Finally, they are implementing a massive envi-ronmental education program in the 150 night schools that are lighted with solarlanterns.

The college has concentrated its work with solar photovoltaics in the hotdeserts of Rajasthan and in the four Indian states nearest the Himalayas. Severalthousand houses, schools, and community centers have been provided with solarelectricity in one of the world’s most inaccessible and inhospitable regions. They



have prevented several hundred thousand liters of diesel and kerosene from beingburned. They have preserved forests and even controlled environmental pollutionto some extent. As a result, since 1989, they have kept 1.2 million tons of carbonemissions from entering the atmosphere (See Table 2).

These calculations are based on the use of kerosene for domestic lighting,diesel for generators, and diesel and gasoline to transport fossil fuels. Now, solarelectricity makes this use of fossil fuels unnecessary.

Empowering Rural Women

Barefoot College also focuses on empowering rural women in all of its programs.Some programs cover areas such as water and education, where women have tra-ditionally been very active, but their role in spreading solar technology is totallynew for them, although it does build on their traditional responsibility to maintainthe supplies of kerosene for lighting and fuel for cooking. What is remarkable isthat for the first time sophisticated solar technology has been demystified, andsimple village women have demonstrated how effectively they can manage andcontrol it to improve their quality of life. They now have the opportunity to devel-op their competence and confidence to handle technology, providing services totheir own community that give them a new level of acceptance and the respect theydeserve.

What is innovative is involving the whole community in selecting semi-literate


Figure 1. Locations of Trained Women Barefoot Solar Engineers in India.


women as engineers to provide a vital and non-traditional technical service in anarea not generally associated with rural women. It also requires them to developsystematic leadership skills, persuading the community to pay a monthly contri-bution for the repair and maintenance of the solar systems they have installed ineach house in their own village.

Where this system was first adopted, the household contributions have beencoming in regularly for the last four years.

Building on this success, the college recently expanded this same approach toempower a growing number of female BSEs from both inside India and abroad.Older rural women are preferred to men for two reasons. First, they are rooted intheir villages and will not migrate to the cities even if their skills could earn themhigher incomes there. Second, once they have been trained as BSEs, they are will-ing to train other women, thus passing on their know-how and skills and leverag-ing the energy of many women in the community.

Solar technology has also expanded into cooking. Solar stoves can be used forfrying, boiling, or steaming—or most anything else one can do on a gas stove. Asmall solar cooker can match the cooking speed and capacity of any modern gasstove; the more powerful large model, which produces about 2.5 kilowatts of heat,can bring 20 liters of water to a boil within an hour. This makes it ideal for large-scale catering, for example, in schools.

A Society of Barefoot Solar Cooker Women Engineers has been established,with an office and workshop at Tilonia. It is the first registered association in


Table 2. Reductions in Carbon Emissions since 1989


Rajasthan of semi-literate and literate women. The society currently has six mem-bers who have completed training in fabricating and producing the parabolic solarcookers in two sizes, 2.5 and 8 square meters. These solar cookers have beeninstalled in nine villages and are meeting the eating needs of more than 400 peo-ple daily. Small models can be found in several villages in Kadampura, Tikawda,Singla, Jawaja, Solavta, Kallian, Nalu, and Tilonia; the larger ones have beeninstalled at Tilonia and Kishangarh, all in Rajasthan.

The women engineers regularly visit sites where solar cookers are installed inorder to repair and maintain them. They are training others, including some youngmen, as barefoot engineers; they have even suggested some ways to improve thecookers by altering in the design. People who purchase a cooker receive one free


Box 4. Empowered Barefoot Women around the World

Fatuma Abubker Ibrahim, one of the Barefoot Solar Engineers of Ethiopia, livesin the remote village of Beyahile, in Afar state. Fatu is 20 years old, single, attend-ed primary school, and lives with her parents. She and her family tend to theirthree cows, 30 goats, and three camels on two hectares of land. Since July 2006,Fatuma has also been looking after 90 fixed solar units, 90 solar lanterns, and onerural electronic workshop in Beyahile and nearby villages.

Awatif Abduraheman lives in the remote village of Benishangul in Ethiopia.Semiliterate, she is 25, married, and has three sons. She and her family maketheir living farming their four hectares. Awatif also does domestic work, andsince July 2006 has been installing, maintaining, and repairing 80 solar units inher village and others nearby.

Aminata Woulet is 40 and lives in Tinjambane village in Timbuktu in Mali.A widow since 1994, she has never been to school, but can read and write. Shehas other skills: dyeing cloth with indigo, making leather crafts, and looking aftergoats.

Haja Woulet is 32, a widow with one 10-year-old daughter. She is illiterateand lives with her parents, also in Tinjambane.

Together Aminata and Haja solar electrified their own village of 92 houses in10 days; it was the first village in Mali where rural women installed solar electric-ity.

Aji Kamera lives in the village of Kafenkeng in The Gambia. She is over 30,married with four children, and a Muslim. She attended school up to class 7 butthen dropped out. She owns a small plot, on which she keeps three goats, a cowand four chickens. She installed solar electric units in 40 houses in one week;they have been functioning for nearly a year now.

Nancy Kanu, a Muslim, lives in KontaLine in Sierra Leone. She is 40 yearsold, has six children, and is semi-literate. She owns one sheep and one goat.Single-handedly, she solar electrified her village of 35 houses and was the firstwomen solar engineer in Sierra Leone.


day of training in its use, installation and basic maintenance at the workshop inTilonia.

Women like Sita Devi, who learned to read and write in Hindi at BarefootCollege and who now coordinates the solar cooker workshop, are serving as exam-ples that can change the role and status of women in rural villages in India andmore widely in the developing world. Sita built her solar cooker expertise on herprevious successful involvement in training people to repair hand pumps atTilonia some thirteen years ago. In fact, she is currently the only person who cando that work in any of the six villages spread out across 500 square kilometers ofTilonia. Sita lives in Tyod village, and currently repairs and maintains 100 handpumps in six villages, as a service for the government. At the time, governmentengineers were surprised when a woman wanted to do the job, but, with support



from Barefoot College, she prevailed.She tells us that before a hand pump was installed in her village, she and all the

other women would have to walk two miles, with two pots on their heads, to getwater. Now, with a hand pump nearby, sometimes even the men will get thewater—but only in a bucket, as pots are considered too feminine. Also, the waterpulled up through the new hand pumps is safer than that in the open wells, whichcould spread disease.

That same kind of empowerment has now spread to women beyond India intoother parts of Asia and Africa. For the past 11 years, the Barefoot College has beentraining semi-literate and illiterate rural women to assemble, install, repair, andmaintain solar photovoltaic systems. Once selected by their village to undergosolar training for six months at the Barefoot College, the women come to Tiloniaand acquire the competence and confidence to fabricate, install, repair, and main-tain sophisticated solar units. They then return to their communities to installsolar systems in each house in the village, thus establishing their credibility in theeyes of each family that pays a monthly contribution for them to repair and main-tain the units (See Box 4).

Never in the history of Afghanistan has an illiterate woman left her house, hervillage, and her country for six months to train as a solar engineer in India, but thatis exactly what 26-year-old Gul Zaman, from the village of Katasang in Daikundiprovince, did in 2005. She and her 30-year-old husband Mohammed Jan came toTilonia for six months. They have a small plot of land to feed 10 people, and workas day laborers for over 200 days each year. Together the couple gently created his-tory by solar electrifying their own village of some 50 houses, and the units havecontinued functioning since September 2005.

Electrifying houses provides additional income and a new level of confidenceand leadership to the women who train in Tilonia as solar engineers and then serveas role models for young women in their villages. It also opens up other income-generating opportunities for all women, who can then use their evening hours tomanufacture handicrafts and other goods for sale.

Only in the late 1980s did Barefoot College begin to recognize the potential ofilliterate and semi-literate women to succeed in these non-traditional areas. As wehave implemented this approach over the last 25 years, the women we have workedwith have shown an awesome capacity and confidence to provide a service to theircommunities and to destroy stereotyped images and roles in the process. Todaymany women in non-traditional roles are serving their own communities.“Barefoot” women are working as night school teachers, hand-pump mechanics,solar engineers, water engineers, architects, masons, and fabricators of solar cook-ers. Illiteracy has never been considered a barrier to women developing themselvesas barefoot professionals.

Illiterate women are handling computers and training unemployed youth infeeding technical, health, and literacy data to our organization. Since 1984, semi-literate and literate rural women have formed rural women’s groups in 68 villages;the total membership is about 4,000 women. They meet every month to take up



gender-specific issues such as rape and atrocities towards women at the villagelevel; they also discuss health, education, and non-payment of minimum wages.

These rural women discuss these gender-specific issues at the village level. Ifthey cannot solve them there, they take them up again at the block and districtlevel. When they need to elicit collective strength and solidarity to tackle suchissues, they take them to the state and national level. They have also elicited thesupport of the men in their villages on issues like the minimum wage, the publicdistribution system, the right to information, and the National Rural EmploymentGuarantee Act. Since 1972, when Barefoot College started working with the poor-est of the poor, rural women have been actively involved in rallies, demonstrations,and sit-ins to fight for gender-specific issues as well as larger issues of develop-ment.

Traditional Communication

In 1981, the Barefoot College launched its communication section, using puppetsto spread awareness and mobilize action on several key problems that emerged asconcerns during community discussions. Traditional communicators such as pup-peteers and street theater performers have proved to be very powerful in commu-nicating social messages, particularly when an audience is not highly literate.Barefoot College uses live and interactive media more familiar to the poor than tel-evision or newspapers.

While puppetry is a tradition in Rajasthan, the Barefoot College pioneered itsuse for this specific purpose. Its puppet team has influenced and changed the atti-tudes of many traditional and conservative communities on issues such as childmarriage, bride burning, the legal rights of women, equal wages for women, andreasons why children should learn how to read and write. Barefoot communicatorsperform shows at night in the villages. The glove puppets, made from recycledpaper such as World Bank reports, are used to act out stories that bring up a rangeof issues: children’s education, being untouchable, women’s empowerment, theright to information, exploitation of the poor, and the importance of the mini-mum wage. Adults and children alike attend the shows, which are largely impro-vised. Barefoot Communicators do not use written scripts, as many are illiterate orsemi-literate. Each year, Barefoot Communicators perform 100 to 150 puppetshows, reaching nearly 100,000 people in 110 villages of Rajasthan.

In 1985, our communication team went to Chota Narena in Rajasthan to stagea puppet show. That particular day we performed “Roti” (Bread), a play about aman whose habit of drinking liquor completely destroyed his wife and children. Assoon as the show was over, one man got up, looked at the audience, and shouted,“Did you listen carefully to the play? That happened to me. You all know howliquor totally destroyed me and my family.” We were stunned. Before we couldblink the man came on stage and said with great humility, “You have opened myeyes. Where were you all this time? I have a request to make. From now on, when-ever you perform this play, please tell people that this is the real story of a man in



the village of Chota Narena.”The work of the Barefoot communicators has also been showcased outside of

India. In December 2005, a team of Barefoot Communicators went to The EdenProject in Cornwall, England for two months. They performed puppet shows,taught their English counterparts to make glove puppets from recycled paper, andlearned how to make puppets larger than the 3- to 4-meter ones found in the vil-lages of Rajasthan. Today, these larger puppets can be found in festivals andparades in Tilonia and neighboring villages.

GLOBAL REPLICATION OF THE BAREFOOT APPROACH

The Barefoot approach is a breakthrough: we have demonstrated that it can bereplicated anywhere in the world. Ten years ago, three sheep farmers from the vil-lage of Agrisewal near Marrakech in Morocco were selected to come to theBarefoot College in Tilonia. They had never been outside their village. They onlyknew Berber and French—no English and no Indian language. In six months,using only sign language, they became barefoot solar engineers, installed 100 solarunits in the Himalayas in India, and then went back home. This demonstrated thatlanguage, religion, food habits, climate, caste and creed are not barriers to learn-ing.

At this time, more than 340 ordinary village men and women from eight coun-tries in Asia, Africa, and South America have been trained as BSEs. They have solar-


Solar electrified village at night.


electrified some 550 schools and 13,000 households in more than 600 villagesacross the globe. They have assembled and installed over 10,000 solar home light-ing systems and 4,400 solar lanterns, for a total installed capacity of 646 kilowatts.Those in Ethiopia constructed six rooftop rainwater harvesting structures last year,with a total capacity of 600,000 liters. In Africa the rooftop rainwater harvestingtanks have benefited some 2,100 children in Sierra Leone, Senegal, and Ethiopia.Based on these successes, the Barefoot College is scaling up its efforts to train ruralAfrican women in solar electrification so they can bring light and income to vil-lages in Mali, Sierra Leone, Cameroon and the Gambia.

The Barefoot College has trained 97 rural women across the globe as BSEs,including 11 women from Mali, Sierra Leone, and Cameroon in 2007. Thesewomen have shown that language, climate, culture, and schooling are no barriersto the practical mastery of solar systems. As the college ramps up its solar electri-fication projects across Africa, these women are leading by example: showing howthe skills of the rural poor, de-linked from literacy, can drive their own develop-ment.

The Barefoot approach remains distinct, but is gradually becoming a part ofthe official “system.” The college is now moving into using non-traditional com-munications channels, including the Internet. To get out the message about its suc-cess it is producing videos and photography, and participating in internationalnetworks and meetings. Its initiative included training both men and women asbarefoot doctors, hand pump mechanics.• Between 1984 and 2005, the College received $ 7.6 million to install 13,300

fixed solar units. This included the installation of 800 fixed units in Ladakh inKashmir, supported financially by $450,000 from the Ministry of Non-Conventional Energy.

• Between 1996 and 2003, the Ministry of Non-Conventional Energy provided$775,556 to install 4,000 solar units and 7 power plants of 2.5 kws each in thebackward, tribal hill states all over India.

• In 2000, the European Union provided $500,000 to install 1,250 fixed solarunits and 5 solar power plants in 3 states: Uttranchal, Jammu, and Kashmir,and Sikkim.

• In 2003, UNDP India provided $1 million to install 1,400 fixed solar units, fab-ricate 2,000 solar lanterns, and establish 7 Rural Electronic Workshops in 100villages in 7 states of India.

• In 2005, UNDP Ethiopia provided $1.4 million to install solar electric units in600 houses in 30 villages.

CHALLENGES AND LESSONS LEARNED

What is pioneering and innovative about the Barefoot approach is the emphasisand respect it gives to applying the knowledge, skills, and practical wisdom of therural poor—which may be the only way to make communities self-reliant and sus-



tainable.With roots in the village community and a deep-rooted respect for the proper

and wise use of water, air, earth, and the sun, Barefoot Educators have set an exam-ple of how NOT to waste or overexploit nature resources. They are a living testi-mony to Mahatma Gandhi’s famous saying, “The world has enough for everyman’s need but not for one man’s greed.” The approach has had a considerableimpact in changing the mindset of urban “experts” and influencing their attitudestoward the idea of having the poor identify and solve their own problems.Development with dignity means development with less dependence on urbanskills and more self-respect. The Barefoot approach has worked. The results arethere for everyone to see and feel.

In driving its innovations, the Barefoot College has come up against severalmajor challenges.

Promoting a Different Vision of Development

The first challenge has been to convince people that a different vision of develop-ment is possible. Throughout its brief lifetime, the college has worked hard to con-vince urban people that semi-literate men and women from any village in India—indeed, any remote village in the world—can competently provide professionalservices to their own communities. While the results of the college’s work speak forthemselves, this task continues to be a daunting one since it involves changinglong-held stereotypes, mindsets, and attitudes towards the poor. Still, a great manypeople, including many who hold important positions, have learned about itsactivities and have traveled to Tilonia to witness its work first-hand. We makeprogress with each new person who comes to the campus, as they absorb the spir-it of the approach and are inspired to help disseminate and expand it within theirown spheres of influence.

Dealing with Success

The second challenge has been dealing with success. The college has demonstratedthat semi-literate rural women can solar-electrify remote villages and look aftersolar units more competently than paper-qualified solar engineers. In so doing, ithas turned established perceptions upside down, and debunked the basic assump-tion that formal education is required for development work. Unfortunately, inchallenging established thinking on development, the college has generated hostil-ity and jealousy, and has made many enemies.

Those most hostile to the Barefoot approach are people who have invested agreat deal in acquiring an education through the official system and then applyingthat misguided “expertise.” The very idea of semi-literate women being able tomanage and control initiatives at the village level undermines those hard-earnedcredentials and credibility and even threatens the existence of their jobs. Indeed,one result of the Barefoot approach in India, where it is most widely replicated, hasbeen the replacement of cost-intensive initiatives and jobs by low-cost and labor-



intensive initiatives, providing gainful employment within the villages.

Learning from Failure

The third major challenge has been to learn from successful failures. Taking risks,trying new ideas, failing and trying again is a process that is respected in theBarefoot College because we recognize that we should learn as much from failureas from success. But the formal education system has no room for failure. In thatsystem, failure is considered a matter for shame and regret. Barefoot College giveseveryone involved the opportunity to make mistakes and learn from them.

Any organization worth its salt has to go through crises. The crises can eitherbreak the organization into little splinters or eventually make it stronger. In theearly 1980s, as decision-making power within the college gradually shifted fromthe urban professionals to the rural youth, many of the former left to join otherorganizations or opted back into the system. That was a crisis that led to uncertain-ty and insecurity. But the college learned two important lessons that have sinceguided and influenced future decisions.

1. Do not depend on urban professionals because they will not stay there alltheir lives. In a world dominated by materialism, they may be tempted to use thecollege as a stepping-stone to secure better-paying jobs. The answer has been todevelop the capacity, confidence, and competence of the rural poor to providetheir own services. After all, they have the knowledge and the skills that have stoodthe test of generations before the urban-trained doctor, teacher, and engineerturned up on the scene. Why not, as a policy, move in that direction? That is whatwe have done and it has been a key to our success.

2. You do your best work when you are insecure. When your back is against awall and you have nowhere to run and no one to turn to, you have no choice butto face the consequences. When a crisis arises and could possibly lead to violence,urban professionals normally do not have the staying power. Because they havesomewhere to run to, they are not prepared to see the crisis through.

In many ways, the Barefoot College is a microcosm of a more just and creativeworld. Special emphasis is placed on giving the physically and mentally impairedthe same opportunities to work and belong to society as the physically and men-tally able. People who need medication but cannot afford to pay the market priceare charged 10 percent of that price by the health center; if they are really strug-gling, they are given the medication free of charge. Waste paper from offices isrecycled to make bags, pencil holders, origami, and teaching tools—which are inturn supplied to local night schools. Office equipment, fans, and lights are poweredby solar panels on the roofs of office buildings; living quarters are similarly sup-plied with solar energy. Drinking water and sanitation needs are met by a combi-nation of rooftop rainwater harvesting and local hand pumps; and the local envi-ronment is strengthened by a network of troughs that harvest rainwater and feedit into a large open well used to recharge the water table. Discarded intravenousdrip bottles and tubes are disinfected and used to irrigate plants on the campus in



this semi-desert area.The Barefoot College has been putting into practice an idea first espoused by

Mahatma Gandhi: that the resources required to develop poor communities liewithin the bounds of those communities. Human, technical, and financialresources need not come from outside in order for a community to bring aboutfundamental change and improve its quality of life. Too often, communityresources are neglected, looked down upon, and considered inferior just becausethey have not conformed to the formal requirements of the education system.

However, just as important, the college has demonstrated to the villagers them-selves that any one of them, man or woman, with little or no educational qualifi-cations, can learn to provide basic services to their own community. To be able tochange the mindset of poor rural people who have been made to feel that they can-not do it themselves is an enormous contribution. Less developed countries wouldbenefit immensely from adopting this Barefoot approach. It can eventually trans-form the outlook not only of development officials, but, most importantly, of therural poor themselves, instilling in them a “can do” attitude to improving theirown lives, and replacing the apathy and hopelessness they may feel after so manyyears of coming up against an irresponsive system that does not respect their abil-ities.

First they ignore you, then they laugh at you, then they fight you, andthen you win.

—Mahatma Gandhi

1. Julius Nyerere was President of Tanzania from 1964 to 1985. The full quote is as follows:

Development brings freedom, provided it is development of people. But people can-not be developed; they can only develop themselves.

For while it is possible for an outsider to build a person's house, an outsider cannotgive the person pride and self-confidence in themselves as human beings. Thosethings people have to create in themselves by their own actions.

They develop themselves by what they do; they develop themselves by making theirown decisions, by increasing their own knowledge and ability and by their own fullparticipation as equals in the life of the community they live in. People developthemselves by joining in free discussion of a new venture and participating in thesubsequent decision; they are not being developed if they are herded like animalsinto the new ventures.

Development of people can, in fact, only be effected by the people.

Nyerere, Julius. Freedom and Development. Uhuru na Maendeleo. A Selection fromWritings and Speeches 1968–1973. Dar es Salaam; London; New York: OxfordUniversity press, 1974; p. 58.


When someone like Bunker Roy has helped pioneer and define a global movement,inspiring successive generations of wildly innovative social entrepreneurs, it istempting to heap further laurels upon his head. Others, less generous in spirit,might be tempted to seek out his Achilles Heel. But with the world headed towardsa population of nine billion-plus sometime mid-century, perhaps there is a highertask. Perhaps we should try to dig a little deeper into the question: For all its won-ders, does Barefoot College provide a model that is sustainable, replicable and scal-able?

Roy and his co-author Jesse Hartigan have done us all a great service with theirpresentation of the Barefoot approach, but our aim in what follows is to reframethe achievements of what the more brand-savvy might call “The Barefoot Way.”1

For, much as we may love the Barefoot Way and community, the reptilian part ofthe brain keeps nagging away, asking whether there is not something about all ofthis that is more like a set of locally reported modern miracles, together with anaccompanying spray of parables, rather than a global revolution in the making.

And why is this important? Well, given the sheer scale and intransigence ofglobal poverty, it seems inevitable that there will be a growing number of calls toturn the current development system on its head, to let the poor find their ownway. Handing over responsibility for the future to the poor would provide a veryuseful alibi for some to do nothing—or, worse, to continue with forms of business-as-usual that undermine the world of the grindingly poor. In this scenario, theBarefoot parables could be used to reinforce strategies that were about as remotefrom the Barefoot principles as could be imagined—rather like what happenedwith the crusading Christian Church in the Middle Ages.

Not that we are looking for revolution. History shows that such social convul-sions rarely produce the sort of sustained changes their instigators hoped theywould. Indeed, many of these people end up under the guillotine or with theirbacks to pock-marked walls. Instead, accelerated evolution should be our goal.And here is a public health warning: while we aim to be analytical about theprocesses of—and trends in—social entrepreneurship, we often find ourselves

John Elkington

Standing the Poor World on its Head

Innovations Case Discussion: Barefoot College of Tilonia

John Elkington is a founding partner of Volans Ventures (http://www.volans.com), acofounder and non-executive director of SustainAbility, and co-author with PamelaHartigan of The Power of Unreasonable People: How Social Entrepreneurs CreateMarkets That Change the World (Harvard Business Press, 2008).

© 2008 John Elkington98 innovations / World Economic Forum special edition


completely wrapped up in the alternative realities that the world’s top social andenvironmental entrepreneurs so readily conjure.

As consummate marketers, these people typically confront us with stark con-trasts. They do it willfully, to catch our attention—and very often it works. So, theRoy/Hartigan case argues, the work of big donors and Western-conditionedexperts has been patronizing, top down, insensitive and expensive, disempoweringthe marginalized, the exploited, and the very poor. All true, up to a point, thoughvery often the failures of devel-opment have had at least asmuch to do with the endemiccorruption and inefficiency thatis the hallmark of many lessdeveloped nations and regions.

At first glance, at least asviewed through the Bunker Roykaleidoscope, the world seems tobe a place of intense whites andprofound blacks. Big (as in BigBusiness or Big Government) isbad, small—in all its infinitevariety—is beautiful. FritzSchumacher lives. And, certainly,there are deep, uncomfortabletruths here. But the world is avery much more complex placethan most propagandists wouldhave us believe. Western aid anddevelopment efforts may have been deeply flawed, but they are neither uniformlybad nor beyond remedy, given sufficient political will on the part of both donorand beneficiary countries. Think of the story of Robert McNamara, then of theWorld Bank, coming and sleeping on the floors of Tilonia in his quest for under-standing. These are not Nazis; they are often intelligent, committed, worried peo-ple desperately trying to work out how to drive political, economic, and socialchange.

Equally, big corporations may operate from sets of values that can seem com-pletely alien to ordinary people, but many have played a central role in the devel-opment of what are now better-organized, better-governed parts of the world.Interestingly, when we did our first survey of social entrepreneurs as part of ourthree-year research program funded by the Skoll Foundation (refer to the Reasonsto be Hopeful text box), we found that the world’s leading social and environmen-tal entrepreneurs are hugely interested in finding ways to work with mainstreamcompanies. Some, like Muhammad Yunus of Grameen, are already developing fas-cinating partnerships with companies like Danone, but most are not—and areonly too ready to declare that they don’t yet know how.

innovations /Davos-Klosters 2009 99

While we aim to be analyticalabout the processes of—and

trends in—socialentrepreneurship, we often

find ourselves completelywrapped up in the alternative

realities that the world’s topsocial and environmental

entrepreneurs so readilyconjure.

John Elkington

Ultimately, whatever individual social entrepreneurs may insist to their donorsor other stakeholders, there is no single entrepreneurial solution to the world’ssocial and environmental challenges. Instead, we urgently need much more entre-preneurial thinking and approaches right across the spectrum of human activity,from bottom to top, small to big, citizen sector to public and private sectors. Weare tempted to quote Mao Tse-Tung’s line that it’s time to let a thousand flowersbloom. But while Mao would then hack down the tallest blooms, the citizen, pub-lic and private sectors alike all need to develop the skills of entrepreneurial incu-bation, replication, and scaling.

Perhaps Barefoot College’s biggest contribution to the global debate will be inthe form of a demonstration project. Every so often, someone does somethingextraordinary, like the people who achieved heavier-than-air flight, broke the four-minute-mile barrier or the sound barrier, sailed solo around the world, or landedon the moon—and suddenly the impossible seems entirely possible to the widerworld. There is in the Barefoot Way something deeply significant for the twenty-first century, something that could be like a crucial new gene in a population understress, something that could help some parts of our collective future to take onrather unexpected forms. A provocative conversation with Paul Hawken as we


Reasons to be Hopeful

The early findings of SustainAbility’s Skoll Foundation funded work on socialentrepreneurship are encouraging, to a degree. First, it is clear that there hasbeen an extraordinary proliferation—and growth—of networks devoted to thereplication and scaling of entrepreneurial models, among them: Acumen,Ashoka, Echoing Green, Endeavor, The Schwab Foundation for SocialEntrepreneurship, and The Skoll Foundation for Social Entrepreneurship.

When we did our first survey as part of this program of work, we quizzedover 100 leading social and environmental entrepreneurs around the world. Thekey findings of the resulting report, “Growing Opportunity”, included the factthat these entrepreneurs—unlike many NGOs—have an overwhelming appetiteto work with mainstream business. The main problem is that they say they donot know how to select appropriate partners, nor do they know how to negoti-ate appropriate relationships. But such challenges are fairly readily addressed.

In our second survey, we set out to address a problem that surfaced when wecirculated SustainAbility’s corporate clients to say that we were extending ourwork into the field of social entrepreneurship. A handful—but we pay attentionto weak signals—said, in so many words, that they were sorry to be losing us aswe headed off into the outer darkness. For them, it seemed, working with NGOswas now part of business-as-semi-usual (fitting neatly into the corporate citi-zenship and risk management boxes), whereas working with entrepreneursexploring new markets and developing new business models somehow didn’t fit.

This blind spot was our target in our second survey, which produced a final


developed this commentary helped spur a line of thought in this direction, onewhich we will return to towards the end of the piece.

LEVERAGED NONPROFIT

So much for the teaser. More fundamentally, what sort of organizational life-formare we talking about here? And where do Bunker Roy and Barefoot College fit intothe entrepreneurial spectrum? In our ongoing work on social entrepreneurship, wehave focused on three main forms of social enterprise: Leveraged NonprofitVentures (Model 1), Hybrid Nonprofit Ventures (Model 2), and Social BusinessVentures (Model 3)2.

With Model 1 enterprises, a public good is delivered to the most economicallyvulnerable, who do not have access to, or are unable to afford, the services ren-dered; there tends to be a high degree of dependence on various forms of philan-thropy; there is often a central goal of enabling direct beneficiaries to assume own-ership of the initiative; and frequently the founding entrepreneur morphs into afigurehead, in some cases for the wider movement, as the processes of successionwork through.


report entitled The Social Intrapreneur. If Growing Opportunity focused on theworld of social entrepreneurs like Muhammad Yunus of Grameen Bank orBunker Roy of Barefoot College, this latest report focuses on what we might callthe “Yunus Inside” phenomenon of social and environmental entrepreneurs (orintrapreneurs) working inside mainstream companies. The degree to which thesocial intrapreneurs surveyed welcomed the process was quite extraordinary:many, it turned out, feel quite isolated in terms of the challenges they face insidetheir companies or organizations.

The best—or most effective—of these people are adept at fighting and sur-viving cynicism, caution and the status quo inside their host organizations. Theyhave found that they cannot turn their backs on the savage global inequities andenvironmental degradation that characterize the modern world. They believe inmarket solutions and are creating new business models. They are compellingtheir organizations to look outside their comfort zones—to see both the strate-gic risks and profound opportunities that exist beyond current business unittime horizons. They are not satisfied with suboptimal equilibriums, where mar-kets work well for some, but not at all for others. They flourish where they areprovided with—or can assemble—an effective base from which to leverageinnovative societal solutions.

And many of them are quick to note that their personal vision and workowes much to the extraordinary achievements of people like Bunker Roy,Muhammad Yunus, and the other leading edge pioneers we profile in The Powerof Unreasonable People.

John Elkington

Model 2 enterprises also serve the under- or un-served, but the notion of mak-ing (and reinvesting) a profit is not totally out of the question. The enterprise isable to recover a portion of its costs through the sale of goods and services, in theprocess often identifying (and in some cases helping to develop) new markets. Theentrepreneurs here mobilize funds from public, private and/or philanthropicorganizations in the form of grants, loans, or, in rarer cases, quasi-equity invest-ments.

As mainstream investors and businesses enter the picture, even when they arenot seeking mainstream financial returns, they tend to push hybrid nonprofit ven-tures to become Model 3 social business ventures, to ensure access to new sourcesof funding, particularly capital markets. Here the entrepreneur sets up the ventureas a business with the specific mission to drive transformational social and/or

environmental change. He or sheseeks out investors interested in com-bining financial and social returns.The enterprise’s financing—and scal-ing—opportunities can be significant-ly greater because social business canmore easily take on debt or equity.

All three pursue social or environ-mental ends that markets have largelyor totally failed to address, and theyuse different means to do so. In theprocess, they may adopt unique lead-ership, management, and fund-raisingstyles, each with its own implicationsand lessons for people working inmainstream organisations in the citi-zen, public, and private sectors.

Using this taxonomy, Barefoot College is a Model 1 venture. Ask most Model1 entrepreneurs why they are now working on a for-profit basis, and they will lookat you as if you are from another planet—which you just as well could be. Thesepeople aim to meet needs that are ignored by current market mechanisms andbusinesses. Maybe this blinds them to the occasional opportunity to operate on afor-profit basis, but generally they operate where the market air is too thin formainstream businesses to even think of venturing.

The following characteristics tend to be typical of Model 1 enterprises:• A public good is being delivered to the most economically vulnerable, who do

not have access to, or are unable to afford, the service rendered.• Both the entrepreneur and the organisation are change catalysts, with a central

goal of enabling direct beneficiaries to assume ownership of the initiative,enhancing its long-term sustainability.

• Multiple external partners are actively involved in supporting (or are being


We urgently need muchmore entrepreneurialthinking and approachesright across the spectrumof human activity, frombottom to top, small tobig, citizen sector to publicand private sectors.


recruited to support) the venture financially, politically, and in kind.• The founding entrepreneur morphs into a figurehead, in some cases for a

wider movement, as others assume responsibilities and leadership.You could argue that entrepreneurs applying leveraged non-profit approaches

are modern-day alchemists who, with minimal financing, leverage the power ofcommunities to transform an otherwise grim daily existence. While they learn a lotfrom failures, as Roy and Hartigan note, the best of them are proving more suc-cessful than most alchemists, whose fumbling experiments heralded the dawn ofthe industrial era. In like manner, leading social entrepreneurs signal where someof tomorrow’s largest market opportunities will be found—and, at least in outline,the sort of business models that will help turn those opportunities into social andmarket realities.

That said, companies—and other potential mainstream partners—should notbe fooled into thinking that these entrepreneurs’ dependence on external fundsand in-kind support will make them easy partners. Quite the contrary. Many carryan understandable rage born from years of watching their communities beingshortchanged, ignored, or destroyed by greed. Still, mainstream businesses thatcreate successful partnerships with these enterprises will likely find their thinkingchallenged, their horizons stretched, and their own employees reinvigorated.

SEXY, BUT WILL IT SCALE?

Successful entrepreneurs—whatever their field—tend to spin a good story. BunkerRoy is no exception. One that we have long liked relates to the home-made pup-pets the Barefoot community has used to change the attitudes of many communi-ties on issues such as child marriage, the rights of women, equal wages for women,and legal literacy. Roy loses few opportunities when speaking overseas to tell audi-ences that puppets were made from papier-mâché produced by recycling WorldBank reports. True or not, the story sticks in the audience’s memory—and with itthe fundamental principle of people taking their destinies into their own hands.

The Barefoot USP is clear. Billed as the only college in India that follows thelifestyle and work style of Gandhi, it is also the only college built by the poor, forthe poor, and managed, controlled, and owned by the poor. All very exciting, butthat every lack of “competition” should give us pause—you know an organizationis truly successful when you see competitors trying to emulate it. Given the role ofcompetition in opening out markets, Barefoot College’s very uniqueness signalsdeep-seated structural barriers in the “market.”

Again, while it is certainly fair to claim that Barefoot College is “a microcosmof a more just and creative world,” its survival and success has been very much dueto the vision, energy, and stamina of one man, Bunker Roy. Without his enormouscapacity to raise external resources, it would have been virtually impossible to fundsome of Barefoot’s current projects, including the process of hosting solar-engi-neers-in-training from other countries. This is particularly important because theCollege’s efforts have catalyzed generation upon generation of trainees who return


John Elkington

to their rural communities in developing countries with the knowledge and skillsneeded to construct rainwater-harvesting tanks from local materials or to solar-electrify their villages.

But how scalable is all of this? The case underscores the fact that, to date, 20colleges in the Barefoot mould have been established in 13 Indian states, all adher-ing to the same non-negotiable tenets. Later on in the story, we learn that morethan 340 ordinary village women from eight countries have trained as Barefootsolar engineers—and that they have gone on to solar-electrify some 550 schoolsand 13,000 households in more than 600 villages around the world. There havealso been significant parallel achievements in the area of rainwater harvesting incountries like Ethiopia. Again, the temptation is to applaud, to stamp the ground,and call for the beatification of such extraordinary people.

But it is as if we are watching the Wright Brothers wrestling their ungainlymachines into the air at Kittyhawk, knowing that what they are doing is of myth-ic proportions and significance, but knowing too that between those epic smallsteps and the great leaps that took the aviation and aerospace industries to theircurrent scales lie a huge amount of history, of technological and financial evolu-tion, and of extraordinary adventures that help the small become Big. What ismissing from the case—and we admit that this is not the authors’ purpose—is anyassessment of the shifts in thinking and behaviors in the citizen, public and privatesectors that will turn the Barefoot Way into a basic tenet of twenty-first centurypolitics, business, and financing.

UNLEARNING

There is no doubt that Bunker Roy qualifies for our highest label of praise: he is awildly unreasonable man. The title of the book—The Power of UnreasonablePeople—that summarizes our own thinking and work to date references somethingthat playwright George Bernard Shaw once said. “The reasonable man adapts him-self to the world,” he noted, whereas “the unreasonable one persists in trying toadapt the world to himself.” Therefore, Shaw concluded, “all progress depends onthe unreasonable man.”

And one of the most strikingly unreasonable features of the Barefoot Way, atleast as articulated by Roy, is the notion of unlearning. It may sound uncomfort-ably reminiscent of the “re-education” camps that so often followed in the wake oftwentieth century revolutions, but the notion that much of what we took forgranted—and that development professionals preached—in the last century is suf-ficiently flawed to require intense re-examination strikes us as eminently reason-able, indeed very much overdue. But there is a danger in all of this that acolytes endup so celebrating the practical wisdom of the poor that we cascade all the respon-sibility for their state—and for the arduous task of finding relevant solutions—tothose at the bottom of the pyramid of wealth and power.

It is interesting that part of the role Bunker Roy has played is almost akin tothat of Old-World prophets, channelling angels down from the heavens. So we



learn not only about McNamara making a flying visit, but also that Tilonia hasseen an endless flow of international dignitaries—among them Prince Charles—who have helped put and keep Barefoot College on the political radar screen. Andthen there are the throw-away lines about people like architect-designerBuckminster Fuller, whose geodesic principles inform some of the most interest-ing Barefoot buildings. Clearly, this isn’t a black-or-white world, but a chequeredworld, a world of intensely shaded greys, of combinations, of hybrid outcomes.

And the ability to survive and thrive in such zones of complexity, we havefound, is a key characteristic of successful social entrepreneurs. When we tried todistill down some of the most crucial characteristics for the book, the followingleaped out at us. Among other things, these entrepreneurs:• Try to shrug off the constraints of ideology or discipline.• Identify and apply practical solutions to social problems, combining innovation,

resourcefulness, and opportunity.• Focus—first and foremost—on social value creation and, in that spirit, are will-

ing to share their innovations and insights for others to replicate.• Jump in before they are fully resourced.• Have an unwavering belief in everyone’s innate capacity, often regardless of edu-

cation, to contribute meaningfully to economic and social development.• Show a dogged determination to take risks that others wouldn’t dare assume.• Balance their passion for change with a zeal to measure and monitor their

impact.• Display a healthy impatience (e.g. they don’t do well in bureaucracies, which can

raise succession issues as their organisations grow—and almost inevitablybecome more bureaucratic).

• Have a great deal to teach change-makers in other sectors.

THE TRANSPARENCY GENE

Standing back from the Barefoot case, we are left with the question of whether allthis can—and will—replicate and scale in a globally significant way. The answerhas to be, up to a point. The fact is that even a 100-fold or 1,000-fold scaling of thecurrent Barefoot College operations would only scratch the surface of India’s chal-lenges, let alone those of the rest of the world. But, mercifully, replication and scal-ing can happen in multiple ways.

In our first set of bulleted points above, outlining some of the characteristicsof Model 1 social entrepreneurship, we noted that often the founding entrepreneur“morphs into a figurehead, in some cases for a wider movement.” That is precise-ly what Bunker Roy has done—and there are ways in which this process can cat-alyze change at very different levels. So, for us at least, this is all a bit like gene trans-fers. There is a set of Barefoot genes that could be adopted to good effect by a widerange of citizen, public, and private sector organizations, if only they knew thewhys and hows.


John Elkington

The “Unlearning Gene” would certainly be one of these, as long as it is accom-panied by assorted learning genes and related promoters, but maybe the mostimportant element of the Barefoot Way—and one that even Bunker Roy wouldprobably admit Barefoot has been singularly unsuccessful in spreading to the restof India, at least as yet—is the “Transparency and Accountability Gene.” Given theway in which the lack of transparency and accountability promotes and protectscorruption and inefficiency, finding mechanisms that let the sun shine in, thatdevelop appropriate governance and stakeholder engagement mechanisms—builton but expanded from the basic Barefoot approach—could rival the “Stand-the-Poor-World-on-its-Head Gene” as the single greatest contribution that theBarefoot community could make to the wider world.

Like the early versions of major religions, the austerity element of the BarefootWay may limit its spread, but just as new growth can spring through the forestfloor after a fire sweeps through, so new genes, new social and market perspectives,and new business models can erupt into the market landscape after major discon-tinuities. And that is where the conversation with Paul Hawken, author of manyfine books, most recently Blessed Unrest,3 comes in.

He and John Elkington were talking about the prospects for a global econom-ic meltdown, as the sort of natural-resource and environmental limits predicted bythe Limits to Growth team in the early 1970s arrive on an accelerated time-scale,driven by a Perfect Storm of population growth, spreading consumerist lifestyles,and the onset of Peak Oil, Peak Water, Peak just-about-everything. Hawken coun-tered Elkington’s pessimism about the capacity of solar and other relevant energyand environmental technologies to deploy fast enough to meet the emerging chal-lenges by noting what had happened in the United States when it finally swunginto World War II and ramped up its mighty engine of production. As LibertyShips, aircraft carriers, cruisers, tanks and Jeeps poured off the production lines, herecalled, much of the work was done by people who had no previous experience ofengineering or manufacturing: remember the inspirational ad campaigns around“Rosie the Riveter”4.

Perhaps as the pressures on our economies and societies intensify, with climatechange helping turn up the heat in so many different senses, elements of theBarefoot model could be hybridised with elements of the cleantech revolution nowsweeping the world.5 The work of Bunker Roy and his colleagues at least allows usto live in hope.

1. Jesse Hartigan worked at the Barefoot College, Tilonia, from April to August 2007; he is the sonof Pamela Hartigan, who is both co-author of The Power of Unreasonable People with JohnElkington and also a co-founder of Volans Ventures.

2. See John Elkington and Pamela Hartigan, The Power of Unreasonable People: How SocialEntrepreneurs Create Markets That Change the World, Harvard Business Press, 2008

3. Paul Hawken, Blessed Unrest: How the Largest Movement in the World Came into Being and WhyNo One Saw It Coming, Viking Press, 2007; see also http://www.blessedunrest.com/

4. See <http://en.wikipedia.org/wiki/Rosie_the_Riveter>.5. See <http://en.wikipedia.org/wiki/Cleantech and http://www.cleantech.com/>.


As a Nigerian with disability, I consider myself an exception rather than the rule,because I was fortunate enough to get a good education and the rehabilitation andequipment I needed. As a primary school pupil in the 1970s, I had to crawl on allfours; no mobility aids were available. My older siblings got me to and from schoolon a bicycle. During my holidays as a secondary school student, I was dismayed todiscover how dependent I was on my brother to drive me everywhere in ourfather’s car. I was petrified at the thought that he might not have time to drive meor would refuse if we were to quarrel. And what if I worked hard enough in thefuture and bought a car of my own? Would I have to depend on a driver?

Determined never to be dependent on anyone for transport, and eager to assertmy independence, I secretly developed a device that let me drive using only myhands. I researched it extensively, sneaking into my father’s car to test prototypes.My first attempts failed woefully, but I eventually developed a model that worked.When my test-drive ended in a minor crash, my father was furious. But when Igraduated from university, my family helped me acquire a car, which I drove usingthe device. Called the Cosokoli Hand-Control Mobilizer, it allows people withlower limb paralysis and amputations to drive conventional cars using only theirhands. [See Text Box 1 on following page.]

The mobilizer was my second innovation. As a secondary school student in thelate 1970s, I struggled with my leg braces, which constantly fell apart. Moreover, bytheir very nature, the braces kept me from wearing other types of shoes. So I madesketches of a better and more durable brace that would allow me to wear any typeof shoes. A roadside welder and technician brought my sketches to life. After sev-eral refinements and some testing, I began to use the braces that I dubbed the CosyEasy-fit-in Calipers. A quarter century later, our organization has fabricated thou-sands of these versatile, electroplated leg braces for clients who marvel that theycan wear them with conventional shoes.

© 2008 Cosmas Okoliinnovations / Davos-Klosters 2009 107

Cosmas Okoli

Ending DependencyMAARDEC Takes a Multi-Dimensional Approachto Rehabilitation of Disabled Nigerians

Innovations Case Narrative: MAARDEC

Cosmas Okoli is the founder and CEO of MAARDEC. He is an Ashoka Fellow, andhas been recognized as an Outstanding Social Entrepreneur by the SchwabFoundation for Social Entrepreneurship.


By 1991, after many hours tinkering in workshops, I had developed severalother inventions. Noticing how little support was available for persons with dis-abilities in Nigeria, I established MAARDEC, the Mobility Aid and AppliancesResearch and Development Center. With the award-winning mobilizer as its crown

jewel, MAARDEC has sinceenabled thousands of disabledNigerians to live independent-ly.

My main reason for estab-lishing MAARDEC was toshare my personally devel-oped innovations with fellowNigerians with disabilities; Ialso wanted to start a move-ment to address the manyproblems militating againsttheir empowerment. TodayMAARDEC is a radical, holis-tic, and multi-dimensionalapproach to rehabilitating,empowering, and developingpersons with disabilities and

helping them reintegrate into mainstream society. Made up of over a dozen com-ponents, it draws strength from the synergy between them. In the rest of thispaper, I will describe those components, after a short bit of history.

REHABILITATION, LIKE CHARITY, BEGINS AT HOME

Fate dealt me a cruel hand in 1966; at age four, I lost the use of my legs topoliomyelitis. Soon after, my mother died, and then we faced the traumatic three-year-long Nigerian Civil War, much of it happening in our part of the country.Because my future seemed bleak, my father, a pioneer educator, prepared me for alife as a village cobbler/shoemaker, behind my back and without my consent. But Ihad other ideas. When my older brother was enrolled in elementary school, Idemanded that my father enroll me too. I got my wish.

Cosmas Okoli

My main reason forestablishing MAARDEC was toshare my personally developedinnovations with fellowNigerians with disabilities; Ialso wanted to start amovement to address the manyproblems militating againsttheir empowerment.

Ending Dependency


The Hand-Control Mobilizer

The Hand-Controlled Mobilizer is a simple push-and-pull device. It uses a sys-tem of mechanical linkages attached to clamps on the brake and acceleratorpedals of an automatic transmission vehicle to allow a person to drive withoutusing their legs.

A 12mm-thick rod, 460mm long, is housed inside a single pipe 390 mmlong with two different sectional diameters: 15mm and 20mm. The tolerancebetween the rod and pipe allows the user to push and pull the rod inside thepipe.

When the user pushes the L-shaped arm down, the rod presses downdirectly onto the brake pedal to slow the vehicle. When the user pulls the armup, the device uses a series of linkages to activate the accelerator pedal andspeed up the vehicle. The transmission must be in drive position for any move-ment to be possible.

Note: The original mobilizer was designed for manual-shift vehicles. It had two extensions thatwere operated with the same hand that engages the shift-stick gear. We have discontinued thisold model, which some clients found cumbersome. We now advise clients to buy automatictransmission vehicles.

The device requires minimal maintenance, just occasional tightening of loose parts. It canbe removed from one vehicle and installed in another. We know of one device that has been inuse for 12 years.


At school, classmates called me names because, without access to a wheelchair,I crawled on all fours. In our native Igbo language, the word “cripple” literallymeans “a helpless human vegetable.” Determined not to be traumatized by thename calling, I studied diligently and consistently scored at the top of the class, tothe utter chagrin of my classmates. Over time I became quite popular, especiallywith those who wanted help with their schoolwork. But before I gave them anyhelp, I made them apologize and promise never to call me names again. When theyrefused to let me play soccer—which I loved but could only play with my hands—I got my father to buy me a ball of my own. As a ball owner, I made the rules and

decided who playedwith me and who did-n’t.

At home, I wastreated like every othermember of the family.Like the rest of my sib-lings, I took turnssweeping the house,washing clothes, andwashing dishes. My sib-lings helped me only byfetching water andmaking sure I was wellsettled on a low stoolwhenever I did thewashing. I was alsospanked just like them.At home, I gainedample self-confidenceand developed a can-do mentality that mademe see disability forwhat it is—a challengethat can be overcomeby dint of hard work

and creative imagination. I resolved quite early in life not to let disability stand inthe way of living a full and productive life.

In 1973, my father enrolled me at the Salvation Army Home for PhysicallyHandicapped Children at Oji River in Enugu state. After surgery and physiothera-py, I was fitted with leg braces and given a pair of crutches. For the first time in mylife, I could move about independently and with more dignity. It was liberating,and reassuring to be among peers with disabilities for the first time. Having mas-tered the use of braces and crutches after two years, I returned home to completeprimary school. I also attended a conventional secondary school.

Cosmas Okoli

In the early 1980s, I was anundergraduate at the University ofLagos. Late one night I woke up tofind my roommates fighting. Theywere using my crutches asweapons—and soon damagedthem. Over the next few days I triedto purchase replacement crutches,checking everywhere I could inLagos, then Nigeria’s capital city.Desperate, I contacted my father inmy hometown, some 600 kilometresaway; after a two-week search, hesent me a pair of crutches.

Ending Dependency

In the early 1980s, I was an undergraduate at the University of Lagos. Late onenight I woke up to find my roommates fighting. They were using my crutches asweapons—and soon damaged them. Over the next few days I tried to purchasereplacement crutches, checking everywhere I could in Lagos, then Nigeria’s capitalcity. Desperate, I contacted my father in my hometown, some 600 kilometers away;after a two-week search, he sent me a pair of crutches. Meanwhile, I sat in my roomand missed lectures. It dawned on me that Nigeria greatly needed a local establish-ment to fabricate mobility aids.

In 1987, I was in the first contingent of athletes with disabilities to representNigeria at the World Stoke Mandeville Wheelchair Games in the UK. When wereturned, we immediately had to give up the five wheelchairs the government hadloaned us—even though some of us did not have our own wheelchairs. I wasshocked. Were wheelchairs that scarce? In 1990, having won a national youth serv-ice award, I was appointed a staff and social development officer of the federalministry responsible for social welfare. There I discovered that the departmentprovided not a single wheelchair, despite countless requests and recommendationsfrom our department. I soon resigned my appointment and in 1991 set upMAARDEC to remedy this sorry state of affairs.

Before MAARDEC was formally established in 1992, I had long been usingmobility aids I had developed. My friends with disabilities were fascinated to see


Figure 1. Source of Funding


that I wore conventional shoes with my leg braces. Others marvelled that I coulddrive myself around town, or were curious about the sturdy, electroplated, ironelbow crutches I used from year to year. I established a workshop to mass producethese mobility aids and appliances to benefit my friends and others. This workshopwas the foundation for MAARDEC. In our workshop, we use conventional tools,like machines to drill, grind, bend, and weld materials. We are now developing alift that will enable a wheelchair user to get into his car by himself and then driveor be driven.

SUSTAINING THE ORGANIZATION FINANCIALLY

In 1991, when I quit my job in the Nigerian civil service, I invested my life savingsto set up MAARDEC. Based on my personal experiences and the problems facingNigerians with disabilities, I was determined to make MAARDEC work. Indeed, Ibecame a one-man crusade. At this point, Ashoka, Innovators for the Public,played a pivotal role; it sought me out and made me a fellow, with a very welcomefour-year stipend.

At one point, I used some of my Ashoka stipend to run the center. Today, withits envisioned hearing aid project (described below), MAARDEC hopes to gener-ate more than half of its $1.5 million budget from sales, the rest through dona-tions. Over the years, we have devised a combination of ways to fund the center.Figure 2 shows our sources of funding in an average year, though the proportionsvary from one year to another. [See Figure 1: “Source of Funding”]

Our primary source of income is the products and services we sell. We areabout the only establishment in Nigeria that has the expertise to fabricate, assem-ble, repair, adapt, and maintain an assortment of mobility aids and appliances. Wealso stock various spare parts and accessories for them, along with equipment forthose with visual and hearing impairments. As a result, we work with many cus-tomers—individuals, hospitals, rehabilitation centers, retirement homes, and gov-ernment contractors. For a fee, we fabricate hospital beds, trolleys, commodes, anddrip stands.

We also repair wheelchairs and can adapt conventional cars with our Hand-Control Mobilizer so that persons with disabilities can drive. We can also fabricatecustomized versions of our sturdy crutches and leg braces. In addition, we repairbicycles, fabricate gates and barbeque grills, build ramps for clients’ SUVs, refur-bish metallic office furniture, and offer spray-painting services. Moreover, for a fee,our in-house physiotherapist will attend to the needs of recuperating accident vic-tims and the aged and infirm in our clinic or in their homes. Overall, sales fromproducts and services provide 42% of our budget.

We also get funding from many other sources, including governments andagencies, and many people donate goods, time, and expertise. At our formal open-ing in 1992, the federal government gave us 500,000 naira (then equivalent to U.S.$50,000). In 1996, the Ministry of Women’s Affairs and Social Development donat-ed workshop equipment. In 1994, at the Lagos Motor Fair, we met individuals from

Cosmas Okoli

Ending Dependency

the Royal Netherlands embassy in Nigeria, which later donated 800,000 naira (U.S.$40,000) worth of products, and became a major sponsor of our 1995 Reach-outProgram. As I will describe later , the agencies that have paid us to conduct researchinclude the National Agency for Food and Drugs Administration and Control(NAFDAC) and the World Bank.

MAARDEC also obtains financial support from two private companies I ownand run: Cosokoli Ventures Nigeria, Ltd., a transportation company, and OmokasNigeria Ltd., a registered customs clearing and forwarding agent. They are morefinancially viable than MAARDEC, with which they share office space and a sym-biotic relationship. I spend about 15% of my time on these businesses.

A final, very important source of support is partners and supporters who offerdonations of goods and time. Companies donate sweets, juices, and non-alcoholicbeverages, along with wheelchairs and spare parts for prostheses. They also providecouriers and decorators to support our programs. These donations save us havingto pay for products or services ourselves, especially for our annual Reach-outProgram.

In addition, MAARDEC has 75 volunteers whose support in the form of timeand expertise has been invaluable in all our programs and activities, especiallyReach-outs. Over the years, many of the masters of ceremony for our programshave been popular television personalities and actors who are eager to give theirservices. We recently entered into a partnership with a motivational speaker andhuman performance coach who donates his services during our motivational sum-mits and staff retreats.

OUR WORK: PROVIDING EQUIPMENT AND SERVICES

In combination, our income from various sources and the work of our volunteersallows us to provide a wide range of mobility aids and services. We began our workwith the aids themselves, and they are still our primary focus, because mobilityaids provide independence. While a few orthopedic hospitals and rehabilitationhomes provide a few such aids, MAARDEC caters to the entire range of needs ofNigerians with disabilities. We have designed MAARDEC as a one-stop center,devoted exclusively to fabricating, assembling, repairing, maintaining, and selling(at affordable rates) an assortment of mobility aids and appliances.

For example, some overweight clients ask us to fabricate wheelchairs and com-modes to fit them. We also convert conventional motorcycles into tricycles by mak-ing all the controls hand-operated. We also stock prosthetic supplies, specialtywheelchairs, crutches, incontinence supplies for paraplegics and quadriplegics, andproducts for those who have visual or hearing impairments. If we cannot fabricateproducts, we import and stock them.

Before MAARDEC was established, Nigerians with disabilities depended most-ly on medical supply dealers. But these dealers stocked few mobility devicesbecause users could rarely afford to buy what they needed. Nor could the dealerssupply the wide variety of needed products, fabricate products from scratch, or



adapt them to suit users’ specific needs. From the beginning, then, MAARDECaimed to make a range of products and services available, at all times, at affordablerates, under one roof.

But our work providing mobility aids is merely the basis for a multi-facetedorganization, whose initiatives reach throughout the Nigerian society and govern-ment. We offer many of our services and programs free or at very low cost to par-ticipants. Among them are the following:

Physiotherapy services. MAARDEC employs a physiotherapist, who assesses peo-ple with disabilities and determines what equipment will allow them to moveabout independently. After our technicians finish with the fabrication and fitting,we train our clients to use the equipment appropriately.

Guidance and counseling services. MAARDEC offers free guidance and counselingservices to these individuals and their family members. We counsel them onmany aspects of life. First, we focus on discovering and developing their innateabilities to earn a living, return to school, or start a business. We also help themparticipate in sports events. We counsel them in ways to become more independ-ent and to manage their understandable anger. We offer information and adviceon reproductive health and AIDS, on relationships and sexual harassment, andon being professional in the workplace; we cannot let disability become an excusefor incompetence. But most of all, we encourage them to shun begging in anyguise. Working with their family members, we disabuse them of the many ill-founded notions associated with disability in our society, and we implore themto encourage and support family members with disabilities to lead full and pro-ductive lives.

Motivational summits. As an extension of our guidance and counseling services,we organize motivational summits. Professional motivational speakers and suc-cessful individuals with disabilities serve as role models, teaching participantssurvival strategies and ways to tap their innate abilities. Since 1991, through thisservice, we have touched the lives of 1.57 million Nigerians with disabilitiesdirectly and indirectly.

Mentoring programs. Role models with disabilities are still in short supply inNigeria. I mentor young persons to excel in spite of their disabilities. I alsoencourage my friends with disabilities who have become professionals to mentorothers. Four people I have mentored have gone on to win state and nationalawards and gain automatic employment in the civil service, as I did 19 years ago.One of them was a former secretary of MAARDEC, who had been a victim ofpolio. She was also nominated to the national political reform conference, whereshe held her own against politicians and other influential leaders as she made acase for Nigerians with disabilities.

Vocational training and employment assistance. One of my cardinal goals whiledesigning MAARDEC was to provide employment opportunities for Nigerianswith disabilities. To this end, I have ensured that at least 50% of our staff are indi-

Cosmas Okoli

Ending Dependency

viduals with disabilities. Since few of them have formal education and stand lit-tle chance of gainful employment elsewhere, we train them in-house in specifictechnical skills applicable to our work. Others are employed after being trainedelsewhere. Over the years, many have become master technicians, skilled at fab-ricating, assembling, repairing, and maintaining our entire range of products. Wealso support qualified persons with disabilities in their job searches, sometimesoffering letters of recommendation.

Support for artists with disabilities. Between 1999 and 2002, we managed thecareer of Nigeria’s foremost mouth-artist, Late Idowu Akinrolabu, a quadriplegicwho paints with his month. We supplied him with a hand-controlled electricwheelchair and adapted it with mouth-controls, and also sought out sponsors forhis first major exhibition in 2001, introducing his works to art lovers and estab-lishing him as a full-time artist. Based on this success story, we are currentlytraining another quadriplegic to become a mouth-artist. We have also collaborat-ed with Creative Connections, a U.S.-based organization, on an art-exchangeevent involving 48 hearing-impaired Nigerian youths. They produced art workbased on various themes from their culture and environment and sent them tochildren in U.S schools, who responded by sending their own art to Nigeria.

Outreach to the poor. I was dismayed to discover in 1993 that no matter howmany rebates or discounts we put on our products, the vast majority of Nigerianswith disabilities still could not afford them. The reality is that they are the poor-est members of society. In 1994, with great fanfare we introduced our Reach-outProgram, in partnership with local and international philanthropic individuals,corporate bodies, religious groups, embassies, etc. This was long before corporatesocial responsibility became part of corporate culture in Nigeria. The Christmas-season program has now become the high point of our annual calendar. To date,we have distributed 56,200 assorted mobility aids and appliances, valued at77.265 million naira (or U.S. $643,875), to Nigerians with disabilities. Roughly 45volunteers assist us with the logistics of organizing this annual event.

Direct financial assistance. In addition to the Reach-out Program, we give directfinancial assistance and donate our products and services to the indigent dis-abled. People come to our center to have their wheelchairs repaired, but they can-not pay for the repairs or for the transportation home. Countless others cannotafford to come pick up their donated wheelchairs. When this happens,MAARDEC foots the bills.

We also pay for rehabilitation with our physiotherapist and doctor. When wediscover clients cannot pay, we offer the services at no cost. In other cases, wecontact hospitals and philanthropic individuals we know and ask for support inthe form of money or donated services. We have also obtained scholarships andpaid school fees for people with disabilities whose families cannot manage thefinancial burden of caring for them.

Developing microfinance and small enterprises. Because MAARDEC cannotemploy every person with a disability, we have found other ways to empower



them to go into business for themselves. Some are trained in crafts like shoemak-ing, carpentry, tailoring, hairdressing, electronics repair, photography, and pro-ducing confectionery and furniture. Others can provide business or telephoneservices. But they usually lack the financial wherewithal to expand or scale upthese businesses. In response, we have partnered with philanthropic individualsand corporations to obtain interest-free loans or donate equipment to smallbusiness owners. So far, over 200 people with disabilities have benefited from thisintervention. The loans range from 50,000 to 100,000 naira (U.S. $417 to $833).Machinery and equipment are donated and need not be paid for.

Promoting participation in sports. When I attended a school for the physically dis-abled, we played soccer on our crutches and had tug-of-war competitions. I wasone of the first Nigerians with a disability to compete in, organize, and adminis-ter sports for other people with disabilities. I represented Nigeria in wheelchairtable tennis at international championships. Passionate about sports, I was elect-ed president of the Special Sports Federation of Nigeria (SSFN). The first personwith a disability to head the federation, I held office from 1995 to 2001.

The highlight of my tenure was successfully lobbying the authorities inNigeria to establish sports for persons with disabilities as events that earnedscores at national sports festivals. This paved the way for athletes with disabilitiesto become sports professionals, rather than merely offering demonstrations. In2000, I led a delegation of Nigerian athletes with disabilities to the SydneyParalympics. We won seven gold, one silver, and five bronze medals—in starkcontrast, our able-bodied Olympic contingent won not a single gold medal.Some of these athletes are still the world record holders in their events. Othershave worked on our staff.

Over the years, I and other athletes with disabilities, have introduced othersto sports and have seen them win four out of Nigeria’s five gold medals at the2006 Commonwealth Games in Brisbane, Australia. A career in professionalsports is now open to millions of young Nigerians with disabilities who can rep-resent Nigeria’s states and the country at national and international sportingevents. Participating in mainstream sports events is one important avenue forreintegrating people with disabilities into mainstream society. Sports can bringpeople out of the depression that can result from the psychological effects of dis-ability and help them become well-adjusted citizens with a means of livelihood.

Research and Development. A major part of our operations involves research anddevelopment of mobility aids and appliances and mechanisms to address disabil-ity issues. We do not see the nation making any appreciable headway in empow-ering people with disabilities to become productive and independent. So,through research, we hope to do so.

Let me provide just three examples. First, in 2005 MAARDEC conducted anationwide study on the ways that fake and adulterated food and drugs can causedisabilities; we found that such substances were responsible for 5 percent of dis-abilities in Nigeria. Second, we provided consultancy services to Adekunle Ajasin

Cosmas Okoli

Ending Dependency

University on ways to make the campus accessible to students with disabilities. Afirst phase in the project, an accessible hostel, is now in use. Third, in March 2007the World Bank asked us to develop a mechanism to address issues of child/youthdisability in Nigeria.

We also conduct research to improve our products. In 2006, we developed alightweight manual tricycle that reduces both production time and cost; in 2007we built 75 of them. With sponsorship from the First Bank of Nigeria, we distrib-uted 60 of them during our Reach-out Program. We also improved our leg braceswith a streamlined design—instead of leather kneepads, strategically placedVelcro straps now stop the user’s knee from buckling. We have also developedand test driven a racing version of our manual tricycle, which we intend to massproduce for use in races and for recreation.

ACTIVISM:DEVELOPING LEGISLATION AND ORGANIZATIONS OF THE DISABLED

In addition to our other work, we are very committed to activism and organizingfor the disabled. In Nigeria, people with disabilities have virtually no legal protec-tion. Public buildings, roads, and transportation systems are inaccessible. GivenNigeria’s culture of atrocious driving habits, plus its open drainage system, peoplewith disabilities face dangers every time they go out in public. They also experienceovert discrimination in the workplace. Nigerians must redress these unfortunatesituations and develop a more inclusive country—as I stress every time we have anopportunity in the media or at MAARDEC events. As a start, we took action whenwe learned of an obscure government directive from 1986 directing all employersof up to 100 workers to reserve 2 percent of their positions for qualified Nigerianswith disabilities. Though few employers have complied, we spread the word aboutthis directive, and some people with disabilities have gotten jobs by pointing it outto prospective employers.

We focus on two areas of activism: legislation and organizations. AtMAARDEC, we stay abreast of legislation in the National Assembly pertaining topeople with disabilities. In 2005, along with Senator Bode Olajumoke, who chairsour board of directors, I visited the Senate president; we implored him to havePresident Obasanjo sign the Handicapped Persons (Public Buildings) SpecialFacilities Bill, 2004 (HB. 31), which had been passed by both houses. In 2005 wealso joined otheres to advocate for a bill establishing the National Trust Fund forthe Disabled.

In 2007, through the Association for Comprehensive Empowerment ofNigerians with Disability (ASCEND), we sent a comprehensive bill to the NationalAssembly to protect the rights of Nigerians with disabilities, and we are now lob-bying the 36 state assemblies to follow suit. We also visited the Lagos MetropolitanArea Transport Authority (LAMATA) to point out that the dedicated bus system,partly funded by the World Bank, is not accessible to people with disabilities.LAMATA is now starting to provide for passengers with disabilities. In addition,



five individuals with disabilities are now serving state governors as special adviserson disability matters, and two states have passed legislation granting automaticemployment in the civil service to qualified individuals with disabilities.

Nigerians with disabilities also need a cohesive body of advocacy organizationsso we can pursue a comprehensive, common agenda. In the past, separate organi-zations have wasted tremendous amounts of energy by presenting different agen-das on the same issues—and the authorities have not taken these groups seriously

or funded them consistent-ly. Meanwhile, petty inter-nal bickering within organ-izations distracts them fromtheir goals.

After years of observingthis situation, in 1998 Istarted nurturing an organ-ization of Nigerians withdisabilities. In 2002, Ibrought on board col-leagues with disabilitiesfrom different back-grounds. In 2006, theAssociation forC o m p r e h e n s i v eEmpowerment of Nigerianswith Disability (ASCEND)was fully registered andstarted in earnest. So far wehave chapters in 12 ofNigeria’s 36 states, with100,000 members nation-

wide. We aim to use that numerical strength to become a formidable politicalgroup.

Currently operating from the MAARDEC office, we work with affiliatedorganizations and political parties to get better deals for all of us. For example, inDecember 2006, before the 2007 Nigerian general elections, we visited theIndependent National Electoral Commission to find out about its provisions forpersons with disabilities. During the election, five ASCEND members worked withindependent electoral observers to monitor the election. Last dry season we con-ducted a successful road show across seven states, culminating in a national rallyin Abuja on December 3, 2007, to commemorate the International Day for theDisabled. In the process, we visited state governors to inform them about ouractivities and implore them to empower their citizens with disabilities.

Cosmas Okoli

In Nigeria, people withdisabilities have virtually no legalprotection. Public buildings,roads, and transportationsystems are inaccessible. GivenNigeria’s culture of atrociousdriving habits, plus its opendrainage system, people withdisabilities face dangers everytime they go out in public. Theyalso experience overtdiscrimination in the workplace.

Ending Dependency

FUTURE PROJECTS AND CHALLENGES

We have many hopes and plans for the future, after we relocate to a larger, perma-nent site that can accommodate the many projects I just described. With the helpof my two private companies, we have taken out a bank loan to purchase a prop-erty in Lagos.

Franchise the MAARDEC model. We are looking for funds to establish 37 out-lets, one in each state plus Abuja, through a franchise. These franchises will bemanaged by trained people with disabilities to bring our services closer to thedoorsteps of Nigerians with disabilities. We currently have an impact on the livesof only 6.3 percent of the 24.8 million Nigerians living with disabilities, but thisproject will let us reach out to more of them. If all goes well with the 36 franchis-es, we intend to reach out farther to the774 local government areas around thecountry.

Localize and regionalize our annualReach-out Program. In the past year, wehave reached out to philanthropic indi-viduals, corporations, and state govern-ments to partner with us and organize ourannual Reach-out Program in their local-ities. This is a follow-up to the 2007Reach-out, which we held in five locationsacross the country. We want to bring ourprogram closer to Nigerians with disabili-ties to save them having to travel.

Provide ICT training to Nigerians with disabilities. The Internet has opened upan information superhighway, but in Nigeria relatively few people, even in urbancenters, have good Internet services. And relatively few of Nigeria’s 142 millionpeople are computer literate, especially in rural areas. But Nigerians with disabili-ties can support themselves and help others by opening cybercafés. We plan to col-laborate with our sponsors and supporters, as well as Rodrigo Baggio, a Braziliansocial entrepreneur who provides similar training to poor children in Rio deJaneiro’s slums. We intend to seek donations of gently used desktop computers andappropriate equipment for connecting to the Internet.

Expand the microfinance facet of our activities. A majority of Nigerians with dis-abilities are involved in small-scale businesses, so MAARDEC intends to expand itsintervention, bringing in more partners and sponsors. We intend to provide smallloans to 100 Nigerians with disabilities every year, so they can start or developbusinesses. This would also require that we create effective structures for monitor-ing and evaluation.

Produce and market affordable hearing aids locally. We are currently developingan agreement with a U.S.-based social entrepreneur to produce and market state-of-the-art hearing aids in Nigeria. We intend to train persons with disabilities to


Our ultimate goal is toempower as many

people with disabilitiesas possible, so as toreduce poverty and

dependency.


administer a hearing test and provide a patient with the right hearing aid as quick-ly as possible. This will be an important source of income for the organization. Weintend to give discounts—or free aids—to people who cannot afford them, but wewill sell them for profit to individuals or organizations that can afford them. In thepast, we lacked the expertise to cater fully to this group; but now, with this venture,we can.

Organize art competitions and exhibitions for Nigerians with disabilities. As inevery other sphere of national life, Nigerians with disabilities are under-represent-ed in the arts. With our growing list of sponsors, donors, and supporters, we intendto start a program to discover talented Nigerian artists with disabilities and organ-ize competitions and exhibitions for them. Then they can make names for them-selves and earn income as well. Our search will extend to schools at all levels andto practicing artists.

Establish an Empowerment Village by 2015. Our proposed village will house allour activities under one roof. We envision putting many facilities in place. A facto-ry will produce mobility aids and appliances, which will be finished in the electro-plating plant. Individuals will seek services at the physiotherapy clinic, and thevocational training and employment bureau, and will engage in a range of sportsat the indoor sports hall and outdoor sports facilities. People in other offices willbe engaged in research and development and in microfinance and enterprisedevelopment. Finally, a farm will provide both food and facilities where people cantrain in fish and snail farming. We already have set land aside for this project; withenough funding, we can have it running well by 2015. We also plan to train 1,000Nigerians with disabilities annually, at various vocations. When they finish theirstudies, we will help them start their own small- and medium-scale industries byaccessing the many microfinance opportunities available.

Replicate the MAARDEC Model. Our model can be replicated in other Africancountries and indeed in developed countries. In Nigeria, some organizations havecopied aspects of our model, but none have replicated it wholesale. In Ondo state,the Handicapped Development Foundation is loosely based on our model; itsfounder may partner with us to integrate more components of our model. Abujaalso has some rehabilitation centers based on our model.

Our ultimate goal is to empower as many people with disabilities as possible,so as to reduce poverty and dependency.

Cosmas Okoli

The workshop and disability organization model for the Mobility Aid andAppliances Research and Development Center (MAARDEC) features a multifac-eted approach to serving the disabled community in Nigeria. In this issue ofInnovations, Cosmas Okoli describes the system model he employs that goesbeyond just providing mobility aids, including the mechanisms through which heis able to offer products and services that holistically improve the lives of peoplewith disabilities. Although this model is not new and is practiced in similar formsby many other workshops in the developing world, it is insightful because itencompasses the range of disabled needs. Cosmas Okoli should be commended forworking to provide opportunities, advocating for peoples’ rights, and running asustainable organization that has multiple profit streams.

Two major challenges face providers of mobility aids in developing countries:making and providing products that are appropriate for the environment in whichthey will be used, and finding financial mechanisms through which the productscan be produced and purchased. Many of the products Okoli mentions in his arti-cle are innovative and were designed specifically for the Nigerian disabled. This iskey, as 70 percent of disabled people in developing countries live in rural areas that

© 2008 Amos G. Winter and Amy Smithinnovations / Davos-Klosters 2009 121

Amos G. Winter and Amy Smith

Assessing MAARDECA Comparison with Other Assistive DeviceWorkshop and Disability Organization Models

Innovations Case Discussion: MAARDEC

Amos G. Winter is a Ph.D. candidate in Mechanical Engineering at MIT. He has conduct-ed multiple projects aimed at generating improved wheelchair technology in the develop-ing world, including assessing the state of wheelchair technology in Tanzania. He is thedirector of the MIT Mobility Lab (M-Lab) and teaches the MIT class “Wheelchair Designin Developing Countries”.

Amy Smith is a Senior Lecturer in the Department of Mechanical Engineering at theMassachusetts Institute of Technology, where she specializes in engineering design andappropriate technology for developing countries. She founded the D-Lab program at MIT,which introduces students to technological, social, and economic problems of the ThirdWorld. She teaches the courses “D-Lab Development”, “D-Lab Design”, and “WheelchairDesign in Developing Countries”. Smith won the Lemelson-MIT student prize in 2000,and was recipient of a MacArthur Fellowship (2004-2009). She served four years as aPeace Corps volunteer in Botswana.


require robust wheelchairs. Donated wheelchairs are often not built for the harshconditions encountered in the developing world and spare parts can be difficult tofind. Rural-appropriate wheelchairs can be made locally, as are MARDEEC’s, andthose at the Wheelchair Technologist Training Course at the Kilimanjaro ChristianMedical Center in Moshi, Tanzania. Alternatively, chairs that are specifically madefor rough terrain, like the Worldmade wheelchair designed by Motivation, UK, canbe imported.

MAARDEC provides a variety of financial assistance programs to its cus-tomers, as well as counseling, physiotherapy, education, and microfinance oppor-tunities, all of which are important to the provision of appropriate mobility aids.By finding ways to help a person purchase a device instead of receiving a dona-tion, MAARDEC creates value for the product and a greater sense of ownership forthe client. Microfinance programs help people with disabilities create businessventures and become financially self-reliant. In the future, MAARDEC might alsolook to provide mobility aid accessories to facilitate running small businesses. AtMIT, we have been working to design a number of small business attachments thatcan be used to turn mobility aids into financial assets.

The MAARDEC model Cosmas Okoli describes, along with his plan to expandin coming years, most closely resembles the organizational structure currentlyused by the Association for the Physically Disabled of Kenya (APDK). APDK hasnumerous programs focused on building, fitting, distributing, and servicingmobility aids. They offer business attachments for their hand-powered tricycles, aswell as microfinance opportunities for entrepreneurs. Their network, which iscomposed of eight branches, two manufacturing centers, and 290 outreach clinicsaround Kenya, is structured such that they can serve the disabled population in theentire country. To reach rural populations, APDK runs many community-basedrehabilitation programs.

Okoli is savvy for having started two for-profit businesses to help subsidizeMAARDEC. Turning a profit selling mobility aids can be tricky; many of the work-shops with which we work have difficulty sustaining themselves solely off the saleof wheelchairs. This is most apparent in Africa, where they try to sell wheelchairsfor around $300 in a market with a per-capita income of only a few hundred dol-lars per year. Although their chairs are more appropriate for the local environmentthan donated products, it is difficult to compete with the free imported chairs dis-tributed by donation organizations.

Most well-established organizations have income-generating activities beyondthe sale of mobility aids. For example, the family that owns the Kien Tuong work-shop in Ho Chi Minh City, Vietnam, runs two profitable gas stations. Having suchbusinesses decreases the pressure to produce profits from the wheelchair work-shop, and thus keeps prices low and increases the organization’s capacity to pro-vide financial assistance to its clients. The Tahanang Walang Hagdanan workshopoutside Manila, Philippines, offers a number of employment opportunities withintheir facility for people with disabilities, including needlework, pharmaceuticalpackaging, and woodworking. In Dar es Salaam, Tanzania, Disabled Aids and

Amy Smith and Amos G. Winter

Assessing MAARDEC

General Engineering builds custom metal products when they do not have tricycleorders to fill.

In his article, Cosmas Okoli touched on the important work of advocating forthe rights of disabled people. Although policies for disability rights and accessibil-ity are often difficult to implement and enforce, especially in the developing world,advocacy is an important facet of helping people with disabilities integrate intosociety. MAARDEC is not alone in fighting for its clients’ rights while producingmobility products. The Freedom Technology wheelchair workshop in Mindanao,Philippines, was started by the French NGO, Handicap International (HI). Thisshop was established as a component of HI’s mission to increase the self-relianceof people with disabilities around the world. Through Freedom Technology, HIcan provide devices to promote independence while pushing for social change.Other examples of workshops and advocacy groups that work in tandem are theThai Wheel wheelchair workshop and the Thai with Disability organization, locat-ed outside Bangkok, Thailand, as well as the Zanzibar Association of the Disabled(UWZ) and the UWZ wheelchair workshop in Stone Town, Zanzibar.

In the coming years, Okoli’s progressive vision of MAARDEC will enable himto serve a much larger number of Nigeria’s people with disabilities. Through theexpansion of MAARDEC, he will hopefully be able to reach more of both the ruraland urban disabled population and tune the designs of his products to the uniqueneeds of each demographic. Incorporating many of the best elements of his col-leagues’ workshops in other countries, Okoli’s multi-dimensional approach to pro-viding technical, financial, and social services through MAARDEC will offer solu-tions to many of the obstacles that currently limit the freedom of people with dis-abilities.


I have decided to leave Austria to start a farm in the desert in Egypt basedon a holistic developmental impulse for country and people…

For my soul Austria was like a spiritual childhood garden. Now I hopethat the souls of Egyptian people can be revitalized by a garden in thedesert. After establishing a farm as a healthy physical basis for soul andspiritual development, I will set up a kindergarten, a school, a hospital,and various cultural institutions. My goal is the development of humansin a comprehensive sense—educating children and adults, teachers, doc-tors and farmers.

—Excerpts from Letters by Ibrahim Abouleish to friends, 1977

During the 1920s and 1930s, Egypt was wealthy. The Egyptian pound was as strongas the British pound. While a divide existed between rich and poor, the rich feltbound by an obligation to assist those less fortunate. Consideration for others,courageousness, and a deeply moral attitude were characteristics of the Egyptianpeople. In part because its population was only 18,000,000 people, Egypt was abeautiful country, and Cairo a thriving city.

Circumstances changed dramatically, for the worse, during the first quartercentury of Egypt’s independence. Under the rule of President Gamal Abd El-Nasser, all businesses were nationalized—even restaurants. Once-thriving ven-tures were soon indebted. Few people enjoyed their jobs; they worked without

© 2008 Sekeminnovations / Davos-Klosters 2009 125

Ibrahim and Helmy Abouleish

Garden in the DesertSekem Makes Comprehensive Sustainable Development a Reality in Egypt

Innovations Case Narrative: Sekem

Ibrahim Abouleish is the founder of the Sekem Group. Helmy Abouleish, Ibrahim’sson, is the Managing Director of Sekem.

In 2004, the Schwab Foundation for Social Entrepreneurship recognized Ibrahim andHelmy Abouleish as Outstanding Social Entrepreneurs. This case narrative originallyappeared in a special edition of Innovations produced for the World Economic Forumon the Middle East, 2008, in partnership with the Schwab Foundation and ARAMEX.


inner motivation. Many took on extra side jobs. The whole social structure wasincreasingly falling apart.

In no domain of economic and social life was disarray more apparent than inagriculture—for centuries, if not millennia, the source of Egypt’s wealth and a

focal point of its cul-ture. Farmers wereforced to use a certainamount of artificial fer-tilizer for each hectareof land. This excessiveand uncontrolled use offertilizer led to over-salting and compres-sion of the earth, andfarmers became finan-cially dependent onchemical companies.The country’s inheri-tance laws assignedequal amounts of landto each inheritor, lead-ing to each generationinheriting smaller andsmaller plots. Thefarmers could hardlyproduce enough to sur-vive. Added to that wasthe appalling practiceof spraying pesticides

onto the cotton fields. The Aswan Dam, completed in 1961 with the Soviet Union’s support, also had

disastrous results for agriculture. Since that time the Nile, which had previouslyflooded its banks every summer and spread fertile mud over the fields, had ceasedto be the pulsating heart of Egypt. A year-round irrigation system led to standingwater in canals becoming a breeding ground for dangerous diseases. The hope ofgaining more fertile land through this irrigation system was not fulfilled.Naturally, the dam made it possible to produce electricity. But this electricity wasmainly used to manufacture the costly artificial fertilizers.

In 1975, Egyptian-born Ibrahim Abouleish travelled through Egypt with hisfamily after spending many years as a student and scientist in Austria. The changeshe observed shocked and disturbed him. On his return from that trip, he becamedetermined to fulfill a pledge he had made to his father when he left Egypt to study


In 1977, Abouleish purchased 70hectares of desert land a quarter ofa mile from the banks of the Nile.In 1979, he founded Sekem. Over aperiod of 30 years, his initialventures in organic agriculture werefollowed by a sequence of successfulcommercial business ventures,schools, and medical centersdistributed throughout Egypt....Sekem has demonstrated theviability in Egypt of new, holisticapproaches to development.

Garden in the Desert

in Europe: he would return to his country with skills acquired abroad to createenterprises, build schools, and seed cultural institutions.

In 1977, Abouleish purchased 70 hectares of desert land a quarter of a milefrom the banks of the Nile. In 1979, he founded Sekem. Over a period of 30 years,his initial ventures in organic agriculture were followed by a sequence of success-ful commercial business ventures, schools, and medical centers distributedthroughout Egypt. With annual revenues of 200 million Egyptian pounds, Sekemis among the top producers of organic products worldwide, and the leading pro-ducer in the Middle East. More importantly, Sekem has demonstrated the viabili-ty in Egypt of new, holistic approaches to development. Sekem’s initiative indemonstrating the effectiveness of organic methods in agriculture led, in 1993, tothe government’s banning of pesticide spraying of cotton crops. Previously everyfield was sprayed 20 times each growing season, for a total of 35,000 tons nation-wide.

This case narrative describes the founding and evolution of Sekem. In the firstpart, Ibrahim Abouleish describes the origins of Sekem and the multiple chal-lenges that faced the venture in its first decade and a half of existence.1 In the sec-ond part, Helmy Abouleish, son of the founder, describes Sekem today and the ini-tiatives it hasplanned for the future.2 The conclusion to the narrative is written byIbrahim.

IBRAHIM ABOULEISH: THE FOUNDING OF SEKEM

A Family Trip

“Wouldn’t you like to join me on a trip to Egypt?” my friend Martha Werth askedme one day. I had been back to Egypt many times during the 19 years I had livedin Austria, first as a student at the University of Graz, and then as director of amedical research institute. However, those visits had been focused almost entirelyon my family. Martha’s invitation provided me with an opportunity to renew myrelationship with my homeland. I accepted at once, along with my wife Gudrun,son Helmy, and daughter Mona.

We started our journey in 1975, dedicating much of our voyage to the manyfamous ancient Egyptian sites in Aswan, Luxor, Karnak, and the Valley of theKings. But it was the experience of modern Egypt that most affected me. Throughvisiting friends, relatives, and in particular a journalistic acquaintance, I gained anew understanding of my country. I became aware of the changes that had befall-en the country during my time in Austria, and saddened by the stark contrast



between the depressed state of modern Egypt and the greatness, wisdom, and lead-ership the pharoahs showed thousands of years ago. I kept comparing what I sawwith my memory of the country during my childhood and adolescence. The newshould have been better than the old, but it was not.

On my return journey to Austria I sat in the plane and thanked Allah that I didnot live in Egypt, but rather in beautiful and prosperous Austria, with my wife andtwo children, and a successful career. And yet I found myself unable to escape theimages and recollections of our visit. I set myself to the task of further researchingthe state of the country. The hard facts I confronted upon my return were, if any-thing, more alarming than the impressions I had gleaned during my visit.

Over time, with the guidance and support of my friend Georg Merckens, Ibegan to craft a plan, rooted in my affinity with the philosophy of anthroposophy:3

I would move to Egypt, establish a self-sustaining farm, and then over time addadditional projects focused on education, health, and culture. The farm would bebased on the principles of biodynamic agriculture, which uses compost and natu-ral preparations to strengthen plants so that they are able to fend for themselves.The outcome would be a community dedicated to the holistic development of itsworkers and all of its stakeholders—a model that could transform Egyptian agri-culture and act as a force for positive change in Egyptian society.

How did my family react to my decision? My wife Gudrun, an Austrian, lovedEgypt. This strong inner motivation led her to want to join me. I told our childrenthe story of a man who decided to move to the desert with his family and who cre-ated a big garden there. Once I had painted the picture in great detail, I suddenlyasked, “And what would happen if we were that family?” Spontaneous shouts ofjoy followed. Helmy was 16 at the time; my mother had already told him of themany things I had done at his age in Egypt that were not possible in Austria—likedriving a motorbike in the desert. And my daughter Mona, then 14, was in lovewith horses. In the desert, she would be able to ride as long as she wanted. In thisway everyone was inspired to undertake the journey.

Founding a Desert Community

On arriving in Egypt I first went to visit the minister of agriculture. I explained tohim that I was looking for a patch of desert, which I wanted to cultivate usingorganic methods. It was a sign of his friendliness that this busy man listened to mefor half an hour. After our conversation he asked a ministry employee to show mesome areas of desert I could buy from the state. After all, there was enough desertin Egypt. “It will be easy to find desert!” said Kamel Zahran, an old, honorable,high-ranking engineer. First we drove west toward Alexandria. From the asphaltroad he pointed out areas of land for sale which had good access to water. Theminister said he could put in a good word for me if I wanted to buy the land. Ilooked at everything, asked about the people living there, about possible energysources, and whether roads could be built. But inside I remained untouched. Thishappened on the first day, and again on the second.



On the morning of the third day Mr. Zahran said he had to visit someonebefore we continued our trip, as he was also an agricultural advisor. He needed tovisit a farm northeast of Cairo, at the Ismailia Canal, and asked me to drive himthere. We left the car at the canal, took the ferry across the water, and arrived atthe farm, a large orange plantation. My companion introduced me and explainedmy intent. The farmer replied, smiling and spreading his arms to indicate the land-scape: “You will be sure to find something here!” After Zahran had finished hisvisit, we walked across the plot of land, a strip that reached about four kilometersinto the desert, as far as the canal’s water could reach. It was a hot day, and the oldman was suffering and walkedwith difficulty through therows of trees. Sweat poureddown his face. At the edge ofthe estate we stood and lookedout over the stony wasteland.He said, “It is impossible here.We are four kilometers awayfrom the canal and the desert isstill going uphill. We are prob-ably already 30 meters up. Youwill never get the water to reachthis far.”

While he waited in theshade of a tree, I walked on bymyself. The country, whichstretched out barren and emptytoward the horizon, was gentlyhilly. I liked the fact that it wasnot as flat as the delta. After afew more steps in the shimmer-ing heat a vision appearedbefore my inner eye: wells,trees, green plants and fragrantflowers, animals, compostheaps, houses and workingpeople. I would have to expend a lot of energy to cultivate such an impassable, dif-ficult environment and to transform this wasteland into a garden. But many jobscould be created in the process, and people would have the chance to educatethemselves while creating something healing for the landscape.

I walked back to Kamel Zahran deep in thought, and was immediately greetedwith the words, “It’s too steep, you could never cultivate here.” But I felt I hadbeen touched by this land; something had spoken to me. When I look back I have


[O]vernight I reached adecision—and by the next

morning I knew I wanted tobuy this piece of land. If

biodynamic farming andeverything else I envisaged

could thrive in this wastelandand under such extremelyadverse conditions, then it

would be possible to transferthis model to easier

environments and we woulddevelop immense energy by

overcoming such difficulties!


to admit my immense naivete; I had not the faintest idea what it meant to culti-vate and irrigate land in the desert.

On the return journey I spoke to Kamel Zahran. “You know,” he said, “Let’snot rush anything! We’ll come back later with specialists who can advise us.” Sowe returned. But the specialist quickly delivered his discouraging verdict: the qual-ity of the soil was very poor and the water supply difficult; there was no direct roadto Cairo and all products would have to be transported via the ferry on the IsmailiaCanal. The general opinion was that the land was not suitable.

But overnight I reached a decision—and by the next morning I knew I want-ed to buy this piece of land. If biodynamic farming and everything else I envisagedcould thrive in this wasteland and under such extremely adverse conditions, thenit would be possible to transfer this model to easier environments and we woulddevelop immense energy by overcoming such difficulties.

As soon as I had signed the bill of sale the problems began. When I tried to getthe plans to mark out the boundaries of my 70 hectares of land, I was told thatalthough the state administered the land, it could not find out about it that easily.There were no surveying points. I soon noticed that the Egyptian land surveyorsresponsible for this area had trouble dealing with plans and committing them-selves. In those days it took three hours to drive to the Ismailia Canal from Cairo,and I had to regard it as a favor if the surveyors even managed to arrive at my plotof wasteland, though they were paid to do so. When I asked Kamel Zahran foradvice, he only said with Schadenfreude, “Didn’t I tell you it wouldn’t work?” ButI was not put off by all this. Quite the opposite: it made it all the more attractiveand strengthened my resolve.

After buying the land I began a period of intense planning. I tried to survey the700 x 1000 metres myself by borrowing the necessary equipment. I struck ironpoles into the sand at specific spots, and carefully drew everything on paper. For10 years, I only had a vague idea of the boundaries, although later corrections weresurprisingly minor.

First I marked out the roads: I wanted a main road to go right through themiddle of the plot, lengthways from northwest to southeast. I then planned furtherroads branching off at right angles to the right and left of that one, dividing theland into about three-hectare plots for fields. In my mind’s eye the roads werelined with shade-giving trees. I wanted a 30 meter-wide band of trees to encirclethe entire grounds, to protect the developing life of the plants, animals, andhumans. I used the image of a cell for inspiration, as it is surrounded by a mem-brane. What the clear blue sky and warmth-giving sun means for a European is ashade-giving tree for the desert people. They like to spend time in the cool shadeand at the same time protect themselves from too much sun.

Water is crucial for life to flourish in the desert. I decided to bore wells, one inthe northwest near where I wanted to build the stables, and the second one in thesoutheast near the planned houses and living quarters. I left a long strip of land inthe west for a school, a medical center and an institution for movement, art, and



social activities. Right in the middle of the grounds I left a space for the business-es. I intended for them to earn profits that could finance the establishment anddevelopment of the cultural institutions. I drew round flowerbeds on the distinc-tive right-angled road crossings to add some artistry to the desert from the outset.

This first plan still exists. When I look at it today, I can see myself stridingalone over the bleak stony ground, sketching and planning, unprotected from thesun and wind.

Economic beginnings

The biggest question was how to finance the whole venture. Even if we had man-aged to finance everything up to this point, the grounds were basically still a desert.Where would we get a new source of income for houses, plants, and animals? Irealized we needed businesses, where people could earn money to finance the cul-tural institutions I had planned for the distant future. I tried to find out how Icould use my pharmacological knowledge to produce things for the people ofEgypt and for the export market. It was time to get off my tractor, don a suit andtie, and drive into Cairo to talk to people.

I went to visit Ahmed Shauky, my father’s tax consultant, and asked him totake over this task for Sekem. I explained my vision in the desert to this elderly,distinguished man. He turned out to be delighted and very interested. His son hadbeen following our discussion attentively and said, “I have heard that an Americanbusiness is looking for an extract of the plant Ammi majus from Egypt. Maybe youcould do that!” I immediately ordered a report from the company and invited theAmericans to meet me in Egypt. Until then I had never heard about this plant, amedicinal herb for healing disturbances in skin pigmentation. Nor did I know howto get the extract. The company only wanted the crystallized active ingredient,ammoidin, which is present in the seeds.

I needed to start learning again. I spent hours in the library until I had foundout all I needed. Ammi majus, known in English as Bishop’s Flower or Laceflower,is a wild medicinal plant that grows in both the desert and the delta. A member ofthe umbellifera family, it grows about as high as fennel or aniseed and is a weed inalfalfa fields. I observed the Ammi majus seeds exactly so that once people weresifting them, I could explain how they were different from other seeds.

I spent many nights planning the buildings for the extraction plant. As part ofthis process I became acquainted with Hassan Fathy, who was awarded the firstAlternative Nobel prize and is known for his traditional clay buildings. I deliber-ated about the machines, calculated the cost of the project, and realized it couldbecome a lucrative business. So I started building the workshop, bought stainlesssteel, and constructed machines for the venture. After we finalized the contractwith the American Elder company in Ohio, we had camels and trucks with sack-loads of Ammi majus seeds coming to the farm for years.

I wanted to enter into a partnership with a bank for this huge project that Icould not finance myself. I chose an Islamic bank recommended by a friend as a



co-investor, as I assumed it worked according to Islamic principles. In Islam, Allahsays that the earth and the ground are only given to us to care for. He alone ownsthe ground. It is the same with money: we can manage it for the good of the peo-ple, but should not call it our own. Allah says that whoever enters into trade workstogether with Allah and, following his principles, should give the proceeds to thepoor and needy by giving up his own possessions. In light of this Islamic esoteri-cism I perceive modern joint-stock companies as inappropriate: they act as ifGod’s legacy were their own. The interest and the resulting riches they receive are

not their own achievement, because evenintelligence and individual abilities arethe gifts of Allah, even if modernhumans think their success is solely dueto their own efforts.

These Islamic ideas appealed to me,particularly the idea that money is not acommodity that can be bought and soldagain with interest. Thus I was happy tohave found an Islamic bank where Icould work together in a like-mindedpartnership—or so I hoped. But itturned out the practices of this so-called

Islamic bank were the same as any other financial institution.The Sekem Company was established as an investment company right at its

start. Because I needed at least three people to start a company according toEgyptian law, I included Helmy and Mona in the business, even though they werestill under age. The bank wanted to inspect everything and I had to open my booksfor them. The negotiations were tough, and we only succeeded once the bankdirector had become sympathetic to the idea of Sekem. We agreed on the bankhaving a 40% share of the business. Because Sekem was seen as a foreign compa-ny, the state had the right to some control. The company itself was protected, butthe state had to give its permission for the bank to invest in us. The bank agreed,got a provisional authorization for the Ammi majus project, and signalled that wecould go ahead with the project. I ordered the first extraction machines fromDenmark and the bank paid for them.

After some time, the state investment authority asked to look at our accountbooks. It did not want the book value, but the estimated value. So an estimationcommittee worked on the farm for several days, reexamined everything, and foundthat the estimated value was far higher than the book value. This meant the bankhad to pay more for its involvement in the project. But the bank was reluctant toaccept this finding, and began to doubt everything and try to get out of the con-tract. It demanded back the 150,000 pounds it had already paid out for the Danishmachines, but I needed this money to develop the farm and could not spare that


One day my lawyer cameto me and said, “Listen,if you give the bank’slawyer 10,000 poundsthen he will accept theestimated value...”


amount. Thus we began a protracted struggle. An arbitrator was employed and ittook months for our two lawyers to decide on a third party to mediate.

During this process a small event shed light on the way the negotiations wereheld. One day my lawyer came to me and said, “Listen, if you give the bank’slawyer 10,000 pounds then he will accept the estimated value.” “My friend,” I saidto him, “you know me. I will not pay bribes. That does not correspond to Islam!”

Once you have a dispute with one bank, all the other banks and the centralbank know about it. This meant I was always rejected when I attempted to find anew investment partner for my project. The banks always told me to settle my dis-agreement with the Islamic bank before further negotiations with them would bepossible.

Then one day a relative visited me and introduced me to an Egyptian who hadjust come from Saudi Arabia and had a lot of money. He thought he would be theideal partner for me. The man, called Mohammed, became inspired very quicklyand invested 100,000 pounds. But after only two months he came back to me withthe excuse that his wife wanted to go back to Saudi Arabia and he needed hismoney back immediately. I had already spent his 100,000 pounds on an importantmachine and could not give it back to him immediately. The debts and conflictsgrew! I had met another “friend” during my search for suitable partners, but theywere all people who did not understand my vision and only wanted to make aquick buck.

It now looked like the Ammi majus project might fail, and the farm’s survivalwas threatened. I decided to put all my eggs in one basket and went to visit thedirector of the Egyptian National Bank. I explained everything to him, and endedwith the words, “If you do not help me and lend me money against the security ofthe land and houses on it, the project will die!” The director of the bank couldimmediately see that his money was covered by our contract with the Americancompany. There was hardly any risk involved for him, and he decided to financethe project. “Don’t worry about anything else, it’s all settled,” he said. At long lastwe could start the contract with the American company.

The dispute with the Islamic bank was only resolved years later. Its pullout cre-ated great setbacks, as it stopped us from entering a new partnership, and forcedus to get a loan. In the end we paid them back three times the original amount tofinally have peace. We had to give a piece of land to Mohammed from SaudiArabia, who was demanding his money back with threats. This seemed like a greatloss to me in those days. By now we have bought back most of the land and thedispute has been resolved.

With the money from the National Bank I started building a laboratory andthe processing rooms to extract the active ingredient, ammoidin. The Americancompany sent me instructions on how to deliver the substance and my earliertraining in technical chemistry turned out to be very useful. I did nearly all theexperiments necessary for the production process myself. For the extraction weneeded a steam generator, which was very expensive. Then I discovered an old



German wood-powered steam locomotive at a scrap dealer. I had it disassembledand brought it to Sekem. It still stands at the back of the farm as a kind of muse-um piece.

The extraction building also needed a chimney, 30 thirty meters high and 40centimeters around. To build it, we placed single pipes, each four meters long, ontop of each other. I planned this undertaking carefully: we built wooden scaffold-ing so that the workers could pull the pipes up with ropes and place them on topof each other. But after only 10 metres the scaffolding started to sway and every-one ran away. Helmy bravely continued helping me with the building. He stoodright at the top and had the pipes handed to him, and encouraged the others to fol-low his example. I supervised the building process continually. The accidents hap-pened when people were left to work by themselves, which was sometimes neces-sary. For example we bought a tank for the diesel oil needed to power the steamengine. To save money we purchased an old tank, had it cleaned it inside and out,and painted like new. The man who sold us the tank wanted the work to be car-ried out on-site. A young man went into the tank to clean it from the inside usinggasoline, and then lit up a cigarette during his break—with tragic results. Suchtragedies happened repeatedly when I was not present.

For years we worked well together with the Americans, until one day I receiveda phone call from the Elder Company in Ohio asking me to come visit them. Oncein America they offered me the chance to buy the company. They told me thedirector had died and his children were not interested in continuing his business.They were asking a reasonable price, but unfortunately I did not have the money,particularly as they had failed to pay regularly towards the end. So our mutualbusiness ended. Despite initial difficulties it had helped me establish the farm, andI now had to find a new line of business.

Meeting Resistance

Administration in Egypt was extremely complicated and tedious in those dayswhen I was trying to start the initiative, as indeed it still is now. One time, forexample, I was supposed to explain biodynamic agriculture and composting to theEgyptian agricultural ministry. When they read my explanations, they decided toban the project on the spot. What had I done wrong? After I questioned them per-sistently they revealed that according to my description bacteria multiply in thecompost, and they were worried that we would infest the whole country. Theycould not permit something so irresponsible. It took weeks to correct this disas-trous mistake, even to get the professors and administrators back together to nego-tiate. Then I was told I did not know anything about agriculture as I was not afarmer.

So I had to argue, provide literature, and explain the process of compostingexactly. I started studying throughout the night so I could offer them answers. Bythe morning I had all the answers ready and gradually I was able to persuade moreand more people to trust me on the topic of composting. But I had to work on



each person separately! I learned a lot during this process. But the decision was stillpostponed. Meanwhile, I continued working on my project in the desert, until oneday the police arrived, saying, “You are not allowed to continue working!” Theydeclared it was not clearyet whether permissionwould be granted at all.

For nearly 12 months Ihad to struggle with hugedifficulties, until it all sud-denly changed. The min-istry let me know theywould send inspectors tothe farm to see how thesoil evolved after treatingit with compost. A scien-tist came and took a sam-ple of soil to analyze. Thisprocess was repeated regu-larly over ten years. In theend that was the best thingthat could have happened,as the ministry could seeour methods improvingthe soil a bit at a time. Iwon many friends at theministry and never tired oftalking to them about myideas and vision for thecountry.

Despite all the resist-ance, my vision of an oasisin the desert from which Icould draw water for plants, animals, and humans, slowly began to take shape.Gradually all the tasks were working well together. The trees we had planted werethree years old and had grown to a good height; the greedy goats could no longerreach them.

But one morning, when I drove to the farm from Cairo as usual, I could notbelieve the sight I saw: bulldozers were pulling down thousands of trees. I was metby soldiers with machine guns and suspicious expressions. I found out that a gen-eral had ordered our grounds to be made into a military area, even though it wasonly through our efforts that there was even a water supply on our land. Theywanted me to leave without further negotiations. This felt like a declaration of war!My violent temper emerged, and for the moment I managed to stop further


Despite all the resistance, myvision of an oasis in the desert

from which I could draw waterfor plants, animals, and humans,

slowly began to take shape... But one morning, when I drove to

the farm from Cairo as usual, Icould not believe the sight I saw:

bulldozers were pulling downthousands of trees. I was met bysoldiers with machine guns andsuspicious expressions. I found

out that a general had ordered ourgrounds to be made into a

military area.


destruction by protesting loudly and standing fast. But I had to go to Cairo to startdiplomatic and political negotiations to obtain a more long-term solution.

I had already had to spend days in Cairo setting up the administration office.Now I had to abandon my direct work in the desert for a time and fight to contin-ue my project. Anwar Sadat, the president of Egypt, was a good friend I had got-ten to know during our adolescence, so I went to see him. In the governmentpalace I also met the minister Shabaan, who headed the office of then DeputyPresident Hosni Mubarak. I explained everything that had happened, and hepromised to help me. I was so angry and upset that I made everyone’s life miser-able and repeatedly visited or phoned the minister to hurry up on the resolution.Still, it took weeks before all the military machinery was removed.

The concept of compensation does not exist in Egypt; the best one can hopefor after a mistake has been made is an apology. The responsible general apolo-gized for his behavior and took sole responsibility for it. I accepted his apology.Later he was transferred to another area. His successor, General Ali Siku, immedi-ately became my friend. We visited each other and became acquainted. Togetherwe established a cooperative with single plots of land for officers on three thou-sand hectares of desert. I had discovered that this had been the original plan of thetransferred general, and he had wanted me out so he could implement his idea onmy land. Now I followed up this idea and discussed it with Ali Siku. I explainedthat it was not necessary to start this venture on the same land I occupied and hadmade fertile. Eventually we agreed on this point and became good neighbors. Ihelped him establish the cooperative materially and conceptually. The land sur-rounding Sekem was divided into small plots of five to ten hectares for each offi-cer. The green cultivated countryside visible today around Sekem belongs to thiscooperative.

Despite the opposition, I also experienced moments that gave me courage andspurred me on. Since adolescence I have done regular spiritual work, which gaveme great spiritual energy. I always had a deep inner desire to observe the times ofprayer and to meditate on the verses of the Koran, particularly the 99 names ofAllah. After I encountered anthroposophy, I started studying it along with contin-uing my meditations and prayers. I read that for some people, everyday life con-stitutes a more or less unconscious “initiation,” and that suffering, disappoint-ment, and failure can be seen as a chance to strengthen our courage and innersteadfastness. Then I felt that the obstacles I encountered were not sent to destroyme but to steel my resolve. Such resistance must be met with greatness of soul andcontinual energy.

The presence of nature also gave me strength. The dark green leaves of thetrees were gradually starting to enliven the desert grounds around the farm. Icould always find beauty to admire: sunrises and sunsets, sparkling stars in thenight sky, or glittering dew drops on the leaves. I observed that we had moreinsects and birds on the farm, attracted by the trees and our good treatment of theearth. I felt Allah’s creative omnipresence through bird calls and animal sounds,



smells and the wind, and in the blossoming and flourishing around me. The Koranrelates how Adam and Eve lived in paradise before satanic whispers led them to theforbidden tree and they were expelled. But the Koran promised to return theGarden of Eden to believers as a most beautiful reward for their devoutness—thegod-fearing will live forever in gardens. “Gardens, in which rivers flow” are men-tioned more than 30 times in the Koran. The greatest source of joy for people liv-ing in arid surroundings is green gardens, with shady oases and flowers and trees.It also gave me the greatest fulfilment to watch Sekem flourish.

Export-Led Growth

I was sitting in my office when a lively, active businessman from the Greek part ofCyprus introduced himself to my secretary. Soon he told me about a project thathe had set up in my birthplace, Mashtul, in Egypt: “I have transformed vast areasof land into a vegetable producing venture, built a packing house, and boughtrefrigerated vehicles that deliver the fresh produce to the airport. From there theyare flown to England.”

“Very good, Mr. Takis. And is there a problem?”“All the Egyptian banks have advised me to enter into a partnership with

Sekem.”“Why?” “Because we people from Cyprus do not know how to deal with the way

Egyptians work, and have suffered financial losses for years because of it!”Up to that point he had tried to run his business exclusively with workers from

Cyprus. I thought about it: So far Sekem had only produced fresh foods for its ownuse. Should we start trading in fresh produce? Listening to him, I realized that hehad been doing something I had always wanted to do: sell fresh produce. Finally,I asked him, “How do you cultivate the vegetables?”

“With artificial fertilizers and pesticides, of course.”“Where do you get your seeds from?”“They are hybrid seeds from England.”Now two souls were struggling within me. On the one hand, this man had

experience in marketing fresh produce. On the other, I objected to the chemicalmethods he used. I made a quick decision to go with the project. His experiencewas the decisive factor. Everything else could be tackled later.

Helmy travelled to Mashtul to look around Mr. Takis’s business. He was hor-rified when he came back. “It’s not a food business!” he exclaimed. “It’s just arti-ficial fertilizers and pesticides.”

I replied, “Then we’ll have to transform it into an organic farm.”Together we founded the Libra Company, in which Sekem had a 50% share.

We gained much valuable information about logistics and customer care from ourpartner. Mr. Takis often came to visit Sekem, and we showed him the biodynam-ic way of farming and its effects on the health of humans and the earth. He alsosaw the damage conventional farming did to the earth and the plants—but the



businessman in him saw profits. In his opinion, organic farming made the prod-ucts prohibitively expensive.

I asked Mr. Takis to travel to England to find out about the market for organ-ic produce there. At first he refused, but eventually he was persuaded, although hereturned without much enthusiasm. In the meantime I met with VolkertEngelsmann, our Dutch business partner, and asked him, “What would you thinkif we started producing fresh organic vegetables?” He answered, “That would begreat!” So I asked George Merckens, an expert in biodynamic farming, to comevisit us; we discussed how to establish a business with fresh organic vegetables.Then we started cultivating vegetables on the other farms belonging to Sekem.

Despite all our previous learning and observing, this enterprise became costly.First, it was hard to get seeds for the kinds of vegetables customers wanted. Thenthe yield was about one half of what we calculated because of adjustments we hadto make. We also had to inspect for insects frequently. And a sandstorm raged overthe farm for a few days, tearing the greenhouse apart and destroying all our work.

During this time Helmy travelled all over the county providing advice to farm-ers. Our deficits grew, just because we had decided to do business with freshorganic vegetables without sufficient farming experience. But we wanted to set anexample for Egypt, to prove it was possible to produce organic food here. Everytime something went wrong, or we looked at the figures, we clapped our handstogether in a friendly way and chanted, “We will manage! We can continue and wewill not give up!” Sometimes we would joke, “If only we had a factory makingscrews. We could be millionaires by now with the amount of time and energywe’ve invested in this project!” We remained certain throughout. With thatamount of commitment, our good spirits would not abandon us.

We founded a new company for the fresh food enterprise: Hator. This branchof our venture, we realized from previous experience, would need a logistics geniusto manage it, someone who could also assert himself. This person would have tomake sure that the produce was delivered from the fields at a certain time so itcould be cleaned and packed in time to be shipped. At the same time, the neces-sary customs documents had to be presented to ensure that the produce would getto the ships and airplanes to Europe as planned—or, alternatively, be delivereddaily to Egyptian grocers. The coordination had to be performed with militaryprecision to avoid the great financial losses caused by spoiled food.

Finally, my wife Gudrun started managing Hator, as she had experience withnovel and challenging tasks. She taught the employees, about 70 young girls, withuntiring commitment and dedication. Her training courses were held in Mahad,our center for adult education founded in 1987. There she taught the hygienicmeasures necessary for dealing with food, starting with washing hands, wearinggloves, and using special protective clothing and hats. She checked the quality ofthe vegetables the farmers delivered, and made sure they were cooled correctly. Shealso ensured that all the necessary processes were performed in swift sequence.

Eventually we ended our partnership with Mr. Takis by mutual agreement, as



he wanted to follow his own business. We were grateful to have learned about therequirements of marketing fresh produce from him, and we still remain in friend-ly contact.

A Successful Demonstration

One day pesticide tests performed on our medicinal plants showed traces ofresidues. We were rightly outraged. Where did these pesticides come from? Wewere certainly not using them. After excluding a whole range of possibilities wefinally realized that they had been sprayed onto our fields by the dusting planesthat were applying pesticides to neighboring cotton fields up to 20 times a season.

Once I realized this, I complained to the Minister of Agriculture. “We want tocultivate organic produce on our farms without using poisons,” I said, “and youare destroying our efforts. We are powerless against crop dusting!”

He looked at me with astonishment: “What do you want me to do? Is there analternative?”

“Stop spraying the pesticides!” I said.“Do you know what will happen if we do that?” he asked. Only then did I real-

ize that this man was in a difficult position with the chemical companies.I discussed the problem with Helmy and Georg Merckens and asked Georg

whether he knew of an organic method to protect the cotton plants. He advised usto study the insects that harmed the plants and to learn their way of life. We askedan entomologist to explain the behavior of the insects in question and to find stud-ies of their developmental stages. Then we asked several scientists how we couldstop these insects from multiplying, using organic methods.

Two Egyptian scientists, Dr. El Araby and Dr. Abdel Saher, helped us by start-ing to examine the test fields we had prepared for this purpose. They soon correct-ed the problem, and in a short time the insects were doing less damage than onconventionally cultivated fields being sprayed with chemicals.

Once we had weighed our first harvest, we found we had a 10% higher yield ofraw cotton than the average in the area. This was a result to be proud of, and weattributed it to our methods of biodynamic farming that enlivened the earth andenhanced plant growth.

Once we thought we had solved the problem, and thought that dusting pesti-cides over the fields was superfluous, we sent out invitations to the world’s firstinternational organic cotton conference, held in Cairo. About 120 specialistsattended. As part of the conference they were able to visit the nearest of the 19 bio-dynamically farmed cotton fields during the harvesting process. Egyptian televi-sion also attended and broadcasted a very positive report. People greatly admiredour success. The agricultural minister had followed our progress with interest andarrived at the conference with his staff. In his speech he said something to thiseffect: “You have my great admiration for your efforts. But who knows if you canachieve such success again. First you will need to prove your results more thanonce!” So, we had to continue testing our methods of controlling pests. Every year



the minister chose some of the most polluted areas on a map and said if our meth-ods succeeded there, he could make his decision. I thought he was acting as aresponsible person.

The testing fields were spread out across all of Egypt; Helmy spent all his timetravelling. The fields had to be supervised day and night, and he had to be on siteif quick action became necessary. Helmy’s efforts alone would not have sufficed

without the support of hiswife, Konstanze, whom I great-ly valued. Because of herupbringing she saw leisuretime as important. But hereshe had to live with the oppo-site. She and their four chil-dren had to get along withoutHelmy for long periods oftime; often he would onlycome home late at night,exhausted.

After three years we hadfinished testing and were ableto present the results. Theminister kept his word andreacted with courage, orderingthe planes to stop applyingpesticides to the fields. First anarea of 200,000 hectares wascultivated completely withoutpesticides. Then, one year

later, this area was expanded to 400,000 hectares, which incorporated the entireextent of cotton cultivation in Egypt. Organic methods of controlling the cottonplant pests were employed in the entire country.

It is hardly possible to describe the repercussions of this decision. The chemi-cal industry could no longer deposit 35,000 tons of pesticides on the fields eachgrowing season. The people involved had opposed organic cultivation and hadgotten the press involved. We took it with equanimity, reacting calmly to any badnews. I believe the attacks we had to withstand could have destroyed our commu-nity. I will describe one particularly harsh attack later.

We had succeeded in several ways. First, one of the most poisonous chemicalshad been banned. Dr. El Beltagy of the state agricultural research institution saidin a speech that even if the United Nations had decided that Egypt should practicepesticide-free cultivation, they would not have succeeded in implementing it.Moreover, the scientists in all the universities of the country would never have


The minister kept his word andreacted with courage, orderingthe planes to stop applyingpesticides to the fields. First anarea of 200,000 hectares wascultivated completely withoutpesticides. Then, one year later,this area was expanded to400,000 hectares, whichincorporated the entire extentof cotton cultivation in Egypt.


come to an agreement on the matter. It was solely the effort and willpower of theSekem community that achieved this healing act for the country.

The “Sun Worshippers”

Before the government banned the practice of crop-dusting planes applying pesti-cides over the cotton fields, it had established contracts with the crop-dustingcompanies and the chemical industry. These contracts prevented the Minister ofAgriculture from agreeing to our demands to stop the spraying after the first year.But after three years, once we had demonstrated a viable organic alternative on ourtest fields, he cancelled the contracts. This was a courageous step. Some people inthe ministry were still saying that we were destroying the country. Naturally wetried to counteract this view by explaining our work. But during this time I oftenprayed silently that everything would turn out well!

A few weeks later, articles started appearing in the large daily papers in Cairothat declared that only the rich profited from organic farming, as they were theonly ones who could afford the expensive prices. This was all highly exaggerated.Other articles stated that not even the people of rich industrial countries couldafford organic produce—and if even they could not, then poor countries certain-ly could not. How could hundreds of millions of people in the world be fed if thecrops were not improved by artificial fertilizer? Organic farming was declared tobe a loser’s method. We were even accused of wanting to let people starve. Sekemwas mentioned by name in many articles and I received anonymous threateningphone calls. But there were also encouraging voices that said, “Don’t give up! Youare doing good work!”



There was a general atmosphere of conflict across the country, and the subjectbecame widely discussed, which could only be good in the long run. We noticedthat the attacks did not influence the sales of our companies’ products, eventhough they were supposed to damage our reputation. We were called an “elitistcompany,” supposedly only catering to Germans.

We were able to cope with all the attacks until one day an extensive articleappeared in the local paper with the title “The Sun-Worshippers.” A journalist had

visited Sekem without ourknowledge and had pho-tographed us standing in acircle on a Thursday after-noon, at our end-of-weekassembly. He asked what wewere doing, and thenanswered it himself: we wereworshipping the sun! He hadphotographed the RoundHouse, and mentioned otherround shapes in and in frontof the company buildings.According to him they wereall symbols of the sun!

Finally, he cited a man from the education authority:

Dr. Abouleish stood in front of the class and asked the children, “‘Whois your God?” The children truthfully answered, “Allah!” Then he toldthem, “No, not Allah. I am your Allah!” I experienced this myself...

These were all lies from the supposed education inspector.For Muslims, worshipping the sun is like worshipping Satan for Europeans.

People were indignant, in turmoil. Something like that in their country! Sekemworkers were harassed: “Is it true? Are you sun worshippers?” Stones were thrownat us. The article circulated throughout Egypt.

Then I got a telephone call from the head of the secret state security police,who invited me in for a visit. When I entered his office I saw the article lying onhis desk. He pointed to it, and asked, laughing: “What do you say to that stuff?”Because I did not know his view I waited in silence. He continued: “We here knowthat not a word of the accusations against you is true. But I advise you to defendyourself and take legal action against these people. You cannot let them get awaywith these accusations!” Now I had proof of what I had always assumed: like alllarge companies, Sekem also had spies from the state secret services placed amongits workers, because the state feared fundamentalists. I followed his advice andstarted a court case against the paper, knowing well it would take years.


[T]he prayer leaders in themosques around Sekem startedto stir up animosity toward us,spreading the word that we didnot worship Allah, but the sun...I began to fear that the chemicalcompanies had won after all.


Based on this article, the prayer leaders in the mosques around Sekem startedto stir up animosity toward us, spreading the word that we did not worship Allah,but the sun. Among their worshippers were Sekem workers, who knew this wasnot true. But nobody would be allowed to stand up in front of all the people andsay something against the imam! I began to fear that the chemical companies hadwon after all.

Should we fight against the animosity, or choose another way, one that waspeaceful and took the wind out of the enemy’s sails? I decided on the latter course.I entrusted 10 of my staff members with the task of inviting to Sekem all of thepeople mentioned in the article, as well as the mayor and influential sheiks of thearea. We fixed a date and I stressed that everyone was responsible for ensuring thatthe people assigned to them actually came. On the chosen Thursday I met up withthem in the Mahad. They entered, a large group of men in long flowing gowns. Iwelcomed them, offering my hand to shake, which they did unwillingly. But Istayed calm. Once everyone was seated, I asked a sheik to read a verse from theKoran, which he did with his beautiful voice. Once he had finished, I beckonedSekem musicians into the room to play a Mozart serenade. Suddenly a manjumped up furiously, banged his fist on the back of the chair, and shouted, “Wewill not listen to this work of the devil!” While the musicians bravely continuedplaying, I walked up to him and said, “Calm down and listen.” After that episodeall the visitors let these “terrible” sounds wash over them.

Once the musicians had left the room I invited the men to express themselves.One stood up and shouted, “Music and art are forbidden in Islam. The Prophetsaid so!” I calmly asked, “Does it say so in the Koran?” “No,” he replied, “theProphet said it!” I answered, “I believe every word in the Koran, and also those ofthe Prophet. I only need to see it first!” He said, I’ll bring it to you.” I replied,“Good, I’ll wait until you bring it!” This is how the meeting started. The atmos-phere was terribly strained and threatened to escalate out of control at anymoment.

Because of the questions, I started telling them that Allah had chosen humanbeings out of all of his creations to be his successor. Some of them nodded, becauseI verified everything I said with verses from the Koran, quoting them by heart.Allah says, “We are responsible for the earth, the plants, and the animals.” Allahhad initially given responsibility to the heavens and the mountains, but they hadrefused. It was too much for them. Only the humans took it upon themselves.Now I continued talking about the dead and living Earth. As is written in theKoran, “Allah is the divider of the seed kernel and the fruit kernel. He can pull theliving out of the dead and the dead out of the living.” (6.95).

Now I experienced the difficulty I had already frequently met when trainingthe farmers. These people were used to understanding the words from the Koranin an abstract sense and tended not to think of concrete examples when listeningto them. I now showed them, using appropriate examples, what these verses full ofimages could mean for their practical life. I explained about the millions of micro-



organisms and their work in the earth and told them that the living earth was con-nected to the heavens. Then I quoted the Koran again: “The sun and the moonpursue their ordered course. Then plants and the trees bow down in adoration. Heraised the heaven on high and set the balance of all things, that you might nottransgress it. Do not disrupt the equilibrium and keep the right measure and donot lose it.” (55.5-9).

Then I asked: “How can we assist in this connection to the heavens? What isthe essence of a plant? Is it just a seed we place in the earth, or does this seed receivelife from Allah, so that out of it all the different types of plants can grow? BecauseAllah says, It is not you who cultivates, but Allah who cultivates. He lets the plantsgrow!”

As I talked, I paused briefly to allow time for questions. Then I spoke aboutbiodynamic farming, about the composting process and preparations for it. Idescribed exactly how this process enlivens the soil. I explained how we wait forspecific starting constellations before we plant; thus we are inspired by Allah to actcorrectly. Then I led the discussion toward the arrogance of science, which statesthat it is only physical substances that allow plants to grow, and not Allah. Becauseof this people use artificial fertilizers and chemical poisons, ignoring their effectson people’s health and the consequences of insect infestation.

Suddenly one of the men stood up, came to me and hugged and kissed me. Inoticed that another one had tears in his eyes. What had touched these conven-tional men? Many were shaken by the concreteness by which one could under-stand the verses of the Koran. They obviously felt that my explanations had deeplyacknowledged their religion.

Over the course of the day, the grim bearded men who had arrived in themorning became my guests. They said their farewells heartily and with deep feel-ing. I knew they would meet again on Friday in the mosques and would spread theword about the mistake they had made. I let them go with words from the Koran,“If someone comes to you and tells a rumor, then do not believe them, but verifyit yourself.” They passed this message on exactly. They explained that Islam livesdeeply in Sekem, as nowhere else in the country. And to commemorate their visitthey gave us a plaque, written in beautiful calligraphy in golden letters: “That thecommunity of sheiks verifies that Sekem is an Islamic initiative. The plaque nowhangs in the entrance area of the school.

Creating Institutions: “New ways of working together”

Shortly before my 49th birthday I became seriously ill for the first time in my life.This development seems quite obvious to me in retrospect, after seven years ofestablishing a venture and rarely getting enough sleep. All the years I had workedout of a feeling that I needed to give the Sekem initiative enough of my excessiveenergy. Now I realized I had limits.

On the night of March 21, I awoke with a stabbing pain somewhere near myheart and had difficulty breathing. I was taken to hospital immediately; the presi-



dent of the General Medical Council, a cardiologist, was my friend. He was called,but the examination revealed no acute danger. Still, I could hardly breathe and hadto depend on oxygen.

After three weeks I could take my first steps. Every day I managed to walk onestep further. Gradually I was able to forget all the difficulties that had placed suchterrible pressure on my soul. Between late March and June I recovered. I spent aweek in the Black Forest and learned to live and breathe again.

Then I received a phone call from Graz. An old friend involved in medicinalresearch asked urgently for help and advice. I called my friends Elfriede and Hans:“See, I can dance again, let me fly!” Eventually they agreed. So I flew from Stuttgartto Graz via Vienna.

But during the first flight I suffered another heart attack and on arrival wasimmediately taken to the intensive care ward of the nearest hospital in Vienna. Icould hardly speak when I awoke, but I let a doctor I knew in Vienna know aboutmy condition and he came to look after me at once. Nobody else knew where Iwas. The tests showed a heart thrombosis; the doctors said I needed surgery imme-diately, or at least a catheter examination. But I refused both of these options andonly wanted to lie still and be looked after.

Now I was seriously at the edge. My whole lifestyle would have to change if Iwanted to remain alive. I would never be able to work again in the same way: I feltterribly weak. Internally, I started to take leave of Sekem, my family, my friends,everything. After three days my Viennese friends managed to get in touch with myfriends Elfriede and Hans in Oschelbronn; they flew to Vienna immediately. Theysupported my decision to refuse the operation. Hans looked after me using specialmedicines. When I could travel again, I returned to the clinic in Oschelbronn in aspecially reserved train compartment. My recovery began anew.

After six months of recuperation, my friends took me back to Sekem. Helmyhad taken over my duties, with close help from Gudrun and Mona, and had growninto the task. In a meeting with all the staff, I described my illness and the experi-ences involved. Afterwards an Egyptian employee jumped up and spontaneouslyhugged Hans, thanking him in the name of all the other workers for restoring“their doctor.” After my illness, we decided to reorganize the entire initiative andlay a new foundation stone. The stone-laying ceremony was accompanied bymusic and recitations from the Koran. Everyone present and involved in the proj-ect signed the foundation stone document and then the stone was lowered into thecentral room of the Round House. It was all very festive. Everyone was aware ofthe importance of this moment.

Humans Cannot Work Alone

I am often asked about the spiritual background of Sekem. Sekem developed outof my own vision. My spiritual inspiration came out of very different cultures: asynthesis between the Islamic world and European spirituality. I moved aroundfreely in these different areas as if in a great garden, picking the fruits of the differ-



ent trees. I would have felt restricted if I had to limit myself to one way of think-ing. But I felt enough inner space for everything in myself.

But I am also aware that I am limited. After my death, the practices we haveestablished in Sekem will have to continue developing in an organic way. We needpeople who can guide Sekem according to the original vision, and who understandclearly why it was established.

A circle of people are entrusted with the actual running of Sekem. They con-stitute the center of the venture and we call them the “Council of the Future.” Onetask of this council is to maintain a living connection to the well of spiritual inspi-ration. Another task is for them to experience the connection to others as enrich-ment and completion. Moreover, every individual must be aware of all the others,

knowing their conditions andthe tasks they are working on.

Another task is to be willingto continue learning. A defin-ing factor of a functioningshared leadership is that thepeople of the council havemore knowledge of the venturethan the other employees. Theyknow the background behinddecisions; they are aware of therisks and sometimes also of theconditions that must be met.The group can deal with thesetasks courageously because oftheir trusting work together.During the gradual develop-ment of Sekem, I alwaysencountered questionable situ-ations and great risks, which Itook upon myself because ofmy trust in Allah’s leadership.But we can meet problems with

more objectivity if we look at them from different angles. Discussions with thoseinside and outside Sekem, and the attitude that every problem has a solution, letpeople can grow and work together. They become able to stand up consciously forthe development of people and the world. Their dealings are led by the same trustthat carried me alone at the beginning.


Like others elsewhere, we atSekem have learned that in theglobal economy, you must beglobally competitive. Over 20years of working in the Sekeminitiative, I have learned thathuman development is awonderful strategy for achievingsustainability and impact. In thelong term, competitiveness is allabout human beings andindividual capacity



TEXT BOX 1. Sekem Companies

Isis

In 1983, Isis launched Sekem Herbs, its first line of herbal remedies. Now it pro-duces and packs organically certified herbal teas, dairy products, oils, spices,honey, dates, organic coffee, juices and conserves for consumers in Egypt andabroad. It employs 230 people in its factory alone.

Hator

Established in 1996, Hator produces and packs fresh fruit and vegetables. Everyday employees pack about four tons of fresh tomatoes, beans, peppers, oranges,grapes, etc.; large volumes of potatoes, onions, and oranges go to European mar-kets via container ships.

Atos

ATOS, established in 1986 as a joint venture with the German DevelopmentBank and Dr. Schaette AG, brings physicians and pharmacists together toresearch and develop medicines from natural sources. Qualified employees visitEgyptian doctors to introduce those products and the concept of using safe andeffective plant-based drugs to treat medical conditions ranging from the com-mon flu to complex urological and cardiovascular problems.

In 1992, ATOS secured a license agreement with the German firm Weleda tomanufacture and market natural cosmetics in Egypt. In 1997, the Sekem groupof companies received the ISO 9001 certification.

Libra

Established in 1988, Libra Egypt supplies the raw materials that the variousSekem companies process and produce, arranging favorable long-term agree-ments between cultivators and traders.

In 1994, Libra started to grow 1,000 acres of cotton biodynamically, basedon intensive cooperation between scientists, manufacturers, and farmers.Trained and experienced advisors help small-scale farmers, visiting differentregions weekly to answer questions and solve urgent problems, such as insectdevelopment.

Naturetex

In collaboration with scientists and with Egyptian companies that spin, weave,dye, and finish fabrics, Sekem developed ways to produce cotton fabrics withoutusing harmful chemicals. Daily, over 200 Naturetex workers use state-of-the-artmachinery to produce up to 3000 pieces of high-quality clothing for babies andchildren, mostly for export to the U.S. and Germany.


HELMY ABOULEISH: A HOLISTIC MODEL

Growing up with Sekem, I always saw principles in action, especially corporateresponsibility. At Sekem, the philosophy is all about human development; nothingelse matters. Profit was never an end in itself.

Like others elsewhere, we at Sekem have learned that in the global economy,you must be globally competitive. Over 20 years of working in the Sekem initia-tive, I have learned that human development is a wonderful strategy for achievingsustainability and impact. In the long term, competitiveness is all about humanbeings and individual capacity. Workers whose skills are developed in a learning-living situation are self-motivated and eager to succeed. Right now, Sekememploys 2,000 people in its businesses and hundreds more on the social side, serv-ing some 40,000 people in the community. We aim to develop our natural andhuman resources together in an organic way: our holistic approach is integrally


TEXT BOX 2. The Sekem Development Foundation

The Sekem Development Foundation (SDF) makes its services available to alllocal people so they can improve their lives in meaningful ways, moving theentire community towards development. In focuses on three development sec-tors: education, health, and economics.

Educational Programs

The Sekem School, founded in 1989, lies about 30 miles northeast of Cairo onthe fringe of the desert. It serves 300 kindergarten, primary, and secondary stu-dents of all social levels, mostly local. It enrolls Muslim and Christian childrenalike, encouraging them to live in harmony and to respect one another’s reli-gious practices.

Approved by the Egyptian Ministry of Education, the school uses theEgyptian state curriculum but also promotes new forms of pedagogical andsocial interaction to nurture children socially, culturally, and intellectually. Thusit also offers courses in crafts, drama, dance, movement, and music.

Though child labor is illegal in Egypt, it is widespread, involving about1,600,000 children under age 14. In response, Sekem designed the ChamomileChildren Project, where 80 children, aged 12 and up, work on the Sekem farm,but under excellent conditions. For about half the work day, specially trainedteachers and social workers provide classes in reading, writing, singing, history,religion, and the arts. This gives children a genuine opportunity to pass the pri-mary school exams, which they need in order to start formal vocational training.This education is also holistic, nourishing their minds, bodies, and souls. Thechildren do well on the exams; many become regular employees, often workingin agriculture or textiles. It shows that children who have had a poor start canstill shine and contribute to society, if given a fair chance.


linked to our drive to be globally competitive and successful.I was always on the farm; it was always part of the adventure. My attachment

to the farm grew by the day. When my father fell ill in 1984, I took over Sekem’sadministration, marketing, and sales. Before that, I was a farmer, driving a tractor,but then I had to go to banks. That changed everything. When he came back a yearlater, we kept it as it was and he went to the farm.

The Sekem Development Foundation

Sekem today is comprised of two integrally linked elements. The business side ismade up of a number of distinct ventures, described above and summarized inText Box 1. Phytopharmaceuticals, organic health food and garments made fromorganic cotton are the most important products these companies develop, pro-duce, and sell.

Very strong growth on the business side has allowed Sekem to develop a cul-


The Handicapped Children Program supports children with all types of dis-abilities so they can exercise their full rights as independent human beings.Many individuals with disabilities have been successfully integrated intoSekem’s various workplaces.

The Adult Education Center provides literacy training (reading and writ-ing), English language classes (incorporating computer literacy), computertraining, and courses on hygiene in the workplace, as well as arts, music, andsports. It also offers seminars and lectures.

Health Care Activities

SDF’s modern Medical Center, located on the Sekem farm, can offer compre-hensive health care services to more than 120 patients per day, including localresidents. Doctors skilled in a dozen specialties treat eye problems, skin diseases,internal ailments, infectious and endemic diseases, etc. A fully-equipped phar-macy is next door. The clinic also provides education on all aspects of publichealth, including environmental health, women’s health issues, family planning,and sanitation practices. Its outreach program, involving its mobile clinic andseveral social workers, provides modern health care and educational programsto 30,000 rural people.

Economic Activities

The Vocational Training Program provides young people with specific skills forself-employment in a labor market with few opportunities. Each year 50 traineesbegin a two-to-three year program that guides them in every aspect of their cho-sen profession; when they graduate they are skilled enough to start their ownbusiness or find work. They can train in such areas as carpentry, electrical instal-lation, textile production technology, and general administration. Short coursesoffer training to local adults who want to start or enlarge their own businesses.


tural and social dimension to its activities, organized through the SekemDevelopment Foundation (SDF), a private nonprofit organization founded by myfather in 1984 under the name “Egyptian Society for Cultural Development.” [Seedescription in Text Box 2.] In addition to funds from the business side of Sekem,the SDF’s program activities are supported by a variety of organisations anddonors, private, governmental and non-governmental, local and international.

The mission of the SDF is “To elevate the total welfare of the Egyptian peopleby enabling them to determine and realize their own socially unique and cultural-ly appropriate development path.” The foundation strives to create culturally andsocially legitimate forms of development that contribute to local, national, region-al, and international development. Thus it serves as both a local and a globalmodel of sustainable development.

Egypt’s problems arenumerous and interrelated.Overpopulation, environmen-tal degradation, and lack ofadequate education, healthcare or awareness all combineto constrain Egypt’s inherentdynamism and potential.Neither the health nor the edu-cation systems have been ableto keep pace with the presentpopulation growth rate of2.2% (or one million morepeople every eight months).

In particular, the educa-tional facilities are severely

overstrained. Schools are overcrowded and lack resources, often accommodatingthree shifts of children per day. The overall illiteracy rate of 26.6% for urban areasand 56.9% for rural areas continues to be one of the highest in the Middle East.Training and vocational programs are insufficient to meet the demand. Structuralunemployment primarily afflicts those lacking appropriate education and skills.The official unemployment rate in Egypt is 9.8%, although World Bank estimatesplace this figure as high as 17.5%.

Community health is another major challenge in Egypt, especially for thepoor. Access to adequate health care, while ostensibly universal, does not exist inmany marginal and rural communities. Exacerbating this situation are extremelylow levels of health awareness. Consequently, many diseases and conditions thatare easily curable or preventable with proper education and facilities are endemic.

Agriculture still accounts for 40% of employment and yet remains the leastdeveloped sector within the economy. The use of non-organic agricultural meth-ods has contributed to chronic environmental degradation, severely impairing the


Human development has manyfacets, including the social,cultural and economic spheresof life. The activities of theSekem DevelopmentFoundation are founded on thebelief that society’s problemscannot be tackled in isolation.


productivity of agricultural land. Consequently, the cost of production hasincreased while the resource base has shrunk. Meanwhile, Egypt has become oneof the world’s largest importers of food.

Human development has many facets, including the social, cultural, and eco-nomic spheres of life. The activities of the SDF are founded on the belief that soci-ety’s problems cannot be tackled in isolation. Accordingly, the SDF’s developmentmethodology stresses integration. The process of community development mustbe viewed as a totality composed of a multitude of interrelated components suchas literacy training, vocational training, and primary health care. Since communi-ties act as holistic units, targeting any single activity runs counter to the concep-tion of integrated development. Thus, any one component of the SDF’s activitiesis but one element of an all-embracing comprehensive strategy.

Speaking from a National Platform

In 2004 the position of executive director of Egypt’s Industrial ModernizationCenter (within the Ministry of Trade and Industry) became open. I had about ahalf hour to decide whether to take it on. Someone has to do it, and a public-pri-vate partnership as a model for strategy can function well. I accepted

Egypt has 20 million young people in its workforce. In 2025, that figure willswell to 40 million. It’s starting from 800,000 new entrants to the job market eachyear now and going to 1.2 million a year. Studying the best-practice examples ofMalaysia and Eastern Europe and studying job creation in Egypt, I see no sectorsother than those related to industry that will absorb these workers.

Industry must be the agent of growth. Right now, Egypt creates about 350,000new jobs per year. The partial breakdown is about 75,000 in industry, 65,000 inagriculture, 60,000 in services, and 150,000 in to the public sector. Every job cre-ated in industry will create one job in services.

This became clearer to me when I was on the board of the IndustrialModernization Center (IMC). I went back to Rachid Mohamed, the Minister ofTrade and Industry, and said, “We have to do something. We must promoteindustrial development and therefore be able to grow faster.” The industry wasslowing down because it was always lower than GDP growth.

Through industrial growth, investment will increase. Through the IMC, I hadto push industrial growth, through FDI and exports. It was clear what we weregoing to do. It’s easy to get industry to improve with a business community takingan active role in the IMC.

We grant assistance to companies based on their ability to export. Out of10,000, about 800 are able to export. As soon as the market opens, the other com-panies will leave the market because places like China and India will come in to it.This is a clear message that has never been delivered.

Our capacity at the IMC has increased tenfold in the last eight months since Itook office. If over the last year they secured 400 companies, we will serve 3,400companies. They were acquiring 25 new companies per month; we are serving 250



per month. The companies are only paying 15% of their development investment.We have pledged the other 85%.

Our immediate challenge is to provide land and infrastructure. In just a fewweeks, we had over 600 requests from international investors in places like Qatar,Japan, China, and Turkey. They wanted land where they could set up wholeindustrial parks. We must focus on the sectors that create the most jobs, includ-ing textiles, food, building, engineering, and furniture. Now, the IMC is exactly theidea these companies need. Invest in your people. The only competitive advantagewe have is our people.

The biggest challenge is not the capability. Egyptians own and run very suc-cessful companies that are competitive with anyone in the world. The perceptionI’m fighting is that changing the path of development is a task for someone else orfor the government. The perception now is that it’s big brother’s responsibility tofeed and educate, find the right girl for you, find you a flat, and in the end to buryyou. When you think this way, you can’t take the future of your country into yourown hands.

I’m very happy with the level of commitment top government officials haveshown, but this will need time to trickle down. The new cabinet is doing a lot tohelp. Of course, some had reservations about the IMC; some people are still nothappy. I think this is natural; not everyone will agree, but we have more and morecompanies joining, and I’m very happy with the results of new investments inindustry.

The same is true on the political level: those in power were not happy. Butthese changes are the only hope, because the challenges are so great.

CONCLUSION

Sekem is a business. It is a community. It is a shared vision for Egypt and theworld. These three elements are not mutually exclusive. They are interconnected.

For us, the creation of a garden in the desert was a very tangible experience. Ithas taken 30 years to make a vision a reality: a place where we work, a place wherewe greet visitors, and a place where we share and reflect.

But the garden, and the desert, are also metaphors. Wherever people are iso-lated from one another and disconnected from their physical environment, adesert exists. Wherever people do violence is to the land, or to other people, adesert exists. The enduring garden that we have created at Sekem is the internalgarden that links each person in the Sekem community to each other, to our land,and to all with whom we work.

1. This part of the narrative draws from a memoir written by Sekem’s founder, Sekem: A SustainableCommunity in the Egyptian Desert. Edinburgh, UK: Floris Books (2005).

2. This part of the narrative draws from a May 2006 interview of Helmy Abouleish published inBusiness Today-Egypt.

3. This philosophy is based upon the works of Rudolf Steiner.


Publication of the remarkable article, “Garden in the Desert,” offers the reader afascinating tale illustrating the difficult path that faces a social entrepreneur whoundertakes a major project that points to a path for improvement of the state ofsociety. It concerns a dedicated and idealistic entrepreneur, Ibrahim Abouleish,who undertook to transform a strikingly arid location in the Egyptian desert, withthe determination to make it bloom and yield valuable crops. Moreover, it wasintended from the beginning that the project would prove to be long lived and self-sustaining financially. The heroic undertaking and its eventual success is an excit-ing tale, superior to fiction both because it describes actual achievement and alsobecause it offers insights of value to other agronomists seeking to bring productiv-ity to deserts of the world elsewhere.

But, implicitly, there are also important lessons in the Sekem story for thosecrafting economic policy aimed at amelioration of the universal problem of pover-ty that besets even the most affluent economies of the world and continues to per-vade the developing societies. My purpose in this short paper is to draw furtherattention to, and elaborate upon, the lessons for policy designers embedded in theSekem case.

INSTITUTIONAL IMPEDIMENTS ANDCONTRIBUTIONS TO LIVING STANDARDS

Economic historians, notably such outstanding figures as Douglas North andDavid Landes, have drawn our attention to the critical role of institutions in deter-mining the magnitude of entrepreneurial effort in an economy and the size of thecontribution of such effort to innovation, per capita income and economicgrowth. The central point here is that the institutions determine the size andnature of the rewards, in terms of wealth, power and prestige, offered by entrepre-

© 2008 William J. Baumolinnovations / Davos-Klosters 2009 153

William J. Baumol

Sekem: A Remarkable Tale ofSocial Entrepreneurship with Critical Lessons for Policy

Innovations Case Discussion: Sekem

William J. Baumol is Professor of Economics and Academic Director of the BerkleyCenter for Entrepreneurial Studies, New York University and Academic Advisor to theEwing Marion Kauffman Foundation of Kansas City.


neurial activity. If the rewards are generous, more persons are attracted to careersof innovative entrepreneurship, and the economy will prosper and grow. This,quite convincingly, is a critical part of the story underlying the industrial revolu-tions that began after the eighteenth century and provided for some areas of theworld a degree of prosperity unprecedented in human history.

But institutions can also work the other way. It is not that they will put a stopto all enterprise, but that they will attract enterprising individuals to unproductiveor even destructive activities—even some, like piracy, drug dealing or the role ofwar lord, that undermine prosperity and spread poverty or even famine and deathin their wake. In the wealthier economies the undesirable elements of the incen-tive structure generated by institutions generally are more moderate, but even inthose societies they serve as effective handicaps to the general welfare. This obser-vation is important and promising, because if it offers us a hint of the nature of theimpediments to productive entrepreneurship, and indicates how these attributescan conceivably be changed, it does indeed suggest the routes to effective progress.Even in developing lands, where the obstacles to progress have proven mostintractable in recent eras, this observation offers hope.

Barriers to Progress in Developing Lands:Three Example from the Sekem Story

The story of Sekem provides a number of striking examples of barriers to progressin a developing land such as Egypt—barriers that, fortunately, do not appear to beimmutable. Let me call attention to three of them, each a special case that isarguably representative of problems of widespread significance.

A. Bank Financing. Funding is one of the most difficult and widespread obstaclesbesetting the creation of enterprise, particularly in developing countries. TheSekem history illustrates this clearly:

….I was happy to have found an Islamic bank where I could work togeth-er in a like-minded partnership—or so I hoped….The negotiations weretough….We agreed on the bank having a 40% share in thebusiness…[but then] the state investment authority…found that theestimated value was far higher than the book value. This meant the bankhad to pay more for its involvement in the project. But the bank wasreluctant to accept this finding, and began to doubt everything and try toget out of the contract. It demanded back the 150,000 pounds it hadalready paid out…An arbitrator was employed and it took months forour two lawyers to agree on a third party to mediate….One day mylawyer came to me and said, ‘listen, if you give the bank’s lawyer 10,000pounds he will accept the estimated value.’

When our entrepreneur refused to pay a bribe the problems began in earnest.Other banks, having heard the story, all refused loan applications from Sekem, andthe dispute went on for years.

William J. Baumol

Sekem: A Remarkable Tale of Social Entrepreneurship

B. Expropriation Vulnerability. In developing lands, as was often ubiquitously truein the more distant past, there was no guarantee that private property would beimmune from expropriation, particularly if it had proved promising. In the Sekemcase, too, this threatened to become the reality:

…[O]ne morning, when I drove to the farm from Cairo as usual, I couldnot believe the sight I saw: bulldozers were pulling down thousands oftrees. I was met by soldiers with machine guns and suspicious expres-sions. I found out that a general had ordered our grounds to be madeinto a military area, even though it was only through our efforts thatthere was even a water supply on our land.

C. Superstition as Competitive Weapon. The Sekem enterprise was run on principlesof organic farming, but this made it a financial threat to the pesticide manufactur-ers, as other growers seemed apt to follow the Sekem example:

The chemical industry could no longer deposit 35,000 tons of pesticideson the fields each season. The people involved had opposed organic cul-tivation and had gotten the press involved….We were able to cope withall the attacks until one day an extensive article appeared in the localpaper with the title “The Sun-Worshipers,” [a label created by a reporterwho had visited the area]….For Muslims, worshiping the sun is like wor-shiping Satan for Europeans….Based on this article, the prayer leaders inthe mosques around started to stir up animosity toward us, spreading theword that we did not worship Allah, but the sun [thereby threatening theentire enterprise].

Impediments to Productive Entrepreneurship in Prosperous Nations: TwoExamples

The three examples from the Sekem story surely illustrate the point: that institu-tional arrangements can constitute a major impediment to productive entrepre-neurship and that institutional impediments can handicap and even prevent devel-opments of the sort that promise to contain poverty. But it is important to empha-size that such counterproductive institutions are not present only in developingeconomies. We in the prosperous nations also have much room for institutionalimprovement. Indeed, the most promising institutional arrangements, if they areinappropriate, even if only in their details, are capable of impeding or even pre-venting entrepreneurial activities from delivering their potential benefits.

A. Some Missteps in the Early British Patent System and Resulting Impediments toInvention. The history of the patent system in Great Britain provides one clearexample of institutional impediments in prosperous countries.

As we all know, Great Britain has been accorded by historians the distinctionof having inaugurated the eighteenth century industrial revolution. It is an accom-plishment so great that its magnitude is difficult to comprehend. In just one cen-tury the purchasing power of an average inhabitant of Great Britain grew five-fold;



in the United States, seven-fold. This is in contrast with how little was achieved inthe West during the approximately fourteen-century period between the fall ofRome and the British industrial revolution, during which time the estimated risein per capita income for inhabitants of Europe was approximately zero. Yet, strik-ingly, it turns out that even more could have been accomplished since the indus-trial revolution but for the obstacles created by the errors of those who designed

the relevant institutions andthe attendant rules—notably, the early Britishpatent system.

Britain may indeed haveinitiated of the institution ofpatents and been its earliestuser about four centuriesbefore the beginning of theindustrial revolution. Butthose early grants of patentsby the English king were notgiven as a reward for theinvention of new products orimproved productive tech-niques. Rather, the firstknown patent was granted toa French workman who hadmigrated to England and hadbrought with him the Frenchsecrets about the manufac-ture of silk. This workman

was given a monopoly on the production of silk in England as a reward for histheft—or rather his secondary theft; for as we know, France, too, had not acquiredits knowledge of silk production by innocent means. It was fully three centurieslater, that the English decreed that the temporary monopoly provided by a patentcould only be granted to the contributor of an original invention

But this amendment to the British patent system hardly marked an end to theera in which the system was characterized by a set of effective impediments toinvention and associated entrepreneurial efforts. In her superb book TheDemocratization of Invention, Professor B. Zorina Khan provides a description ofthe early British practices in this field. The government charged a fee for the grantof a patent that was about four times as large as the average income of anEnglishman: “…[P]atent applications in England alone had to pass through sevenoffices, from the Home Secretary to the Lord Chancellor, and twice required thesignature of the sovereign[!]. If the patent were extended to Scotland and Irelandit was necessary to negotiate another five offices in each country.” (p. 32). The pur-pose of these arrangements seems clear. First, it was believed that only wealthy

William J. Baumol

Britain may indeed haveinitiated of the institution ofpatents and been its earliest userabout four centuries before thebeginning of the industrialrevolution. But those earlygrants of patents by the Englishking were not given as a rewardfor the invention of newproducts or improvedproductive techniques.


aristocrats could be expected to have the knowledge, intelligence, and creativity tomake an inventive contribution of any value to the King and country. To avoidcluttering the activities of government with the pointless intrusions of “the lowerclasses,” such obstacles were adopted for the purpose of their exclusion. Second,the system was designed to contribute to the wealth and comfort of governmentofficials, and this it seems to have done effectively, so much so that when the ruleswere at last changed and improved after the middle of the nineteenth century, theaffected government employees had to be offered financial compensation for thelosses they would suffer as a result.

In addition, the view of British law in the earlier period was that the grant of apatent was a gift from the king, so that when the monarch deemed it to be appro-priate he could, in effect, re-appropriate a patented invention for his own use,without compensation to the inventor. This was rarely, if ever, done in nineteenthcentury England, so that it does not seem to have been a significant issue there, butit is reminiscent of the dangers of similar arrangements elsewhere, as in Chinawhen the Emperor’s Confucian oriented government is reported to have confiscat-ed printing from its Buddhist inventors.

The result of these British restrictions upon its patent system was, of course, animpediment to its invention process. For nearly three decades until 1855 the num-ber of patented inventions per million persons in its population was about onethird the level of patents in the United States, where none of the obstacles justdescribed were present. The relative inventive performance of the Americans wasdemonstrated dramatically at the Crystal Palace Exhibit in London in 1853, andthis frightened the British into reconsidering their patent rules, though the result-ing changes were far from immediate.

All this does tell us that there is much that is useful to be learned from our ownpast mistakes and those of others about effective and ineffective ways to encouragethe productive contribution of the entrepreneur.

Next, I will provide one more more recent example that deals with the UnitedStates.

B. Distortions of Incentives Caused by Employee Stock Options. In the U.S. a partic-ularly important role in the compensation of business executives is played by theemployee stock options (ESOs) that are often a substantial proportion of thefinancial compensation of members of management in American business firms.If the rules under which they are provided are well designed, they can serve as apowerful incentive for innovative entrepreneurship and growth of the businessfirm, as success in these areas will drive up the price of the company’s securitiesand, thereby, the market value of the ESOs. However, in practice the current ruleshave invited abuse in ways that, if anything, inhibit productive entrepreneurialactivity within the firm and hold back its overall performance.

An employee stock option is a grant by a company to the members of its man-agement or other employees of the right to purchase a specified quantity of thestock of the company at some future date of the recipient’s choosing, but paying



for those stocks only the market price that prevailed on the date that the optionswere granted. This would seem to provide a powerful incentive for management towork hard for the productivity and profits of its firm as a way to raise the value of

those ESO grants. Recentevents, however, have illustrat-ed all too dramatically thepossibilities for abuse—andindeed the actual abuse—ofstock options by someentrenched managements.These opportunities for abuseinclude manifestly undesirableincentives for artificial exag-geration of the short-termearnings of the firm so thatmisled investors will increasetheir demand for the compa-ny’s stocks, thereby raising thevalue of management’s stockoptions. Management doesthis instead of undertaking the

harder and riskier task of providing more enduring earnings for the company bymeans of entrepreneurial effort and innovation.

Even worse, it has been observed that large rewards of stock options have oftenbeen given to managers of the companies who have accomplished little or nothingfor their firms, but who have benefited greatly when the stock price of the firm hasrisen in a period of generally rising stock market prices. In other words, this hasproven to be an incentive for management to do little or nothing for the firm, theinvestors or society, because without undertaking any of the risk or effort thisrequires, they would still be richly paid, often in hundreds of millions of dollars.

This problem of divergence between the interests of society and those of man-agement is inherent in the corporate form of organization of the large businessfirm. The large amounts of money needed to create the business can only beobtained from a large number of investors—the corporation’s many stockholders.But the resulting dispersion of corporate ownership among many stockholders,with no stockholder owning enough stocks to enable it to control the company,makes management by the stockholder-owners unworkable and necessitates givingthe task of management to an essentially separate group, the hired management ofthe enterprise. The result is what is described as the separation of ownership frommanagement that is typical of the modern corporation. But since an effective pro-gram of innovation in the firm’s products and production methods is likely torequire very hard work and the undertaking of great risks, management is likely tobe reluctant to undertake such a course.

William J. Baumol

[O]bstacles imposed by natureare not all that success in a waron poverty must overcome.Here, as in many otherproblems that beset theeconomy, the lesson is summedup by the old comic stripobservation: “We have met theenemy and he is us!”


As just indicated, stock options can be a method to achieve the goal of recon-ciling the interests of managers and shareholders and society. For under the stockoption form of compensation, managements gain most if they can do their utmostto raise the market value of the company’s securities, and that is presumably whatgood profit and sales performance will achieve. Moreover, a simple change in theway employee stock options are provided to management promises to remedy theproblems just described.

The problem can at least be alleviated if the quantity of options granted to theindividual executive is based on the performance of the firm’s securities in com-parison to that of the firm’s industry as a whole. That is to say, more options areoffered in proportion to the extent that growth in the firm’s output or sales exceedthose of related firms.

But the rules for taxation of firms in the U.S. have all but prevented this solu-tion. Those rules permitted a reduction in the amount of the tax that would oth-erwise have to be paid for the provision of the stock options, but only if the quan-tity of options granted to management was not based on its performance! In otherwords, the arrangement was completely perverse; it was an incentive for continu-ation of the temptation of management to pursue its own interests at the expenseof stockholders and the community as a whole.

CONCLUSION

It should be clear from these and an abundance of other experiences that all soci-eties still have much to learn about how to most effectively promote economicgrowth which alone can ultimately terminate the poverty that has plagued human-ity throughout the ages. In particular, amelioration of the universal problem ofpoverty will require reexamination of our institutions; determination of whatinstitutional arrangements promote general prosperity rather than impeding it;and action to carry out the modifications that experience, observation, and sys-tematic research tell us are required.

I return, in conclusion, to Sekem, to the Egyptian tale in which a remarkableand determined exercise of entrepreneurship succeeded in making the desertbloom, overcoming obstacles that would have lead weaker individuals to surren-der. Its ultimate victory has many lessons for all societies. It illustrates dramati-cally that the obstacles imposed by nature are not all that success in a war onpoverty must overcome. Here, as in many other problems that beset the economy,the lesson is summed up by the old comic strip observation: “We have met theenemy and he is us!” The story of Sekem shows that these problems do occur indeveloping lands as well as ours. More importantly, it demonstrates that in suchplaces, too, institutional impediments can be overcome and, with sufficient deter-mination and thought, they can even be removed.


In recent years, the increasingly popular topic of economic entrepreneurship hasincluded a concern with entrepreneurial innovation in the not-for-profit sector. Itseems to us that this sort of entrepreneurship is not yet generally or fully under-stood. For example, a New York Times op-ed piece by Nicholas Kristof (2008) offersexamples of social entrepreneurship. We question whether some of these examplesreally represent social entrepreneurship: Andrew Klaber’s charitable foundationcovers the school expenses of children orphaned by AIDS, while Jennifer Staple’sorganization collects old reading glasses in the U.S. and ships them to poor coun-tries.

These are, of course, inspiring examples of young people who have createdcharities that have done a great deal of good, but they are not examples of entre-preneurship, let alone social entrepreneurship. A central reason is the fact that nei-ther is truly innovative. Many charitable organizations, such as Orphans AgainstAIDS, provide educational assistance to such children; Save the Children is a well-known, long-standing example of this work. As for the mission of Staple’s Unitefor Sight, the Lions Club International has been collecting eyeglasses and distrib-uting them to the poor for many years. One might argue that Kristof ’s examplesare innovative because they are Internet-based, but both of the much older chari-ties we mentioned also have extensive Internet sites.

© 2008 Ayman El-Tarabishy and Marshall Sashkin160 innovations / World Economic Forum special edition

Ayman El-Tarabishy and Marshall Sashkin

Social Entrepreneurship at the Macro Level:Three Lessons for Success

Innovations Case Discussion: Sekem

Ayman El-Tarabishy is Assistant Professor of Management at The George WashingtonUniversity in Washington, D.C. He is responsible for courses in entrepreneurship,leadership, and an on-line executive MBA program for physicians and health-careadministrators. He is also executive officer of the International Council for SmallBusiness.

Marshall Sashkin is Professor Emeritus of Human Resource Development at TheGeorge Washington University, where he continues to deliver lectures on leadershipand research methods in the Executive Leadership Program. His current research cen-ters on leadership, entrepreneurship, and organizational performance.

Social Entrepreneurship at the Macro Level

Some would argue that social entrepreneurship is characteristically differentfrom “ordinary” entrepreneurship. Gordon Shockley (2008), however, has point-ed out that the fundamental attributes of entrepreneurship in the public and non-profit sectors are actually no different from the fundamentals of entrepreneurshipin the private for-profit sector. His argument rests in good part on JosephSchumpeter’s (1934) classic definition of entrepreneurship: its core is defined byinnovation, and the entrepreneur, whether a person, a nonprofit corporation, or a

government agent, is merely the carrier of the innovation into society. This is notan unreasonable point, especially as few would care to argue against as respected—and innovative—an economic theorist as Schumpeter. Shockley seems to be cor-rect in asserting that some nonprofit and government-based entrepreneurial oper-ations are really not much different from private-sector entrepreneurship.However, we believe that the example of Sekem, detailed in the case written byIbrahim and Helmy Abouleish, teaches us that social entrepreneurship, while sure-ly based in innovation, may—and perhaps must—go farther than the descriptionthat Schumpeter applied to private-sector innovation and entrepreneurship.

First of all, when examined carefully, the case of Sekem makes it clear that atleast in some cases—specifically, large-scale or nationallyfocused social entrepre-neurial efforts—the innovator is just as important to the success of an entrepre-neurial effort as the innovation itself. The Sekem case also points out the impor-tance of context for success in social entrepreneurship at what we might label themacro level. We refer here to social entrepreneurship that successfully brings inno-vation—or, more properly, many innovations—into a large social system rangingfrom a community to a nation.

Specifically, then, the Sekem case points out three crucial elements of socialentrepreneurship at the macro level:

The innovation, without which there would be no entrepreneurial activity. Whilethis is hardly a new idea, it is worth noting that a recent critique of entrepreneur-ship (Shane, 2008) pointed out the high failure rate of new business ventures asproof that entrepreneurship may not be, as Schumpeter (1939) declared three-quarters of a century ago, the driving force of capitalism and economic develop-ment. That proof, however, is in fact erroneous because new business ventures are,to a large extent, mere replications of extant business operations. That is to say, asSchumpeter and other entrepreneurship researchers such as Danny Miller (1983)have observed, entrepreneurship is not entrepreneurship without innovation.

The entrepreneur, that person who is able to (a) develop (or identify) an innova-tion, (b) take a highly active role in creating an organizational venture based on thatinnovation, and (c) take high (but realistic) risks to successfully establish that venture.As a macroeconomist, Schumpeter tended to downplay the role of the individualentrepreneur. Modern researchers, especially in the U.S., have, however, tended tooveremphasize that role. This may be due to the extreme importance placed onindividualism in American culture. A realistic view lies somewhere between theseextremes, with the individual entrepreneur playing an important if not always cru-



cial role. For example, the sociologist Robert Merton (1973) observed that whileinnovations, especially crucial innovations such as the calculus or the telephone,are commonly identified with an individual “genius,” the fact is that those innova-tions—and many lesser-known innovations—were actually “overdetermined,” thatis, developed quite independently by more than one individual at about the sametime

The social context of entrepreneurship. Contextual concerns are, of course, oftentaken into consideration in terms of competition and/or organizational partner-ships. However, to achieve a full understanding of social entrepreneurship, suchconcerns must be extended to include key aspects of the communities—the socialstructures—within which innovations are adopted. Specifically, to obtain a com-prehensive overview of entrepreneurship in general and of social entrepreneurshipin particular, one must incorporate within a viable theory of entrepreneurshipsuch social factors as education, health care, and cultural values. In fact, this is nota new idea. For example, in his classic book, Diffusion of Innovations, Everett

Rogers (2003) observes that innovations inconsistent with the values and beliefs ofpotential adopters are unlikely to take hold on a large scale.

THE CASE OF SEKEM

Ibrahim and Helmy Abouleish, father and son, provide an inspiring account thatmight appropriately be titled, “The Emigrants’ Return.” The idealism IbrahimAbouleish reflected in returning to his homeland to create innovative institutionsthat would advance both economic and social needs is more than admirable. It isthe mark of one who, in terms used by the social psychologist David McClelland(1987), functions at the highest level of development of the motive pattern thatcharacterizes leaders. McClelland and his associates (McClelland & Boyatzis, 1982)identified this as an exceptionally high power motive. But at this level, leaders usepower not for their personal gain but, rather, to benefit the larger social system.McClelland called this “institutional power” because such leaders work within anorganizational context, using organizations and institutions to apply power andinfluence in socially positive ways. Social entrepreneurship of the sort described inthe Sekem case—that is, at the macro level—aims to create a sense of organization-al community. It may even be aimed at creating change in a whole society, as didMohandes (Mahatma) Ghandi.

McClelland observed that such leaders see their power as deriving from agreater or higher authority, often religion, as is true for Ibrahim Abouleish. Theleadership scholar James McGregor Burns points (1978) out that leaders who usepower in the manner we have described engage followers in “a relationship ofmutual stimulation and elevation that converts followers into leaders and mayconvert leaders into moral agents” (p. 4). Exhibiting a power need at this highestlevel and using it to create communities of the type just described—and of the typedeveloped by Ibrahim Abouleish—may well require that the entrepreneur have


Social Entrepreneurship at the Macro Level

personal character of a most uncommon kind.We have, the reader may note, already begun to focus our comments on the

three elements of macro-level entrepreneurship that Sekem teaches are crucial forsuccess. That is, we have already started to describe and discuss the nature ofAbouleish, the entrepreneur in this case. Before going further, then, let us proceedin a more organized fashion. First we will attend to the innovation—and its manyextensions—that is at the heart of this fascinating case. Next, we will return to thenature of the entrepreneur (and his successors), with a focus on several importantaspects of the entrepreneur that extend beyond his inspiring and idealistic goals.Finally, we will turn to aspects of the context that this case teaches us are crucialfor success of macro-level social entrepreneurship.

THE INNOVATION

In his history of the development of Sekem, which he founded in 1977, IbrahimAbouleish describes his goal of developing a farm that used only organic farmingmethods. This was a response to the massive use of nonorganic fertilizers and,especially, pesticides in Egyptian agriculture. He barely notes the severe toll thiswidespread use of pesticides on produce of all types had on public health.However, as the former director of a medical institute in Austria, Abouleish mustsurely have recognized this problem.

But it is clear, from the beginning, the innovation behind Sekem was not sim-ply the use of organic farming methods. Abouleish describes how, right after hehad purchased the land for his farm, he began to plan for houses for workers, aschool for workers and their children, a medical center to meet the health-careneeds of his planned community, and a social-activities center.

As the farm, and the multifaceted entity named Sekem, took form and grew, sodid the nature of the project’s innovations. Production of an extract of a medici-nal herb for an American firm was actually Sekem’s first innovative venture. It didnot in fact involve farming, but the construction on the farm property of a chem-ical laboratory to produce the extract that was sent overseas. Later, in 1986, Atos, ajoint venture between Sekem, a German bank, and a German firm, was set up. Atosfirst marketed plant-based German drugs to Egyptian physicians. Later still, in1992, another German firm became a partner in the production and sale of natu-ral cosmetics in Egypt. Libra, a Sekem subsidiary established in 1988 to supply rawmaterials (such as the plants from which extracts were obtained) to other Sekemoperations, began organic cotton production in 1994. Organic vegetable farming,another addition to Sekem’s innovation set, was conducted by the firm Hator, aSekem subsidiary founded in 1996 that partnered with a firm based in Cyprus.Much of the produce went overseas. It seems that each time a new product line wasadded, a new company was formed under the Sekem umbrella. For example,Naturetex, a separate subsidiary, collaborates with Egyptian textile firms to pro-duce fabrics without using dangerous chemicals. Naturetex also produces chil-dren’s clothing for export.



The success of the organic vegetable crops was clear, yet it was hindered by thecontinued pesticide spraying by nearby cotton producers, which left a residue onSekem’s products. A massive public relations campaign led to an agreement withEgypt’s agriculture ministry to “test” the yield per hectare of the organic approachto cotton growing and compare it to that of farms using fertilizer and pesticides.Year after year of testing repeatedly demonstrated the advantages of Sekem’sapproach. Eventually, reluctantly, pesticide spraying was discontinued on nearbyfarms. According to the Abouleishes’ historical account, all cotton production inEgypt eventually ceased to use pesticides! This alone would have made Sekem asuccess, due to the significant advance in public health achieved by reducing oreliminating the use of pesticides.

But there is much more to the story. Under the Sekem DevelopmentFoundation, a wide range of social services are provided to both employees and thecommunity at large. A medical center and clinic serves 120 patients daily, not onlyemployees but members of the local community. The Sekem School serves 300K–12 students; many are the children of employees but the school is open to all.Education for child workers is provided, as is a program of education for the hand-icapped, programs in adult literacy and career skills, and programs in art, music,and sports. In expanding its activities, Sekem’s initial training for workers has mor-phed into career-development training. Vocational training is offered to individu-als who may or may not become Sekem employees. There are also courses foradults who want to start businesses.

We have repeated some of the detail presented in the Abouleishes’ case in orderto emphasize both the wide variety and the extensive interconnectedness of theinnovations that make up Sekem, but the point is clearly made by Ibrahim andHelmy Aboulesih: successful macro-level social entrepreneurship requires the inte-gration of multiple social elements, including but not limited to business innova-tions.

THE ENTREPRENEUR

Born in Egypt, Ibrahim Abouleish went to Europe for graduate study. He earned aPhD in pharmacology and became a researcher, generating more than a few drugpatents and eventually becoming head of the Division of Pharmaceutical Researchat the University of Graz in Austria. During these years he also married an Austrianwoman, Gudrun Erdinger, and they had two children, a boy, Helmy, and a girl,Mona. A visit to Egypt in 1975 impressed upon Abouleish the need to deal withproblems of pollution, education, and poverty, among others. So, in 1977, he andhis family returned to his homeland to establish an organic-based farm. As we havealready noted, if that were the true and sole focus of his efforts, it would hardlyqualify as an innovation; organic farming was not a new idea, even in 1977. ButAbouleish had a far broader, multifaceted goal: to create a comprehensive develop-ment initiative.


Social Entrepreneurship at the Macro-Level

Abouleish’s first aim, however, was to enlist the entire family in his dream.With that goal attained, he could begin a process that was to extend far beyondfarming. As he writes, “I would move to Egypt, establish a self-sustaining farm, andthen over time add additional projects focused on education, health, and culture.”To begin to this process he needed funding. Abouleish was apparently reasonablywell-to-do, with funds adequateto purchase the initial 70 hectaresof land, but he needed a largeinfusion of capital in order tobegin operations. He hadarranged for an American firm topurchase a plant extract needed tomanufacture an herbal drug rem-edy, but he still required funds toobtain the extract and build achemical laboratory to process theplants. Perhaps a surprisingbeginning, when the overt aim was to establish a farm using organic methods—anaim that was not initiated until 1994, more than 15 years after the founding ofSekem.

What we see in this account is Abouleish’s pragmatism. His real aim was notlimited to farming but was truly multifaceted, yet where he started depended onopportunity, not a rigid plan. Many years ago, Herb Shepard (1975), a highlyregarded American organization development and change consultant, wrote thatone of his key rules of thumb for successful change was, “Light many fires!” Thatis, rather than emphasizing a single major project, Shepard recognized that suc-cessful organizational change calls for many small but interconnected efforts thatwill eventually produce major change. Abouleish realized this instinctively.

Abouleish’s pragmatism did not extend to a willingness to violate ethical prin-ciples. In a land where bribery and baksheesh are accepted as basic elements ofdoing business, Abouleish refused to participate, despite the difficulties this creat-ed. Here again we see a crucial aspect of the successful macro-level social entrepre-neur: goals are not approached by doing “whatever it takes” but by doing what isknown to be right. Abouleish’s commitment to his values and his faith was a con-stant driving force behind his personal efforts and his step-by-step successes inlighting many fires.

THE CONTEXT

The successful entrepreneur rarely forgets the context of his or her entrepreneur-ial activities. Context is, however, most often thought of as government regulation,funding opportunities, and competition. Abouleish had many run-ins with gov-ernment agencies and bureaucrats. He faced severe problems in obtaining initialfunding, which were only overcome slowly and often with painful difficulties and


Abouleish’s commitment tohis values and his faith was a

constant driving force behindhis personal efforts and his

step-by-step successes.


setbacks. Even competition was a factor, in that the chemical companies that pro-duced fertilizer and pesticides had no interest in being put out of business and hadno scruples about paying off anyone who could help them. Regulation, funding,and competition are relevant issues for all entrepreneurs, including social entre-preneurs. Dealing effectively with these issues calls for the recognition of addition-al contextual elements. One of these is high-level contacts with power and influ-ence.

Early on in his development project, Abouleish was confronted by an armygeneral who wanted to take his land. Abouleish had friends and contacts in highplaces, including then-president Anwar El-Sadat, with whom he had gone toschool. Abouleish used his influence with Sadat to stop what otherwise would havebeen the end of his dream. The general was transferred and forced to apologize toAbouleish—a deeply humiliating circumstance for the officer. Key influential con-tacts are part of the “working capital” of the macro-level social entrepreneur. Atleast some of these contacts must have not only strong positions of power but alsoa degree of honest concern for people and development. This is asking a lot inmany situations, perhaps more than is possible.

Chemical companies, as noted above, were quick to catch on to Abouleish’saim of ending, as much as possible, the use of chemical fertilizer and the sprayingof pesticides. They used spies and they paid government bureaucrats to foster falserumors about Sekem, asserting that the organization—and Abouleish in particu-lar—were not true Muslims but actually worshipped the sun! (Sekem is thetransliteration of an ancient Egyptian hieroglyph meaning “vitality of the sun.”)They used Imams in local mosques to spread this lie.

Abouleish then set up a meeting, bringing together a wide variety of local offi-cials, religious leaders, and influential sheiks. At that meeting, he used his deepknowledge of the Koran to explain to those present how what he was doing notonly was consistent with Koranic teaching but was specifically aimed to carry outthe principles expressed in the Koran. He used concrete examples to illustrate this,demonstrating to those present, slowly, step-by-step, that “Islam lives deeply inSekem.”

What we refer to here is not simply Ibrahim Abouleish’s evident religiousknowledge but his understanding of the sociocultural context within which hisdevelopment projects had to function. Abouleish’s awareness of the cultural con-text and his ability to make social innovation congruent with local custom and cul-ture (in this case, religion) were crucial factors in the success of Sekem. Recall, too,that in describing individuals at the highest level of leadership development,McClelland observed that they often see the source of their vision and goal as beingbased in and deriving from their religious belief. One implication here is that onewho is not native to the social context in which he or she attempts macro-levelsocial entrepreneurship may be unlikely to succeed in ventures of the sortdescribed in the Sekem case.


Social Entrepreneurship at the Macro-Level

CONCLUSION

Let us briefly consider a third example of social entrepreneurship offered byNicholas Kristof, one that really is social entrepreneurship, perhaps even macro-level social entrepreneurship. In Mexico, Ariel Zylbersztejn founded Cinepop toproject free movies in parks using inflatable screens because the vast majority ofMexican citizens could not afford the price of admission to a movie theater. If thatwas all he had done, Zylbersztejn would have simply founded another charitableventure. However, his model is based on finding sponsors who pay to have adver-tisements included in the free show. These funds not only support the free movies,they are used to supply microcredit, in partnership with other agencies, to individ-uals and families hoping to start small businesses, as in the model pioneered byNobel laureate Muhammad Yunus, founder of the Grameen Bank in Bangladesh.The money raised is also used to partner with social-welfare groups to help impov-erished families who show up to see the movies. Cinepop is now three years old,and 250,000 people attend their movie screenings each year. Zylbersztejn’s goal isto use the Cinepop model in other nations with mass poverty, such as Brazil, India,and China.

Note that Zylbersztejn has developed a real innovation. This innovation is notsimply showing free movies to the poor in public parks; that is not new. His inno-vation is, rather, the way he has “bundled” his free movie plan with a complex,interactive, and community-focused set of partners, goals, and activities. In thiscase it is clear that the innovative entrepreneur is just as important as the innova-tion. Indeed, it is hard to separate the two. We also see that the Abouleishes’ thirdlesson—the crucial involvement of community and culture—is a key aspect of theCinepop model. After all, what defines culture more than the movies people go tosee?

We see clearly that the lessons presented by Ibrahim and Helmy Abouleish maynot be limited to Sekem, yet we cannot conclude this analysis without noting thetrue difficulty of success in such social entrepreneurial ventures. One of us, AymanEl-Tarabishy, is a citizen of Egypt. His father emigrated, much like IbrahimAbouleish, and founded a successful international import-export business. And,again like Abouleish, he subsequently returned to his native Egypt. His hope andaim was to establish a factory that would create prosperity for his employees andthe surrounding community, and thus demonstrate the real possibilities of eco-nomic development and change. His idea was innovative, though perhaps not tothe degree of Abouleish’s concepts. Moreover, his past efforts demonstrated that hehad the personal character required for entrepreneurial success. However,Tarabishy lacked the sort of network of influential personal contacts thatAbouleish describes, almost in passing. He could not go to Sadat or Mubarek whenfaced with uncooperative bureaucrats or generals with hidden agendas. The largerculture, in which this man had little influence, defeated his efforts and his dreams,and he suspended his entrepreneurial efforts in Egypt.

We do not mean to cast a pessimistic veil over the likelihood of success of



macro-level social entrepreneurship efforts. Such efforts are desperately neededand they can succeed, as demonstrated by Abouleish and, for that matter,Muhammad Yunus. Nonetheless, our own experience tells us that we must attendcarefully to all three elements of successful macro-level social entrepreneurship asdefined and demonstrated in the Sekem case. When we do, we may be able to moresuccessfully identify situations in which this form of social entrepreneurship cansucceed and situations that are best avoided. For this we must express great appre-ciation for Abouleish’s teaching with respect to this sort of social entrepreneurism.The lessons we have extracted from the Sekem case seem to us to be crucial forboth understanding and successfully engaging in macro-level social entrepreneur-ship. We have much for which to thank Ibrahim and Helmy Abouleish—as doesEgyptian society.

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Press.Schumpeter, J. A. (1939). Business cycles: A theoretical, historical, and statistical analysis of the capital-

ist process. New York: McGraw-Hill.Shane, S. F. (2008). The illusions of entrepreneurship. New Haven, CT: Yale University Press.Shepard, H. A. (1975). Rules of thumb for change agents. OD Practitioner, 7(3), 1-5Shockley, G. (2008, June). Government as social entrepreneur: A theoretical basis for empirical

research. Paper presented at the world conference of the International Council for Small Business,Halifax, Nova Scotia.


Every day in countries throughout the world, citizens are arbitrarily detained, tor-tured, and denied access to counsel. In recent years, however, the majority of tran-sitional and post-conflict countries have demonstrated their commitment tohuman rights by signing international conventions and passing domestic laws tosafeguard citizen rights. Unfortunately, many of these new laws remain unen-forced due to a lack of trained lawyers, legal infrastructure, and resources. As aresult, torture remains the instrument of choice as the cheapest form of investiga-tion. Although this human rights issue threatens millions of people all over theworld, the human rights advocacy community has focused much of its efforts onhigher profile political prisoners and on developing the international and localprosecutorial side of the justice system. Without support for the local implemen-tation of the rule of law, which includes effective defense counsel, the vast majori-ty of ordinary citizens are still left vulnerable to everyday practices of brutality andlack of due process rights.

International Bridges to Justice (IBJ) was founded to fill this gap by focusingon the local implementation of laws safeguarding citizen rights and by strengthen-ing the critical, and most often neglected, defender side of the scale. IBJ aims toensure that citizens in all countries have access to basic legal rights, including com-petent representation, protection from torture, and a fair trial.

IBJ started in 2001 with a focus on China. For the past six years, IBJ has helpedbring about both widespread and targeted changes in China. For instance, IBJ con-ducted criminal defense training in China in a unique partnership with publicauthorities. It also has held nationwide annual public awareness campaigns thatChina’s legal aid community heralded as the start of a legal rights revolution. Anexample of a more targeted change is the opening of the first juvenile interroga-tion room in Sichuan Province, China. Equipped with video recording equipmentfor interrogations, this room ensures better protection of juvenile defense rights.As part of this initiative, legal aid lawyers will also be given timely access to inter-

© 2008 Karen Tseinnovations / Davos-Klosters 2009 169

Karen Tse

From Fear to HopeUpholding the Rule of Law via Public Defenders

Innovations Case Narrative: International Bridges to Justice

Karen Tse is the Founder and CEO, International Bridges. She was elected as anAshoka Fellow in 2004, and in 2005 was the recipient of a Skoll Award for SocialEntrpreneurship.


rogation documents, allowing them to challenge problems with police procedures.More recently, IBJ hosted two events—one in Dublin, Ireland, and one inWashington, DC—where grassroots Chinese defenders received training frommembers of international law societies and public defender offices.

With its success in China, IBJ received numerous requests to support defend-ers and expand its reach to other countries. IBJ circulated over a million advise-ment of rights brochures and posters in China, Cambodia, Burundi and Rwanda.IBJ has trained over 10,000 lawyers in China, Vietnam, Cambodia, and Burundiand has produced a practical Defender Toolkit for over 500 Legal Aid Centers inChina and Cambodia.

A toolkit for Zimbabwean lawyers is near completion. In India, two newlyelected IBJ fellows are making headway. More recently, a preliminary legal needsassessment in Guatemala and El Salvador resulted in promising partnerships. Andmost recently, IBJ has expanded its programming into Africa, with the launch ofthe first advisement of rights campaigns in Rwanda and Burundi, and has alsobegun work in Zimbabwe.

Through these efforts, which move forward country-by-country, case-by-case,poster-by-poster, IBJ seeks to support the critical work of defenders and build thesurrounding infrastructure to enable them. These defenders are the first line ofprotection for everyday citizens. It is they who uphold the law. Without them, thecriminal justice system becomes an unjust, unbalanced prosecution machine. Yetcourageous defenders are often themselves under attack and resources for theirwork is sorely lacking. IBJ’s task to support them is immense and at times seemsoverwhelming,

In addition to training and building the legal infrastructure, a shift in con-sciousness must underlie the changes in order for the laws to take root. None ofthis is possible without bringing together the concerted efforts of the worldwidecommunity to support this endeavor.

This is no easy task. Yet, with the progress IBJ has made, and with its strategicplans for the future, we are paving the road as we walk on it.

THE GENESIS

From 1994 to 1997, I worked in Cambodia as a lawyer doing aid work for both theUnited Nations and the International Human Rights Law Group. During thattime, I experienced pivotal moments that shifted my perceptions of approaches tointernational human rights dramatically and inspired me to found IBJ in 2001.

The Boy who Stole a Bicycle

One of these pivotal moments came when, as part of my work with Cambodianprisoners, I peered through the bars of a cell and talked with a young boy whoseonly crime was an attempt to steal a bicycle. He had been detained, tortured by thepolice, and was languishing in prison. Like most prisoners in Cambodia, he had nolawyer or human rights worker to defend him or safeguard his rights. He had no

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From Fear to Hope

pending trial date to determine his guilt or innocence. I flashed back ten years tomy college days, organizing letter-writing campaigns for political prisoners. Wehad demanded that they be free from torture and be granted their right to fair andspeedy trials. But as I came face to face with this young boy, I realized that neitherI nor my fellow students would have written a letter for him. He was not a politi-cal prisoner; he was just an unimportant little boy whose mischief had landed himin prison indefinitely.

The prison guards did not appear concerned that I was talking to this boy whobore obvious signs of beating. They didn’t have much to hide; the use of force toextract confessions was just a part of standard police operating procedures. As Ilooked at this boy, I wondered why his interests had never attracted my attentionbefore.

Perhaps ten years earlier, there was little that we could have done for this boy.But during the last decades of the 20th century, governments throughout Asia,including Cambodia, Vietnam, and China, had passed new laws outlawing tortureand providing citizens with basic rights, including the right to a defender. But cit-izens like this boy were unimportant to the government. The denial of their basicrights now had less to do with policy and more to do with history and the vestigesof an old legal system that formerly tolerated and even condoned this denial ofrights.

In this boy, I saw thousands like him who would be the direct beneficiaries ofa functioning criminal justice system with a standard of basic human rights. Byhelping these countries to implement their own domestic laws consistent withhuman rights principles and helping to safeguard prisoner rights, we had theopportunity to drastically improve and perhaps even save the lives of everyday cit-izens.

The Training of the Guard

My second shift in perception came through work I started in 1994 with two col-leagues from the United States. We had come to Cambodia to set up a project thatwould provide the first intensive training to a select group of 25 human rightsactivists who would later become the country’s first core group of trained publicdefenders.

At that time, the Cambodian legal system was in shambles. Fewer than tenattorneys had survived the Khmer Rouge period. Although the new laws providedfor the “right to a defender,” notions of defendant rights were foreign. Few peopleknew or understood the significance of these laws. No structures or procedureswere in place to implement them. And during the recruiting process, applicantssaid that they would likely be criticized for holding the courts accountable to thenew laws.

On one of the first days of the 10-month training, I asked my new students totell me of their experience and understanding of conducting investigations forcriminal cases. After a brief period of silence, Peung Yok Hiep, the oldest and most



respected woman of the class, finally stood up and said, “Nekru (teacher), I am themost experienced of defenders here. I have defended in over 100 trials, includingmurder trials, but I have never had the need to conduct an investigation… becauseall the criminal cases already have confessions.” I quickly became aware of howcommonplace it was for people to accept torture-induced confessions as truth.

However, as the defenders became aware of the rationale behind the new lawsthat outlawed the use of torture to obtain coerced confessions, their attitudes shift-

ed quickly. Thesedefenders becamestaunch advocatesagainst the use ofcoerced confessions andbecame strongly com-mitted to challengingtheir use in court.

But their own desirefor change in the systemwas not enough. Fromthe inception, there wereproblems with theCambodian governmentand Ministry of Justice,which initially did notwant defenders to betrained and organized.The judges, prosecutorsand police officers, whohad long held almostabsolute power, felt sim-ilarly. They did not like

the idea of defenders suddenly holding them accountable to laws and challengingtheir way of doing things. As a new public defender movement, these defendersliterally had to push themselves into the intractable old system and create a role forthemselves amidst great opposition from the established order which had notinvited their presence. This included resistance and opposition not only from theCambodian government, court, and prison officials, but also from segments of theinternational community that did not see defender work as a priority.

Yet, despite these impediments, these defenders slowly began to effect change.Not long after role-playing numerous “motions to suppress” in class, Peung YokHiep boldly rose during court. As she waved her client’s bloody shirt, she asked thedefendant to bend down so that she could show the judge and prosecutor the threeholes in the defendant’s head that had been inflicted during interrogation. Sheindignantly asked the court to respect the letter of the law. Although she was notsuccessful in this case, months later the same judge finally granted the first motion

Karen Tse

I realized that, though theemerging criminal justice systemshad within them the potential toprotect everyday citizens, in mostcountries these citizens were mostlikely to be left unprotected fromfrom abuse, torture, and coercion.With the lack of support fordefenders, the first line of defenseagainst abuse, this would onlycontinue.... In this gap, I saw anopportunity to make a difference.

From Fear to Hope

to suppress in the country, thereby freeing a formerly pregnant woman who borecigarette burns and had miscarried during beatings that occurred during her inter-rogation.

By successfully gaining access to prisoners, establishing norms that called fortheir representation in court, and setting up the first public defender officesthroughout the country, these defenders established their presence and changedthe human rights landscape in Cambodia.

Putting it All Together

These courageous defenders were standing up and literally changing the course ofhistory on a day-by-day, case-by-case basis. Yet despite the critical importance oftheir work, support of these defenders was most often viewed by international aidgroups as unimportant. They prioritized their support in favor of those already inpower—the judges, prosecutors, and police. Even though the defenders were mak-ing progress, international support for these Cambodian defenders was severelycut.

Cambodian defenders are not alone in this situation. The defenders, focusedon rights of the accused, are the most neglected and under-acknowledged groupof human right defenders in the world. Their presence, at the early stage of a case,is one of the strongest guarantors of human rights. Their work is critical to thebirth and sustainability of a stable society. Recent laws strengthening citizen rightsthroughout the world have been passed. Yet very little international attention isfocused upon the further development and implementation of their criminal jus-tice laws and support for defenders is paltry. I realized that, though the emergingcriminal justice systems had within them the potential to protect everyday citizens,in most countries these citizens were most likely to be left unprotected from abuse,torture, and coercion. With the lack of support for defenders, the first line ofdefense against abuse, this would only continue.

In this gap, I saw an opportunity to make a difference. Given the passage ofnew criminal laws in countries throughout the world, the question was notwhether the change was possible, but whether we as a world community had anenduring commitment to making it happen.

DEFINING IBJ: STRATEGICALLY AND SPIRITUALLY

Filling the Gap: The IBJ Strategy

In 2000, in my last year of divinity school, I began to put together a strategic planfor IBJ to seize this opportunity. IBJ set out to create a community of individualsin the United States, Europe, and elsewhere who will join forces with human rightsdefenders and legal aid lawyers in Asia to ensure effective defense counsel for eachand every child, woman, and man held in detention. IBJ filled a specific unmetniche market in the non-profit arena as an organization that approaches humanrights through a specific commitment to the legal development of criminal justicesystems in Asia. While there were existing organizations whose mission serves at a



cross section to the work of International Bridges to Justice, there is no organiza-tion whose sole mission is to specialize in this area and whose work is committedto organizing paid and volunteer resources and expertise abroad to provide serv-ices and assist in the development of legal systems for criminal justice in countriesin Asia. IBJ aimed to find its niche by partnering with local groups and supportinglocal defenders in strengthening their legal skills, advocacy skills both in and out ofcourt, and helping them to develop sufficient organizational capacity to carry outtheir mission.

IBJ focused initially on the countries of China, Vietnam, and Cambodia, wherelegal rights were supported by statute, but not in practice. To this end,International Bridges to Justice significantly supports and enhances local and gov-ernment legal aid efforts in Asia to protect citizen rights and to implement exist-ing criminal laws through providing training partnerships, legal and administra-tive structural support, and material assistance.

IBJ’s original strategic plan listed three goals:Goal 1: Provide direct technical support and training to emerging legal aid

organizations in Asia.Goal 2: Build International Communities of Conscience to support emerging

legal aid organizations in Asia.Goal 3: Advocate and support the prioritization of just and effective criminal

justice systems on the agenda of organizations involved with international humanrights and legal development.

Today our goals remain the same. We have further developed the methodolo-gy based on the many lessons we have learned through our initial projects. Inresponse to global demand, we have expanded our scope by reaching out to LatinAmerica, Eastern Europe, and Africa and by developing ways to scale our efforts.

Transformative Power: The IBJ Spirit

During my time in Cambodia, I learned a third powerful lesson. This lesson led toto what would become the spiritual foundation of IBJ and the guiding principalbehind all of IBJ’s work.

In 1996, I was working for the United Nations as a “judicial mentor” trainingjudges, prosecutors, and police officers in Kandal province. One of my duties wasto confront police officers about their routine practice of the torturing prisoners.The UN had armed me with the new “Cambodian Laws” that had outlawed prac-tice of torture, yet I wasn’t sure what to do. In fact, I had no idea at all. I knew thatsimply telling them that it was against the law was not going to work.

Seeking some sort of insight, I went to the ocean and asked a God that I was-n’t even sure existed how I was supposed to do this thing that seemed impossible.I got my answer: the ideal of justice requires bridging the gap between one’s innerlife and values, and one’s work in the outer world.

In the next few days, I designed a workshop that started with basic questionsthat connected the police officers to their values and hopes. I asked them why theyhad decided to become police officers. Most answered that they wanted democra-

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From Fear to Hope

cy. They pointed to the atrocities of the Khmer Rouge and said they didn’t want toever go back to a period like that.

Yet they also said that they were vehemently against the new laws, which stat-ed that there was a “presumption” of innocence for prisoners who had not yetreceived a fair trial. They also stated that they felt that torture was the only way toget prisoners to “tell the truth” and confess to the crime that they had just commit-ted. I introduced the notion thatthese confessions were perhapsweren’t very reliable, but manyinsisted that tortured confes-sions were reliable. Many insist-ed, even after role play, that ifthey were innocent, they wouldnot give a false confession evenif they were beaten.

I brought in a picture of theposted rules of the formerKhmer Rouge Toul Sleng tor-ture center. The posted rulesstated, “Don’t you dare try andtell a lie or you will be givenmore lashes.” The officers beganto consider all those thousandsof people, including their rela-tives, who gave confessionsunder duress and torture. “This, the old system, is a system where presumption ofguilt is operating,” I said. “Do you really agree with this system?”

The officers began to talk among themselves about these new laws. They beganto look again at their values and beliefs. They spoke about how they wanted tomove forward from their past and not move backwards. But were their actionsconsistent with their professed values, hopes, and beliefs? Over some time, manybegan to reconsider. Because of their reflection, many decided that they wanted tochange and did.

I had tremendously positive and transformative experiences while traininghundreds of police officers. However, even as the training sessions became moresuccessful, I was sometimes threatened and felt unsafe.

When I discussed my discomfort with my Buddhist meditation teacher, hisresponse was simple: “Remember that whatever you focus on will grow.” I alsosought advice from Sister Rose, an Indian nun from Mother Teresa’s order. She ranthe Missionaries of Charity orphanage that I volunteered at in my spare time. Herresponse, too, was simple: “You must seek to find the Christ in each person, or youmust seek to find the Buddha in each person. Then you must work with that Christor Buddha.” Like my meditation teacher, she believed in the power of transforma-tive love.


The officers began to considerall those thousands of people,including their relatives, who

gave confessions under duressand torture. “This, the oldsystem, is a system where

presumption of guilt isoperating,” I said. “Do you

really agree with this system?”


I took their wisdom to heart, and sought to work with the Christ and Buddhain each person. During my time there, I saw phenomenal changes in the humanrights terrain and was eventually warmly welcomed by the police officials who hadinitially been reticent. The first public defender offices were established, the firstmotion to suppress a tortured confession was granted, and the first arraignmentcourt in the country was born.

When I left, the prison director, who had already implemented an exercise pro-gram and vegetable garden in the prison, asked what they could do to express ourfriendship. I suggested that they allow me to hold a celebration in the prison forthe prisoners, to reclaim their humanity. And on my last day, they let out 120 pris-oners, 30 at a time, and together with the prison guards (some with armed AKA47’s) we sang songs, ate chicken curry, and had a lion dance. I saw the prisonguards and police beyond their uniforms and embraced their humanity, and theyin turn were willing to see the prisoners beyond their uniforms and embrace themin their humanity.

Most major shifts and successful social movements do not occur simplybecause someone intellectually figured out “what to do.” Moses had to go to thedesert before he figured out what he needed to do and how to do it. Spiritualitywas at the base of his call, as it was with the work of Gandhi, Martin Luther KingJr., Dorothy Day, and countless others.

As human rights activists today, we too need to penetrate below legalistic“rights” discussions and “go to the desert” to discover what it means to draw fromthe vast well of our spiritual resources and wisdom in our approach to humanrights work. Without it, we become disconnected from our work and our values.We may espouse one set of values and yet act in an inconsistent way. We work forhuman rights and yet we limit ourselves in the breadth and possibility of our workwhen we refuse to see the “other” as one who is connected to us and shares in ourhumanity. Without a holistic approach, we easily become burned out. By notexplicitly recognizing the interconnectedness of all beings, we rob ourselves of animportant and invaluable human rights resource for mutual understanding incross-cultural negotiations and working together.

IBJ’s work must adhere to and incorporate principles of transformative justiceand values based leadership. Our accomplishments must stem from love, therecognition of the interconnectedness of all beings, and the inherent worth anddignity of every individual. The recognition of our shared humanity allows us tosee possibilities that we might have been blinded to before. From this understand-ing, we are able to approach our work from a position of equality. We can recog-nize our own humanity and our own capacity for growth and mistakes. We recog-nize the recent developments of nascent legal systems. This recognition of ourcommunal human potential for change and transformation is grounded in ourown humble recognition of our own U.S.-based human rights journey as well. Wehave much to learn from each other and we must embrace the truth that we havesomething to share from our own journeys.

Karen Tse

From Fear to Hope

IBJ’S LOCAL EFFORTS: COUNTRY-BY-COUNTRY, CASE-BY-CASE

IBJ’s journey began in China. IBJ was the first legal non-GovernmentalOrganization (NGO) capitalize on China’s move towards more democratic insti-tutions within the legal aid criminal justice sector.

IBJ in China: A Foot in the Door

In 1998, China signed the International Covenant on Civil and Political Rights,which recognized that the right to a fair trial included the right to government sup-ported counsel for the indigent accused; the right to an attorney who was ade-quately prepared; the right to communicate with counsel; the right to be free fromtorture or other cruel, inhuman, or degrading treatment or punishment; the rightto be free from arbitrary arrest and detention; the right to confront the witness attrial, and the right to an appeal.

However, a right without a remedy rings hollow. At the time that China insti-tutionalized these changes in the law,m the institutional capacity to execute thesechanges was far from ready. The ratio of all lawyers to citizens was 1:10,000. Thenumber of criminal defense lawyers was much smaller and even today is only fourpercent of the total.

In 2000, I read newspaper articles about lawyers in China who were struggling.Because of the new laws I saw an opportunity to make a difference. I, however, hadonly been to China as a tourist. I was not an expert and could barely speakMandarin (I grew up speaking Cantonese). Despite my lack of expertise, I believedthat if we wanted to work together with (and not against) the Chinese governmentto help them implement their own domestic laws consistent with human rights,they would welcome us into their country. In fact, I felt this way about all coun-tries, and to date I haven’t been that wrong.

For the first years I could not get any funding for China. We were just a start-up with no track record and an unpaid staff of one. I eventually realized that, if Iwanted to start, I had to do it without money and prove that it was possible. I madethe trip to China on a $5,000 donation from an old friend and a borrowed blue vel-vet blazer. When my contact told me that the meeting he had set up with theMinistry of Justice branch of National Legal Aid of China had fallen through, I flewthere anyway and got a 15-minute appointment. We met and went to a Chineserestaurant. Though I could barely speak Mandarin, for some reason we under-stood that we should work with each other. Somewhere in the middle of the din-ner, I remember he shook his head and said, “I don’t know why, but I want to workwith you.” He invited me back to his office the very next day.

The next morning, I was introduced to his deputy chief. I asked if it would bepossible for me to get into a province and begin work there. I looked up at a listand said “Anhui” because it started with an A. Since then our projects have grownthrough the support of dedicated defense counsel from the U.S. who came on asIBJ staff and volunteers, the IBJ China staff, and, most importantly, courageouslawyers throughout China.



IBJ arrived in China at this highly expeditious time. It recognized China’s legalchallenges and was ready with a plan that was designed to address the immediateneed to build both a credible criminal justice system and trust with a governmentnot accustomed to allowing outsiders into the inner sanctum.

The challenges IBJ was prepared to address included:• Training the new breed of criminal defenders in China so that they understood

their role as an advocate for the accused and not as a place holder to legitimizethe system.

• Building awareness that ongoing legal reforms would be necessary to executethe new set of laws.

• Building support for the new changes to the law among the existing partici-pants, including judges, police, government officials.

• Raising citizen awareness about their rights.• Creating a network of defenders outside of China to support and protect the

new criminal defenders.IBJ’s progress in China over the past six years is impressive. IBJ has trained

defenders in all 31 provinces and has established three Defender Resource Centersacross China, with a fourth on the way.

IBJ in China: Know Your Rights

One of IBJ’s first engagements with China targeted rights awareness. Chinesepolice stations and courthouses featured a banner with large red letters that read:

Confess—Better Treatment

Resist—Harsher TreatmentThis banner reinforced the old, now illegal, behavior of extracting confessionsusing torture. It was one of the first things we needed to change to break the cycleand change the mindset of the police, the judges, the lawyers, and the accused cit-izens brought before them. We crafted a new poster:

If You are Arrested, Know Your Rights

Below this declaration, we listed those rights: you have a right to a lawyer; you havea right not to be tortured. The government agreed to place their logo aside ours asvalidation of the importance of respecting these new rights. We made an initial1000 of these posters with the garnered skeptical government permission to dis-tribute them. They weren’t convinced these posters had any value. But they wereincorrect. The posters were an instant hit among people. They were so successfulthat it went from 1,000 posters, to 10,000 to 360,000 to over half a million. Theposters were soon translated into Tibetan, Mongolian, and Yuighur. The followingyear, 3,000 law students who were members of the Youth Communist Leaguejoined together with us in a new campaign. Though many have seen an image ofthem storming the police stations with their new posters declaring rights of ordi-nary citizens and the accused, the more accurate image is that they found them-selves welcomed in for cups of tea and endless discussion with the police. It didn’t

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From Fear to Hope

hurt that the poster bore the logo and imprimatur of the 14 top law schools in thecountry.

IBJ in China: Pilots and Partnerships

In June of 2004, IBJ began its first Chinese pilot project located outside of Beijingin the city of Hefei in Anhui Province. Anhui was not high on the priority list ofprovinces to be served by the central government, nor did it appeal to the interna-tional community. It was simply an industrial province with everyday people andeveryday problems. IBJ opened a bare bones office, without even a sign announc-ing its existence, and got to work.

IBJ’s resource center was started in cooperation with the National Legal AidCenter of the Ministry of Justice, Anhui Justice Department, and Anhui ProvincialLegal Aid Center. Located in an aging apartment building a few floors belowAnhui Provincial Legal Aid, IBJ’s mission was clear: To create a core team ofChinese attorney trainers and increase access to justice for the indigent. An excep-tional public defender moved from New York to Anhui to set up this provincialproject and lead the way.

Four years after signing cooperation agreements, IBJ’s resource center in Anhuirealized many of its goals. Through this center, IBJ has trained a core communityof Anhui lawyers that excel in their practice and are committed to zealouslydefending the rights of the accused. IBJ trained a core group of attorneys to repli-cate their knowledge and in turn train other lawyers in the Province. This coregroup of lawyers has now become trainers and has trained hundreds of lawyersover the past year. IBJ has hosted 74 training events in Anhui, including roundtablediscussions with all members of the legal community. And, more recently, IBJ’sCommunity of Conscience program accepted two attorneys from Anhui to partic-ipate in legal training in Washington, D.C.

Moreover, IBJ expanded the Anhui defense community’s vision about whatcan be done to affect change in ways that cannot be understated. One core attor-ney said about his experience with IBJ, “IBJ helped to open my mind.”

Because of this success, the Anhui Defender Resource Center (DRC) hasbecome a template for IBJ’s regional and national program initiatives throughoutChina (See Box: Walking alongside IBJ Defenders). IBJ is expanding this Anhuimodel program for improving both the quality of indigent defenders and protec-tion of the rights of the accused by creating regional DRCs and using them as basesfor regional programs and activities (see Figure 1: Defender Resource Centers).

This transition takes into consideration IBJ’s strategy of seeking concomitantbottom-up and top-down strategies for reform. By transitioning from an Anhui-based pilot DRC to a regional DRC, IBJ will be capable of affecting legal reform ona larger scale throughout southeast China. It is a logical progression that willexpand IBJ’s resources and provide a broader institutional capacity to affect per-manent reform, not only in the practice of individual lawyers, but also in the func-tion of China’s legal aid system.



This expansion plan is progressing steadily. In 2007, IBJ opened a secondDefender Resource Center in the province of Xi’an. IBJ has a National Center inBeijing where it plans and implements projects of national scope. IBJ has justbegun a clinical project to establish criminal defense clinics in select law schoolsaround China. By the end of 2008, IBJ will open two more Defender ResourceCenters in northwest and southwest China.

With a fully operational network of DRCs strategically placed around China,IBJ will be able to participate more directly in the development of its justice sys-tem. Working from the ground up, the DRCs will continue to carry out a varietyof model pilot programs that will remedy obstacles that impede the fair and effec-tive administration of justice. At the same time, the DRC in Beijing will encompassa top-to-bottom philosophy, functioning both as a regional hub for northeastChina and as a central office coordinating all national programs and overseeing thethree other DRCs. IBJ has also agreed to work with National Legal Aid China torestructure the management and function of the legal aid system.

The driving force of the IBJ model is to develop model legal aid centers asexamples to legal aid communities throughout the country and to establish

Karen Tse

Figure 1. Defender Resource Centers in China.

From Fear to Hope

improved training models, structures, and systems for the delivery of criminallegal aid services to the poor. The IBJ model aims to establish the creation of acore team of Chinese attorneys whose purpose is to train legal skills to other attor-neys within and without their own Province. Once a core team of Chinese trainersselected from model centers is accomplished, IBJ’s immediate support is no longerneeded; instead, the core team and model centers are largely self-sufficient beaconsof legal excellence (see Box: Sen Suxia).

In addition to the ongoing work of the Defender Resource Centers, for the lastsix years IBJ has orchestrated rights awareness campaigns, training initiatives andround table discussions that are reaching all the 31 Provinces of the country (seeFigure 2). IBJ has been busy training defenders, mentoring defenders, influencingcriminal justice policy, and changing the notion of what it means to receive adefense in China.

In 2007, in both Chongqing and Tianjin, IBJ held roundtable forums intend-ed to improve access to counsel for juveniles. As a result of these roundtable


Figure 2. Since 2001, across the 31 provinces of China, IBJ has held over 50 round-table sessions, visited over 70 locations during rights awareness campaigns, andtrained over 2000 people in over 50 training sessions.


forums, in March 2007 in Chongqing the bar association, the city prosecutor andthe police department reached an agreement to appoint legal aid at the investiga-tion stage to juvenile criminal suspects. Under the agreement, the police depart-ment is required to set up a separate interrogation room for juvenile suspects,where the police will record interrogations and notify lawyers to be present. Legalaid lawyers will also to be given timely access to interrogation documents, therebyallowing them the opportunity to challenge problems with the interrogation pro-cedure the police employed. Requiring the presence of lawyers at interrogationsessions represents a pioneering step in China.

Also as a result of an IBJ-hosted roundtable event, in Tianjin, legal aid hassecured the cooperation of the Tianjin prosecutor’s office, as of January 2007, toassign legal aid to juvenile suspects. The opinion requires prosecutors to have alegal aid lawyer or other guardian present at all juvenile interrogations. The effectof this agreement has been immediately felt; legal aid is witnessing a rapid rise inthe number of juvenile cases assigned in the pre-trial stage. In one case, for exam-ple, involving an assault between classmates, the prosecutor received the case andnotified legal aid to provide representation to nine suspects and three victims.The legal aid center sent 12 lawyers to represent the juvenile suspects. Because ofcooperation between legal aid and the prosecutor’s office, the first of its kind in

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Walking Alongside IBJ Defenders

Training and resources are critical, as are shifts in attitude, but ultimately, IBJ’sgoal is to increase the number of fair trials and decrease the use of torture as ashort-cut to justice. When we found out in a follow-up meeting with a legal aidcenter in China six months after a training session that the legal community hadonly entered one not guilty plea in that time period, we realized how much morework we had in front of us.

We didn’t understand how we had gone wrong because we had received suchpositive responses to the training, along with commitments to implement thenew methodologies. This high rate of guilty pleas did not make sense, so weasked the trainees why. They told us it wasn’t the training that was the problem.Rather, despite their initial enthusiasm, as defenders they felt unprotected afterIBJ left and they felt that there was no support or follow-up. This was an impor-tant lesson for IBJ that we cannot just begin this process of building a legal sys-tem. We must follow up and walk with our defenders on a case-by-case basis asthey stand up against torture and for true investigative police and justice work.

To respond to this lesson, IBJ conducted roundtables through local legal aidcenters, bringing together lawyers, prosecutors, judges, justice bureau officials,and police officers to address the rights of lawyers in criminal defense. In addi-tion, realizing the need for greater comprehensive support of defenders on theground, IBJ became firmly commited to the birth of defender resource centers.IBJ’s strategy for the future incorporated this early lesson learned.

From Fear to Hope

Tianjin, the prosecutor’s office decided not to prosecute the juveniles and the juve-niles were allowed to remain in school.

Despite all of this progress, the work is far from over in China. Today over 50percent of all legal aid cases involve children, 25 percent carry a possible deathpenalty, 5 percent of the cases involve people with obvious disabilities such asblindness or deafness. Many legal aid offices are grossly under-staffed. And mostpracticing defenders still do little more than sit next to a client they barely knowand offer no advocacy. Yet, the work of IBJ has seen rapid advancement and withthe strong strategic alliances formed with Chinese partners and friends in the real-ization of this goal, we are confident of the future.


Shen Suxia: Director of the Jin’an District Legal Aid Center in AnhuiProvince

Despite difficult working conditions, Shen Suxia strives daily to afford her clientsa zealous defense. As China struggles to develop a fairer justice system, it willlook toward attorneys like Shen Suxia who embody a spirit of self-sacrifice andperseverance in protecting the rights of the most vulnerable members of thepopulation.

Shen Suxia’s 17 years as an attorney are a lifetime in China, spanning fromthe genesis of the modern legal system to the present. Upon her graduation in1989, Shen Suxia joined a law firm where she specialized in defending criminalcases. At every point, she encountered enormous resistance to obtain discovery,investigate cases, and prepare for trial, sometimes struggling even to meet herclients.

Concerned that she was unable to devote more of her time to representingthose most in need of her services, in 1999, when a governmental legal aid cen-ter was finally established in Jin’An District, Suxia left private practice to becomea legal aid lawyer, a rare career choice in a country where it is almost unheard offor an individual to leave a position of relative wealth and prestige for one lessesteemed.

Suxia is now at the vanguard in establishing a model practice for legal aidlawyers as director of the Legal Aid Center in Anhui Province. Still in its nascentstages, China’s legal aid system suffers from a shortage of personnel and money.The Center, which employs three lawyers, is located in a one-room office with-out central heat and with only one computer, donated by IBJ in 2004. Under theguidance of IBJ, Suxia has made tremendous strides in her criminal defensepractice, allowing her to show temerity and determination in defending each ofher clients. She now challenges the prosecution and the legitimacy of forced con-fessions. In doing so, she stands in marked contrast to the standard practice ofChinese lawyers. The change of mindset she has shown is the first step to revo-lutionizing the way cases are handled throughout China.


Other Early Efforts: Cambodia and Vietnam

In addition to China, IBJ got an early start on projects in both Vietnam andCambodia.

Cambodia’s turbulent past saw the complete destruction during the 1970s ofits basic infrastructure, including its criminal justice system and related institu-tions. Though UN-lead international intervention in the 1990s started the processof bringing fractured communities together, today Cambodia is still overcomingthe reverberating impact of genocide. It still faces the challenges of ending endem-ic torture and rebuilding its legal system. The work that was begun in the 1990s toinitiate defender programs was abandoned by the international communityhalfway through. Reflective of this is that of the 24 provinces, ten of them lack alegal aid/public defender office, leaving the Cambodians of those provinces partic-ularly vulnerable to abuse. IBJ’s goal is to facilitate the establishment of defenderoffices in the remaining provinces that have none.

To begin this process, IBJ formed a partnership with Legal Aid Cambodia(LAC) in September 2004 and jointly opened its eighth provincial office in

Karen Tse

Ouk Vandeth: IBJ’s First Fellow

A survivor of the Khmer Rouge genocide, Mr. Ouk served as a Police Officialfrom 1985 to 1994. It was during that time that he became acutely aware of theinhumane tactics security personnel would use to obtain confessions from theaccused. In this capacity, he worked closely with prosecutors and became inter-ested in becoming a lawyer. It was then that he became part of the first genera-tion of IBJ trained Cambodian defenders. Mr. Ouk then attended the only lawschool in Cambodia. Graduating with a Legal Defending Training Certificate, hebegan work as a public defender for what would later become Legal Aid ofCambodia (LAC). Eventually, Mr. Ouk was promoted to director. In this role, hestrengthened LAC’s relationships with government, peer NGOs, and multilater-al aid agencies.

As an IBJ Fellow, Mr. Ouk completed a baseline survey on criminal legal aidwhich revealed that out of 15,544 criminal cases in 2006 only 40 percentreceived any criminal defense representation. Of the people who did receive legalrepresentation, a disproportionate number were living in urban areas. InPhnom Penh, for example, four of every five individuals accused of a crime haveaccess to a criminal defender. By contrast, in the more rural province of PreyVeng, the likelihood of that same outcome drops to one in five. This findingclearly identifies a need for additional legal aid services throughout the country,most especially in rural areas.

Mr. Ouk’s defense work directly addresses this need. Of the 32 criminal caseshe defended in 2007, 27 came from provinces that were previously withoutaccess to legal aid.

From Fear to Hope

Rattanakiri, a rural province on the edges of Cambodia. This legal aid center hassince represented 222 criminal defendants.

In 2006, because far too many Cambodians remained unrepresented, IBJemployed Mr. Ouk Vandeth, a Cambodian, an ex-police officer, and an experi-enced criminal defense lawyer to mobilize a fragmented legal community towardsthe goal of providing defense counsel for all (See Box: Ouk Vandeth). In 2007, IBJmoved into its own office in Cambodia and began the registration process as an in-country NGO.

In the summer of 1998, I conducted a legal needs assessment for Vietnam onbehalf of the American Bar Association. In a meeting between myself and the thenMinister of Justice, he acknowledged the wide gap between the letter of the law andthe actual implementation of criminal laws and expressed a willingness to partnerwith organizations in the States who could be of assistance in this regard. Thereare no public defender offices or their equivalent in Vietnam. The president of theHo Chi Minh Bar Association told me that he was saddened that over a thousanddefendants had nowhere else to go when his bar association was forced to turnthem away due to a lack of resources. He requested that donors consider assistingtheir Bar Association to establish the first public defenders offices in Vietnam. Icould not, at that time, locate the support Vietnam needed to initiate these impor-tant programs.

It was not until six years later, hosting the first-ever criminal defense trainingprogram in April of 2004, that IBJ opened a window of opportunity for criminaljustice reform in Vietnam. Vietnam had begun the process of reforming its econ-omy to become market-responsive in 1986. As this transition matured, the govern-ment turned its attention to building a legal environment that enables citizens toexercise their basic constitutional rights. This and other changes presented IBJ withan opportunity to help Vietnam rebuild its judicial system.

Through the legal training in 2004, IBJ was able to help over 200 Vietnameselawyers, representing more than 20 bar associations, hone their criminal defenderskills, discuss the criminal justice environment and strategies for sustainablereform, and build the confidence necessary for competent representation ofclients. To further support the participants and other defenders in Vietnam, IBJ hasbegun developing a comprehensive Defender Resource Manual in collaborationwith the Vietnam Lawyers Association (VLA), the only national organization forlawyers.

IBJ’s various partners in Vietnam have stressed the urgent need to build aware-ness of the basic legal rights of citizens to the police, judiciary, government prose-cutors and to the citizens themselves. Also, in partnership with the VLA, IBJ isplanning the first advisement of rights campaign to distribute posters in legal aidoffices, detention centers, and on the streets throughout the country. IBJ is nowworking with potential partners in Vietnam to expand its programs there. Thework, however, has not been without its own challenges, many of which still needto be overcome.



New Horizons in India and Africa

With overwhelming requests from countries throughout the world, and with thecontinued maturation of its approach, toolkit, and strategy, IBJ has begun toexpand its reach. The second wave of in-country efforts focus on India and Africa.Recently, a preliminary legal needs assessment was conducted in El Salvador andGuatemala, though no program has yet begun.

IBJ in India

IBJ first started receiving requests to work in India when respected leader andsocial activist Swami Agnivesh walked into IBJ’s office in the summer of 2006. Heexplained his personal observations of the vast number of people in India lan-guishing in jail due to pre-trial detention. He told me of the widely acknowledgeduse of torture in jails and of the high number of custodian deaths.

According to research from the International Centre for Prison Studies (2007),69.7% of all Indian prisoners are pre-trial detainees. According to the NationalHuman Rights Commission of India in 2004-2005, 1,493 deaths occurred in policeor judicial custody. Despite the number of laws passed and commissions estab-lished to abate human rights violations, the country’s prisons are grossly over-crowded (at a 145.4% occupancy level), and torture and other forms of abuse arestill an everyday occurrence.

About the same time, I heard from one of my colleagues about a 40 year-oldman in India who had just been released. While happy for the man who was final-ly going home, I found the underlying facts disturbing. He had gone into prison atthe age of 14, was acquitted at the age of 17, but was not released until the age of40.

Though we were eager to begin work in India, we found funding options to beseverely limited. Many acknowledge the enormous problem of torture and lack ofdue process rights despite the laws prohibiting this. We were told repeatedly thatIndia was too big, too complicated, and furthermore did not like Western influ-ence.

Despite being discouraged, we realized that there was a huge need. We some-how believed that we could overcome the challenges. IBJ first traveled to India inNovember of 2007. We discovered that many of our advisors were correct. It is ahuge country without an immediately centralized and evident method to targetthe problem areas. And there does exist some distrust of foreign influence.However, within days we found ourselves warmly welcomed in by civil society,government, and legal communities. Since then we have has fostered importantalliances with state institutions and civil organizations in both Delhi and WestBengal, such as the High Courts, Delhi Legal Aid Services Authority (DLASA), theLaw Secretary of the Government of India, the State Bar Council of West Bengal,and the Director General of Police State of West Bengal.

Strategically, we realized that the best way to address our desire for bothbreadth and depth within the country was to work both at a grassroots provinciallevel in Calcutta as well as on a National level in Delhi. IBJ has recruited two IBJ

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From Fear to Hope

Fellows in West Bengal and New Delhi. IBJ also signed a Memorandum ofUnderstanding with Bangla Manabadhikar Suraksha Mancha (MASUM), a com-munity organizing and legal advocacy group in West Bengal that works to educateand empower local citizens against human rights violations by the state. As ourfirst strategic event in India, IBJ will host a National Training Conference in col-laboration with DLASA in July at the High Court to bring together 108 legal aidlawyers from every state to foster the criminal justice movement throughout India.

IBJ in Africa

Despite the 1990s wave of “democratization” and economic liberalization acrossAfrica, formidable challenges remain. Almost all 53 African countries have passedlofty human rights laws yet torture and other human rights violations continuebecause these laws are not properly implemented. In Burundi, for example, 1,990cases of prison torture were recorded from 2002 to 20064 Burundi has only 90qualified lawyers in practice;5 its neighbor Rwanda only 200.6 Many of Africa’sprisons are massively overcrowded and millions of detainees are subjected tolengthy pre-trial detention. Zimbabwe’s 47 prisons have an official capacity of17,000 but currently hold over 35,000 inmates7 (See Box: African Prisoners).

In 2006, IBJ launched its Africa Program in Burundi, Rwanda, and Zimbabwe.Last February of 2007, IBJ initiated an Advisement of Rights campaign thatsparked an immediate onset of urgent request for help. In the first three months of


African Prisoners

In Burundi, we visited the main prison, Mpimba Prison, in Bujumbura. I wasstruck by how much it reminded me of a visit to a Cambodian prison. A decadeearlier on a completely different continent, I had been surprised to see all thechildren in prison. I had been surprised when one explained that her husbandhad committed a crime ten years ago and, as they couldn’t find him, she wasthere instead. She accepted this as a way of life. I remember thinking, “this iswhere there is no rule of law.”

Ten years later in Burundi I am having a déjà vu experience. I see all thesechildren in prison. One little guy, about twelve years old, is stuck in with all themen for stealing a mobile phone. A young girl, not even a teen, yet says she is infor a sex crime. “Are you kidding? You aren’t old enough to know what thatmeans,” I say. Even more surprising are the adorable babies. I pick one up. Themother smiles and tells me the baby is why she is here. She stole two diapers andan iron and has been a pre-trial detainee in prison for almost two years. Sheclaims she was only borrowing the iron but that she did have every intention tosteal the diapers. Finding this outrageous, I speak to the prison director. H agreesget her before a judge. But, he says, in this prison of 2,800, almost 77 percent arepretrial. So what are we going to do about them? I agree. He has a point. Theentire system needs help, not just this one woman.


the campaign, our Burundian partner APRODH, received over 900 calls and 200letters from individuals urgently requesting assistance after being denied theirrights. We hadn’t anticipated such a strong and immediate response and foundourselves unable to meet the need. We are currently raising funds to initiate a firstpilot public defender office.

In addition, IBJ has signed memoranda of understanding with the BarAssociations in Burundi and Rwanda as well as Rwanda’s Prosecutor General. InZimbabwe, IBJ is engaged with the country’s Law Society and Legal ResourcesFoundation. Rights awareness and defender training and advocacy projects areunder way and IBJ is in the process of recruiting IBJ Fellows in these three coun-tries. In addition, IBJ has received further requests for assistance from Liberia,Mozambique and Uganda.

SCALING THE IBJ MODEL:THE GLOBAL DEFENDER SUPPORT PROGRAM

Beyond the handful of countries IBJ has reached there are multitudes more thatare ripe for the kind of services IBJ provides. According to reports, 113 countriespractice torture, despite the fact that 93 of these have signed international conven-tions and have domestic laws to safeguard citizen rights. Public defenders and legalaid lawyers have made urgent requests for international assistance. Encouragingly,governments have shown a willingness to act. There now exists a unique opportu-nity to dramatically improve the legal systems of developing countries.

Yet, over the past decade, international support for enhancing the legal systemsin developing countries has largely concentrated on funding and training thepolice, prosecutors, and judges. Vastly fewer resources have been directed towardsdefenders, despite the fact that they represent a critical element of a viable crimi-nal justice system.

This gap, the same gap that inspired IBJ to begin with, still exists. And IBJremains one of the only NGOs specifically focused on filling it.

IBJ is committed to filling this gap because we believe that the importance ofdefenders, particularly in countries where the criminal justice systems are still indevelopment, cannot be overstated. Defenders must not only provide just andcompetent legal representation, they often must also push forward fundamentalreforms in their country’s criminal justice system.

Through its experiences so far in Asia and now Africa, IBJ has recognized twokey points. First, these defenders need more than criminal defense tools and train-ing if they are going to act as champions of reform. To continue in their coura-geous efforts, it is essential that they have access to a supportive international com-munity, opportunities to continually develop and learn, and recognition for theirefforts to continue their courageous efforts. Second, though IBJ would like to helpevery country that would benefit from its assistance and every country that asks forhelp, it simply does not have the resources to do so.

In response to these realizations, IBJ is launching a new program designed to

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From Fear to Hope

provide defenders with the essential support they need and to extend IBJ’s reachwithout crippling its capacity. The program, the Global Defender Support pro-gram (GDS), is the catalyst that will allow defenders all over the world to collabo-rate over an extended period to share ideas, find solutions, and build innovation.Through GDS, IBJ will provide courageous defenders everywhere with increasedsocial capital so that their chances of success are greatly improved. By establishinga community of practiceand also continuing itsgrassroots country pro-gramming, IBJ brings amore complete solutionfor success to defenders.

The GDS will havethree overall objectives:•Enable defenders from

any country to accessand customize criminaldefender resourcematerials for imple-mentation in their owncountries by developinga rich and comprehen-sive repository of com-mon defender resourcematerials (tools,methodologies,processes).

•Build communities andpromote knowledge-sharing among defend-ers on a global level bycreating a collaborationplatform that provides access to the defender resource materials repository andfacilitates discussions on best practices and lessons learned.

•Promote international awareness, recognition, and support for defenders byproviding international support from their peers and other key criminal justicestakeholders, offering global accreditation programs, fellowships, and oversee-ing defender awards.

To accomplish these objectives, GDS will consist of defender engagementstrategies, international partnership building activities, and a technological onlinecollaboration platform. GDS will involve three activities: it will provide tools,methodologies, and processes; build international partnerships; and run accredi-tation and celebration programs.

IBJ’s innovative two-track strategy—one continuing IBJ’s local efforts, the


According to reports, 113countries practice torture, despite

the fact that 93 of these havesigned international conventions

and have domestic laws tosafeguard citizen rights. Publicdefenders and legal aid lawyershave made urgent requests for

international assistance.Encouragingly, governments haveshown a willingness to act. Therenow exists a unique opportunityto dramatically improve the legalsystems of developing countries.


other building GDS—balances the local and global needs inherent to IBJ’s work.The GDS program extends in-depth country programming to new nations andprovides a community of practice for all defenders, whether working within oroutside of IBJ country initiatives. In so doing, this approach enables IBJ to contin-ue its mission of institutionalizing defender practices worldwide but also allowsdefenders to share ideas with their peers worldwide. Through this cross-fertiliza-tion, IBJ provides defenders with greater capacity to innovate, achieve maximumimpact, and scale at a rate that was never before possible. Country specific devel-opment becomes one part of the whole. To complete the picture, cross-boundarynetworks link defenders with existing knowledge and with each other. The result isbetter legal rights for citizens, and a chance to end torture.

GDS: Tools and Techniques

IBJ’s GDS program will facilitate the expansion of ongoing activities to new coun-try locations by drawing on the materials and programs IBJ has already developed.These include:• a defender toolkit• an accreditation program• a national assessment and scorecard initiative• a worldwide partner / community program• a fellowship program• a defender-outreach and innovation award.

One integral part of the GDS model is IBJ’s Fellowship program. As with Mr.Ouk, IBJ recruits and trains local defenders who, as “IBJ Fellows,” then lead thedevelopment of IBJ’s programs in new countries. The vision is that of 108 fellowsthroughout the world joining forces together towards our mutual goal of endingtorture and guaranteeing due process rights for all in the 21st century. BecauseGDS leverages IBJ Fellows to lead the launch of new country programs, the expan-sion of IBJ’s country programs can be achieved much more rapidly than a one-country-at-a-time approach. The Fellows-based approach is also more cost-effec-tive as it builds on scaling and replicating the same defender resources across mul-tiple countries.

As another integral component, IBJ will build an Internet-based training andnetworking platform through which IBJ will be able to share its defender resourceswith people in all countries, even ones in which IBJ is not yet working. IBJ will tapinto up-to-date, social-networking ‘Web 2.0’ technical platforms to facilitate com-munity-building and information exchange.9 This platform will help IBJ build aglobal network of supporters and advisors. There is a close relationship betweenpromoting legal rights and the use of advanced information and communicationstechnologies. Just as businesses reap operational efficiencies by using the Internet,so too can IBJ support the international defender community by building a plat-form to access data, collaborate, and develop knowledge and good practice.

IBJ is planning several other new activities as part of the GDS, including:

Karen Tse

From Fear to Hope

• Criminal Justice Accreditation Initiative—A way to bring defenders from differ-ent countries where IBJ does not operate into the IBJ community, by providingthe means for them to gain skills and knowledge, as well as become certified tohelp train defenders in their country.

• Criminal Justice System Scorecard Project—A template mechanism for defend-ers to assess the state of their country’s judicial system, as a way to have a formalevaluation that progress can be compared to.

• Community Advisory Councils—Local and international partners that will sup-port the work of Fellows in their country through helping with partnershipdevelopment, providing advice, or pro bono support.

• “Justice Makers” Innovation Award—With a donation from a private entrepre-neurial donor, IBJ recently created JusticeMakers.net—an online communitythat shares intellectual capital and best practices in the field of criminal justice.The site hosts competitions, facilitates discussions, and connects passionatemembers of the criminal justice community with their counterparts fromaround the world. The first competition launched on June 26, 2008 and sparkedlocally-sourced solutions to criminal defense challenges in developing countries.IBJ is sharing the stories, aspirations and challenges of these JusticeMakers andis positioning these heroes as the face of the larger criminal justice movement.

Ultimately, these initiatives are geared to bring the community of defendersand legal professionals into a community of practice.

The Global Defender Support program (GDS) offers a unique and powerfulopportunity for IBJ to develop the infrastructure for justice on an unprecedentedscale. While local initiatives will continue to be the most integral aspect of IBJ’swork, GDS will allow IBJ to connect our passionate local defender organizations inways that have never previously been explored. The result of GDS will be a globalcommunity of practice in which lawyers truly feel connected to each other andhave a tangible system of support.

Innovation happens in all of our local communities, but without an effective,interactive, personal network to diffuse this innovation, it is less likely to expandbeyond the borders of the community in which an idea is created. GDS will facil-itate knowledge diffusion and resource sharing, and will also create more oppor-tunities for personal interaction, which is crucial for strengthening defendersworldwide. Further, cross-cultural interaction will foster a higher volume of legalinnovation because experiences can be shared and analyzed in new ways by peoplefrom varying backgrounds, creating a rich environment for ideas to grow. TheGDS is a scalable model that will widen the reach of IBJ’s tools, practices, andstrategies.

The GDS is the future of IBJ.

SUPPORTING THE FUTURE OF IBJ

If we are to put IBJ’s strategic plans into action, IBJ must institutionalize and lever-age its relationships and collaborations with the worldwide legal, social and busi-



ness communities. On this front, IBJ is already developing a robust group of part-ners and supporters.10 As IBJ’s activities continue to gather momentum, a numberof organizations have expressed interest in partnering on projects or contributingresources to the programs.

For instance, IBJ’s first two “Communities of Conscience” groups—in Dublinin October 2006 and Washington, DC in January 2007—were sponsored by acoalition of bar associations, international law firms, and defenders who gracious-ly paid for individual defenders to attend and donated space and personnel for theevents. The events brought public defenders from China to the West for trainingsessions. The defenders met and learned from other defenders and also formedwhat we expect will become enduring relationships. Once the model is established,IBJ envisions thousand of Communities of Conscience sprouting up to supportdefenders worldwide

In addition, two dozen top defenders from countries throughout the worldhave contacted IBJ about collaborating on projects. Meanwhile, a number of lawfirms, barristers’ chambers, law schools, and legal associations, such as the SeniorLawyers Project, the IBA, and Advocates for International Development are work-ing with IBJ. For example, Matrix Chambers donated $10,000 to sponsor advise-ment of rights campaigns in Africa. The International Bar Association hasrequested that IBJ collaborate on Zimbabwe’s criminal justice manual. Mostrecently, Greenberg Traurig donated $10,000 to support a local defender. Ourentire India program was launched only because of the generous support of theClifford Chance Foundation which provided $150,000 in seed capitol to initiateour India project and support two Indian fellows. The flood of support and coop-eration from the international community has begun to take hold.

CONCLUSION: WORKING TO END TORTURE IN THE 21ST CENTURY

Over the past several years, International Bridges to Justice has been fortunate toreceive the extraordinary support of committed individuals from all over theworld. Individuals who have chosen hope in the face of uncertainty—uncertainpolitical tides, uncertain safety, uncertain job security, uncertain organizationalstatus, uncertain risk against their financial contributions. All of us have broughtboth our gifts as well as our imperfections to this endeavor. While indomitablystrategic, the path has not always been smooth or clear.

But certain things are clear. There are 113 developing countries that torture, 93of them recently having passed laws outlawing torture and listing basic due processrights. We have a clear and unprecedented window of opportunity to support thesecountries in the implementation of these laws and to act now for human rights ina way that was never before possible.

Twenty-five years ago when I was in college, dictatorships, authoritarian andclosed communist governments were rampant. Today we see emerging democra-cies and more open communist systems with laws designed to protect their peo-ple. But little of the dream is realized. Few of these laws are actually implemented,

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From Fear to Hope

leaving their citizens particularly vulnerable to abuse. The ghosts of the pastremain as vestiges of old systems entrenched despite new laws.

There are more ways than one to deal with ghosts of the past. One is the inter-national courts and tribunals to prosecute war criminals, and truth commissionsto begin healing processes. In order to build an ethical future we must reconcilewith the past. However, in our international commitments and prioritization ofresources, we are almost missing the point. For instance, while over 56.3 milliondollars is still going into the war crimes tribunals in Cambodia to prosecute fewerthan ten war criminals, almost half of the present day Cambodian provinces donot even have a single public defender. Residents of these provinces are particular-ly vulnerable to abuses of due process rights, including the use of torture as aninstrument of investigation. Based on the evidence of work in other provinces,early access to counsel would change this. For less than 250,000 dollars we couldopen legal aid centers in the remaining neglected provinces and address this prob-lem in the immediate present. End the ghosts of the past by proactively putting thesystem in place so that history does not continue to repeat itself with police offi-cers using interrogation methods of past generations

I write today from an IBJ training event in Burundi, another country that hassuffered through genocide. They also have many ghosts of the past, and today tor-ture and abuses of due process rights are rampant. To turn the chapter and builda new Burundi, each participant was asked to think through and answer this ques-tion, “What is my role, my part that is the contribution to the whole?”

I was encouraged by the sincere answers of the group composed of 50 judges,prosecutors, police, and lawyers. Though from various parts of the judicial system,all acknowledged the need for and requested assistance in developing a system forearly access to defense counsel. While acknowledging their tortuous past and cur-rent broken down judicial system, they also expressed hope.

They are on their way. But they cannot get there alone. And neither can mostcountries at the beginning of this journey. While IBJ is heartened to have begunhaving an impact in seven countries, we are also disturbingly aware of the defend-ers and other members of the judiciary in countries throughout the world whohave cried out for support. As Martin Luther King Jr. said, “The time is always ripefor justice.” Justice does not “roll in on the wheels of inevitability” but comes aboutbecause of the dedication and hard work of committed individuals.

So join me in responding, also in the words of King, to the “fierce urgency ofnow” that is upon us.

1. International Centre for Prison Studies, Prison Brief for India, 2007.2. National Human Rights Commission of India, Annual Report 2004-2005.3. International Centre for Prison Studies, Prison Brief for India, 2007.4. Ligue Iteka, Annual Report on the Situation of Human Rights in Zimbabwe, May 20075. IBJ Interview with Bar Association of Burundi President, Tharcisse Ntakiyica, November 2006;6. IBJ Interview with Bar Association of Kigali Executive Committee, November 20067. IBJ interview with Law Society of Zimbabwe Secretary, Arnold Tsunga – November 2007



8. Sources: ICCPR, Amnesty International9. The California Public Defenders Association uses an interactive website that is designed for the

use of defenders, providing legal research resources, links and training materials. The website ispowered by a listserve device that networks defenders from many geographic areas to share infor-mation and resources that would otherwise be available only piecemeal, and has transformed thepractice of law in California. IBJ envisions using a similar technology for the GDSP platform.

10. Our partners include law firms, legal associations and law schools, including Harvard Universityand Georgetown University, and IBJ’s financial sponsors include the Open Society Institute, theUS Department of State, the MacArthur Foundation, the Skoll Institute, and IBA Foundation.IBJ is especially grateful to early supporters Echoing Green, andAshoka.

Karen Tse

The idea of innovation used to conjure up images of scientists in white lab coatspeering into microscopes. Then, what sprang to mind were buff Silicon Valleyentrepreneurs devising new business models. These caricatures sound simplistic,but they largely held. However, a new form of innovation has emerged that forcesus to change our mental picture again. Its agent of action is the social entrepreneur,and the method is to do for society what their forbearers did for business.

On the surface, the link between innovation and rights may not be apparent.International Bridges to Justice’s operations seem straightforward: it promoteslegal rights around the world by partnering with governments to develop andassist a community of public defenders. It sounds like another do-good non-gov-ernmental organization.

But this is to severely misunderstand IBJ’s work and the method of its founderand president, Karen I. Tse. Rather, it represents a radical approach. On one level,IBJ cleverly turned a series of difficult obstacles into a “market opening” for itsactivities. At the same time, IBJ’s initiatives effectively transform legal rights froma political problem to an economic issue. By putting it on a different plane, a win-dow of opportunity is opened whereby substantial, long-lasting change is possible.

The IBJ story is instructive not only because it reveals a new form of innova-tion, but because IBJ’s approach may serve as a model for other global problemsthat require many stakeholders to be brought together. Yet it embodies somethingfar greater, too. From its modest first step of fostering rights, where it ultimatelyends is at the audacious goal of ending state-sanctioned torture in this century. Torealize this, Ms. Tse implores, requires a change in consciousness.

It is powerful ideal. Does it simply fit the pattern of the wonderful hyperbolethat all entrepreneurs share? Or is Ms. Tse actually on the path towards achievingthis, in the footsteps of people like Mahatma Gandhi or Martin Luther King Jr. Toconsider this, it is vital to understand the rich dimensions of IBJ’s innovation,which is not obvious on the surface.

© 2008 Kenneth Neil Cukierinnovations / Davos-Klosters 2009 195

Kenneth Neil Cukier

Seizing the ‘Arbitrage Opportunity’for Legal Rights

Innovations Case Discussion: International Bridges to Justice

Kenneth Neil Cukier is a business correspondent at The Economist. He has writtenwidely on technology, public policy, and international relations. He has followed IBJsince its founding in 2001.


EXPLOITING THE GAPS

“The entrepreneur is the innovator who implements change within marketsthrough the carrying out of new combinations,” the economist Joseph Schumpeterfamously wrote in 1934.1 The way this happens is that entrepreneurs identify whatin hindsight we may refer to as “opportunities,” but looks very different at the out-set. It is a reality where something seems amiss. Entrepreneurs often spot thiswhere most of us do not. A way to think about it is as the “white spaces” or “holes”on a map, not the images of land. Jean-René Fourtou, the former chief executive ofRhône-Poulenc, called it “la vide” (emptiness).2 Sachio Semmoto, the founder ofnumerous Japanese telecom firms, describes it as “the contradiction”—that is, aninconsistency in what exists that opens up a chance for the what-can-be.3

In the case of IBJ, Ms Tse saw something special at a special time—but saw itin a new way. She noticed that there was a gap between what countries had signedup to do regarding legal rights and what they were actually doing. As she noted inher essay, some 113 countries are said to practice torture, even though around 93have signed international conventions and established domestic laws to safeguardcitizens’ rights. The difference between the public pronouncement and the practicecreated a sort of “arbitrage opportunity.” There was a way to use the system itselfto plug the hole. The art of arbitrage is to capitalize on the difference that existsbetween things at the same state in time. Yet what was needed was an entity topoint out the divergence and come up with a way to bridge it. Thus, “InternationalBridges to Justice.”

The international dimension—the “I” in “IBJ”—is essential. The local legalcommunity cannot do it alone: it does not have the infrastructure, training, orresources. In fact, trying on their own might only invite retaliation from thosewhom its actions threaten—the very people, ironically, charged with upholdingthe law, such as police, government officials, and even judges. (It is not uncommonfor judges in countries where IBJ operates to detain lawyers who argue that theirclient was tortured.) In addition, IBJ “partners” with governments. It is welcomedin since it sells itself as a sort of service-provider to help the country’s own reforms.Legal rights, after all, is a foundation to all other social goals.

The IBJ method is novel. Most human rights groups take the oppositeapproach. Rather than work with governments, they relish their role as outside agi-tators. To work within the system would seem tantamount to condoning it.Furthermore, they tend to focus on major cases and try to remedy specific abuses.If the person gets released, they claim victory and may turn their attention else-where. An example is Amnesty International’s classic letter-writing campaign,which although extremely useful on the individual level, is not as effective on thesocietal level. Other groups like Human Rights Watch document and expose abus-es—itself vitally important, yet leaves the fundamental problems unaddressed.

In 2001, when IBJ was founded, no organization was working solely on thebroader plane of the long-term, practical implementation of rights in criminal law.There are many reasons why, but the most important is because when earlier

Kenneth Neil Cukier

Seizing the ‘Arbitrage Opportunity’ for Legal Rights

groups were formed, the circumstances were not ripe for much more. But today,almost all governments are moving in the direction of adopting global norms andstandards. It creates a market opening. For example, in 2001 China joined theWorld Trade Organization and won a bid to host the 2008 Olympics—importantsymbols of the country’s integration into the international community. Adheringto global legal rules is a part of the trend.

So in this way too, IBJ bridged a gap between what other rights groups weredoing and the new area where it could act. In Schumpeter’s terms, it was the “mar-ket” by which IBJ effectuated change through “new combinations.”

Those “new combinations” have other features. IBJ works with the existingdefender community. It is a humble approach. This makes its work more easilyaccepted by the defenders as well as governments. Also, it enables the programs todevelop deep roots among the practitioners, so that IBJ’s initiatives have stayingpower. Moreover, instead of aiming for immediate victories, IBJ focuses on thelong-term, by slowly developing a sustainable infrastructure for legal rights. Ms.Tse often refers to this as creating “generational change,” that is, institutionalizingdefense rights so that it does not rely on the goodwill of any particular individualsat any particular time, but is an inherent feature of a country’s judicial system.

Again, this is new. To think of it in parable terms, it is not a question of givinga man a fish or teaching him to fish—the innovation here is organizing him into aco-operative. (That is, taking fishermen and providing them with better training,better materials, and establishing a community so that they can do what they dobetter.) In so doing, IBJ does not want to stop rights abuse so much as prevent it.

In addition to being a hub for the local defender community, IBJ also acts as asort of “market-maker.” It establishes the environment for legal rights to take holdby being the agent that brings parties together. IBJ found that assisting the defend-er community only addresses one part of the problem. It is not enough if the cli-mate in which they work is not amenable to their activity. Instead, it is necessaryto bring different parts of a judicial system together—such as the prosecutors,police, judges, prison officials, etc.—so that defenders were not seen as hostile tothe judicial process but an essential component to it. This is not so obvious to peo-ple from non-Western legal traditions, or countries with embryonic judicial sys-tems. The West’s adversarial legal process otherwise looks disrespectful; defendersare seen to antagonize other parties (whose reaction is to lash out against them).

So IBJ took on the role of market-maker by bringing these groups together.With such a tense situation, it took an outsider to be the agent of action. IBJ wasseen as neutral. And Ms. Tse herself did not seem threatening (more “reverend”than “lawyer” perhaps…). In many instances, the meetings among prosecutors,defenders, police, and judges represented the first time the parties had ever metoutside a courtroom. In Ms. Tse’s spiritual facet of her work, she describes this asa chance for their uniforms to disappear and their humanity to show through. Byconnecting in this larger, spiritual way, people could empathize with each otherand learn. And from this, change. Often, in the honesty and intensity of the dia-logue, participants found their faces moist with tears.



Strikingly, the most important dimension of IBJ’s innovative approach is alsoits most discreet (and I disclose it with care). IBJ works on “legal rights”; the ideaof “human rights” almost never appears in its literature and is very rarely dis-cussed. Ms. Tse publicly emphasizes that the central problem facing countries withdeveloping legal systems is not so much the handful of political prisoners thatalready have the attention of the West, but the tens of thousands of ordinary peo-ple who face abuse in the criminal justice system on an everyday level. Clearly thebasic legal rights of citizens—the young Cambodian boy accused of stealing a bicy-cle, in the example from Ms. Tse’s essay—is something that everyone can sign onto, be it government official, policeman, or prosecutor. Human rights might becontroversial; legal rights need not be.

Is the emphasis on legal rights a political calculation so that IBJ stays in thegood graces of the governments with whom it partners? What is certain is that IBJ’sapproach gives it access and therefore influence. Is the link between legal rights andhuman rights close, such that concentrating on one will surely improve the other?It is clear that creating the infrastructure for the rule of law is critical on manydimensions, from protecting property rights and upholding contracts to ensuringbasic legal safeguards that lead to a stable society.

Ultimately, the gaps that Ms Tse encountered, and which seemed to others tobe obstacles, actually turned out to be “market openings” through which an inno-vative approach could take hold. In this way, Ms Tse’s work sheds new light onSchumpeter’s idea of innovation and change. Yet it required not only looking at theissue differently but acting differently too.

TRANSFORMING THE PROBLEM

In speeches where she has sought to explain IBJ’s unique approach, Ms. Tse likes toquote Kofi Annan, who in 2005 as United Nations Secretary-General said abouthuman rights: “The era of declaration is now giving way, as it should, to an era ofimplementation.”4 Where in the past it was important to get countries to sign onto accords, now that they largely have, the key is to get them to fulfill their com-mitments in practice. That is the gap that IBJ identified as a sort of arbitrageopportunity.

But the genius of IBJ, and the second pillar of its innovation, is in how it didthis. The work of IBJ had the effect of changing the nature of the problem.Enforcing legal rights on a day-to-day level where it affects the lives of ordinarypeople is hard. It requires making changes deep into the legal system: its institu-tions, practices, and attitudes. (Hence, IBJ’s activities had to encompass the overalllegal environment, not simply defenders.) Still, developing a robust infrastructurefor the defense side of the docket is critical.

As Ms. Tse noted in her essay, defenders are the first line of support in a crim-inal justice system; the sooner a person has access to an attorney, the less likely hisrights will be violated. IBJ’s work shows that when resources are put towardsinforming citizens of their rights and ensuring a supply of well-trained defense

Kenneth Neil Cukier


attorneys, the incidence of abuse is markedly reduced. But building out this infra-structure takes time and money. Indeed, the more pragmatic the work, the morecapital intensive it is.

The implication is that IBJ’s method actually transforms the issue of ensuringlegal rights from a political problem to an economic one. Thinking about it in thisway changes its nature and creates new possibilities for change. Indeed, it becomespossible to informally calculate the cost of legal rights. This puts a price tag onrights abuse; a monetary sum above incalculable physical and emotional costs. Inso doing, it suggests that it may also be possible to out-finance it.

For example, based on IBJ’s experience of running programs in Asia and else-where over the past seven years, the amount needed to provide a basic level ofrights is extremely low: perhaps only a few cents per year, per person. This encom-passes establishing a national network of legal-aid centers, publicity of rights cam-paigns, access to defense lawyers and case support. Thus, a country like Thailandwith 65 million people might need around $10 million to provide basic legal rightsand prevent torture; for Niger’s 14 million people, around $4 million; and so on.We may quibble about the right amount. But by transforming the problem in thisway, the IBJ method opens up a promising new avenue for it to be addressed.

This sort of informal economic analysis suggests that governments, civil-soci-ety groups and the business community might want to rethink their approach tofostering rights. IBJ’s initiatives that establish a creative partnership among stake-holders seems appropriate, since the issues are larger than any one group can han-dle on its own. New relationships between the local community and a global sup-port-system is also crucial. Lastly, the role of the private sector is vital, since itexcels at the very on-the-ground implementation that is required. In this respect,IBJ has forged alliances with private law firms and has tried (albeit with only lim-ited success) to engage the business community.

One reason why IBJ has made the cost of realizing rights so low is due to itscreative use of technology. A question that IBJ’s experience raises is whether theorganization could have existed prior to the Internet. Of course, other humanrights groups existed earlier. Yet, as always, one is hostage to one’s times. Technicallimits impose invisible constraints that we only see in hindsight. Earlier rightsorganizations needed to grow slowly and piecemeal, since there were limitationson the “coordination costs” that their activities entailed. Management is difficultwhen it happens over a telephone and fax machine; information is scarce and cost-ly to share.

By contrast, one of the Internet’s key attributes is that coordination and collab-oration is far easier, and communities can form and interact far more efficiently.In this light, it is unsurprising that in 1997, at the dawn of the commercial Internet,the Nobel Peace Prize was awarded to Jody Williams and the group she coordinat-ed largely via the Internet, the International Campaign to Ban Landmines, whichhad been founded only six years earlier. In the same way, IBJ is a beneficiary ofusing information-technology as a cornerstone of its activities.

At its most basic level, the technology is a way to keep defenders abreast of cur-



rent laws and rulings. In the West, where information flows smoothly, it is easy totake this for granted. But in developing countries, something as modest as anInternet-enabled PC serves as a massive law library. And it is not always certainthat prosecutors and judges are familiar with the law; arming the defenders withinformation is vital. The computer acts as a “neutral messenger” with whichdefense lawyers can present unwelcome statutes and precedents to the court. Insome circumstances, to contradict a judge or prosecutor is considered insultingand invites trouble. Being able to shrug one’s shoulders and point to the PC as thesource of the information depersonalizes the situation.

Additionally, computers and the Internet act as the eyes and ears of the capitalcities and international community. It also provides a voice to the defense attor-neys. The technology is a life-line for defenders (sometimes in remote areas) toreach the broader world to get support and advice. It also redraws the balance ofpower, because judges and prosecutors are implicitly put on notice that what hap-pens in the court room is being watched elsewhere.

Furthermore, the technology enables the defenders to form a community, inwhich they can support one another, provide advice and rally for change. Thismight sound banal, but it is one of the most important aspects of IBJ’s work, andone of the biggest benefits that the Internet brings. All great movements requirecommunities, whether artistic groups, scientific schools of thought, political par-ties, or social change. Invention may be a solo activity, but change happens throughgroups. It takes a village. Online, people can share information and form groupseasily. For defenders in immature judicial systems, there is strength—and safety—in numbers.

Lastly, the technology enables IBJ to scale—that is, grow larger by extendingmarginally less, not more, resources. This is because the IBJ method is above allintellectual property—and like most informational goods, developing the first oneis expensive and time-consuming, but replicating it is cheap. The magic of the IBJapproach is that many elements of it can be easily applied to other countries andother contexts. IBJ estimates that around 70 percent of its projects and materials,such as the defender “toolkits” and accreditation systems, can be reused elsewherewith only minor modification.

Importantly, the IBJ method is “iterative” or “emergent”—Silicon Valley termsthat basically mean that IBJ learns as it goes along, rather than simply executes apreset plan. This makes the organization flexible to change depending on the cir-cumstances. At the same time, it means that the process is inherently open toincorporating improvements, which then can flow though all of IBJ’s activitieselsewhere almost instantaneously.

The ability for organizations to generate and share knowledge in this way, andto learn, is what distinguishes 21st century enterprises from their 20th centurycounterparts. And it is why IBJ has been successful in the handful of countrieswhere it has direct activities, while also being able to go global. Other NGOs adopta sequential approach whereby they grow through incremental steps and country-by-country in a linear fashion. However, IBJ recognizes that the technical tools

Kenneth Neil Cukier


now exist that let it can reach deep into legal communities around the world simul-taneously from its base in Geneva. The IBJ model scales because it explicitly tapsinto the abilities of others, while upholding the notion that to lead is to serve.

THE SPIRITUAL ELEMENT

Medieval alchemy occupied itself with turning base metal into gold. Yet this isactually a superficial characterization: it took place in the context of religious mys-ticism not science. At its core, it was about the spiritual transformation of thealchemist. So, too, the journey that Ms. Tse pursues has as its apex not so much areform of the legal system, but a change of consciousness among individuals, sothat they share in their common humanity. The context is globalization and mar-kets; the transformation is in awareness. Legal rights are simply the immaterialresidue that is left in its trace.

The front door of IBJ comprises formalistic things such as habeas corpus andrules of evidence, but it leads to a place where what matters is a shift in thinking.On one level, this is seen in the “Communities of Conscience” program, in whichdefenders from developing countries and mature legal systems meet. But onanother level, it is what drives all of IBJ’s projects, particularly where differentstakeholders are brought together to empathize and learn from one another. Ms.Tse’s unique background as both a lawyer and reverend puts her in a position tounderstand this, just as it gives her credibility to speak on different levels to differ-ent people in pursuit of her goals.

Those goals seem modest: helping governments live up to the standards theythemselves have set. Yet the ultimate destination is revolutionary: Ms. Tse’s ambi-tion is to end state-sanctioned torture in the 21st century.

It may sound utopian, but it should not. There are parallels with the movementto abolish slavery in the 19th century. It took many reformers from different walksof life. It took many years. It seemed impossible at the outset; powerful interestswere entrenched. (And wasn’t it just a sad fact of life: didn’t slavery exist since timeimmemorial, the argument went…) New institutions needed to be created. Yetultimately, it was not so much the introduction of law but a change in conscious-ness that accounted for the success—abolition laws only followed the shift that hadalready taken place in people’s hearts. Of course, incidents of slavery still crop uptoday. But they are exceedingly rare, and never state-sanctioned. Most important-ly, no one would even try to intellectually justify it.

Like slavery, state-sanctioned torture is an utter anachronism, argues Ms. Tse.Just as the 19th century was the one that saw slavery abolished, so too the currentcentury can be the one in which torture is totally repudiated. In following thispath, Ms. Tse is not only carrying forward the ideals of social reformers, but alsothe legacy of Schumpeter’s entrepreneurs. This is because her objective is not an“incremental improvement” to the system (that is, trying to reduce torture), but an“innovation” that radically upends the order of things (that is, eradicating it).

IBJ has crafted an astute formula for the times. It eschews activism in favor of



institutionalization, by using the system to change the system. It turns obstaclesinto opportunities by exploiting the “arbitrage” potential of the inconsistencies. Itscales tremendously by melding local and global communities. It acts as a market-maker by serving as a neutral platform to bring stakeholders together. Its activitieseffectively transform the problem of human rights from the political to the eco-nomic realm, thereby opening up a new avenue for the issue to be addressed. IBJ’sdestination, ending torture, is earth-shaking in its magnitude. And its work istransformative in terms of the rule of law and the way people think.

IBJ’s approach can be usefully applied to other global issues. For instance, inareas as diverse as climate change, public health, economic development, or con-flict resolution, multiple stakeholders with overlapping and divergent interestsneed to be brought together. Yet few of the institutions that currently exist are abledo that, particularly not at an international level; indeed, the very attempts oftenlack legitimacy and create ill will. At the same time, non-profit organizations andcivil-society groups usually position themselves as an alternative to governmentsrather than their partner.

What makes the IBJ model profound is the way it strives to go beyond theseartificial barriers—examples of “old solutions to new situations,” as Ms. Tseexpressed it in her essay. Instead, the IBJ method bridges the grassroots with thehighest levels of government, and speaks with authority to both. It bridges the localcommunity with the global one. IBJ is a model for how decentralized systems caninteract to form powerful communities for change.

In the past we honored the businesspeople that Schumpeter’s idea of the inno-vator had in mind. As we reset our image for modern times, we can look back athistory to others who innovated for the social good, from slavery to suffrage to civilrights. Their battle was not simply with an unjust system, but also with their peerswho failed to see that change was possible. It is something all pioneers face.Whether the names of such leaders are etched in marble or lost to memories, tothis honored list must now be added Karen I. Tse and International Bridges toJustice.

1. Joseph A. Schumpeter 1934: The Theory of Economic Development. An inquiry into Profits, Capital,Credit, Interest, and the Business Cycle, Harvard University Press, Cambridge (Seventh printing,1961).2. Kenneth Neil Cukier 2006: “Hero with a Thousand Faces: Innovative Entrepreneurship and Public

Policy” Report of the 6th Annual Rueschlikon Conference on Information Policy, Swiss Re,Zurich.

3. The Economist 2008: “Disruption of service.” London, Feb. 7.4. Kofi Annan 2005: “Secretary-General’s Address to the Commission on Human Rights.” Geneva,

April 7. Online: http://www.un.org/apps/sg/sgstats.asp?nid=1388 (Last viewed May 15, 2007)

Kenneth Neil Cukier

Change in the 21st century is rapid-fire and turbulent. As globalization, technolog-ical complexity, and interdependence have created new opportunities, they havealso created new uncertainties. In this environment, resilience is emerging as a newand increasingly critical priority for companies and countries alike. Yet few peopleunderstand why resilience is critical—or even what it is.

WHY RESILIENCE MATTERS

Here’s a simple resilience awareness test. Which of the following has the potentialto disrupt business and society on a large scale: terrorist attacks, overgrown treesor leaking water? The correct answer is all of the above. The terrorism option isobvious. But, overgrown branches in Ohio were a proximate cause of a cascadingpower blackout across state and national borders and multiple power grids, whichleft 50 million people in the United States and Canada without power for severaldays and caused $4 billion to $6 billion in economic losses. And, in 1984, waterleaking into a chemical containment vessel at the Union Carbide plant in Bhopal,India, created a cloud of toxic gas that led to the world’s worst industrial disaster:it killed 3,000 people and injured 200,000.

Obvious risks are not the only ones that need attention. For business, it is notenough to plan based only on known risks—quantified and modeled under busi-ness-as-usual assumptions. For government, it is not enough to fortify againsthigh-impact, low-probability events: the malicious terrorist attacks or natural dis-asters that capture popular imagination. Risks are just as likely to emanate fromdisruptions in global networks—for energy, communication, information, trans-

© 2009 Philip Auerswald and Debra van Opstalinnovations / Davos-Klosters 2009 203


Coping with Turbulence:The Resilience Imperative

Philip Auerswald is a Founding Co-Editor of Innovations, an Assistant Professor andDirector of the Center for Science and Technology Policy at George Mason University,and a Research Associate at Harvard University’s Kennedy School of Government. Heis an editor of Seeds of Disaster, Roots of Response: How Private Action CanReduce Public Vulnerability (Cambridge University Press, 2006).

Debra van Opstal is the Senior Vice President of Programs and Policy at the Councilon Competitiveness, a Washington-based, nonprofit, nonpartisan organization whosemembers are CEOs, university presidents, and heads of labor unions. Before joiningthe council, she was the Fellow in Science and Technology and Deputy Director of theS&T program at the Center for Strategic and International Studies in Washington.


portation—that are interlocked, allowing failures to cascade across networks, bor-ders, and societies.

Resilience is the quality that enables enterprises and societies to cope withthose unexpected events that have potentially catastrophic consequences. In thisessay we argue that a sustained strategic focus on resilience—one as intense as thatordinarily placed on growth—is an urgent priority for business and government atall levels worldwide.

For countries, a strategic focus on resilience means not only ensuring the reli-able provision of basic services but also reducing the variations in economic

opportunity that come withmajor societal shocks. Wheresustainability (a more familiarterm as applied to policy) isabout managing a level ofresource consumption,resilience is about managingdisruptions to critical sys-tems—physical, virtual, health,and economic. A resilient soci-ety can cope with a variety ofsuch disruptions to critical sys-tems with agility, speed, andresourcefulness.

For companies, resilience isabout anticipating, managing,and responding to suddenchange. As has become all tooevident in recent months, afirm's shareholders and cus-tomers are not well servedwhen a market valuation builton years of strong quarterly

reports crumbles when an unanticipated hazard exposes inadequate preparedness.But resilience is not just about avoiding losses or preserve shareholder value. It isalso about being poised to seize suddenly available opportunities to create value.The organization that pays attention to flexibility and adaptability—and has pre-pared for a spectrum of surprises—is better equipped not just mitigate disasters,but also to capitalize on such opportunities.

When it comes to understanding the resilience imperative, however, manycompanies fall short. This happens partly because the risk landscape has changedso dramatically in just the last decade. Global enterprises now operate quite differ-ently from the multinationals of the last century, but their risk managementprocesses have not kept pace. Multinational companies typically transplantedthemselves as self-contained businesses on foreign shores, but global enterprises


Resilience is the quality thatenables enterprises and societiesto cope with those unexpectedevents that have potentiallycatastrophic consequences. Inthis essay we argue that asustained strategic focus onresilience—one as intense asthat ordinarily placed ongrowth—is an urgent priorityfor business and government atall levels worldwide.

The Resilience Imperative

splice different pieces of their business operations across different geographies,and network them to each other through voice and data IT systems and supplychains. That has raised the ante on network disruptions from operational down-time to a “bet the bottom line” risk.

And globalization is creating new strategic risks. The Global Risk Network atthe World Economic Forum identifies strategic trends that could create significanteconomic losses. But are companies connecting the dots between these strategicrisks and their own risk-management processes? Resilience requires companies tocreate innovative approaches to manage threat, risk, and change. What they needis not an improvedability to predict thefuture, but systemsthat can better adaptto turbulence and sur-prise. Resiliencerequires process inno-vation: disciplined,systematic, and cross-functional thinkingacross the organiza-tion, including itsmissions, operations,markets, and techni-cal infrastructure.

When resiliencefails, private-sectororganizations pay aprice. The problem isthat their failures havefar-reaching conse-quences for publicwelfare as well—regionally, nationally, and sometimes globally. Traditionally, governments haverefrained from intervening in the way that companies manage risk and resilience,understanding that the markets will exact a toll. But the stakes have increasedbeyond anyone’s expectations.

Countries are not much better prepared. We have just seen the failures in U.S.financial risk management cascade across sectors and trigger a global financial andcredit crisis. Trillions of dollars of value in market capitalization has been lost. Theentire developed world has been driven into recession, not just a growth slow-down. As a result, the Director General of the International Labor Organization(ILO) reports, world unemployment is likely to increase by 20 million over thecoming year. The number of working poor living on under $1 a day could rise bysome 40 million and the number at $2 a day by more than 100 million.1


Companies, communities andcitizens create an ecosystem of

resilience. Businesses cannot beresilient if the communities in

which they operate and the citizensthey employ are not also resilient. A

company may be ready to resumeoperations following a disruption,

but the surrounding infrastructuremight not be functioning or the

citizens might be psychologicallyunready to return to normalcy.



What Business Leaders Should Know About Resilience

The rise in operational and strategic risks is outpacing traditional risk-management systems.

The past 20 years has seen a dramatic decrease in the number of stocks receiv-ing a high-quality rating from Standard & Poor’s and a dramatic increase in thenumber of low-quality stocks. Meanwhile, from 1993 to 2003, more than onethird of Fortune 1000 companies lost at least 60% of their value in a single year.2

A survey by Lloyds of London and the Economist found that one companyin five had suffered significant damage from a failure to manage risk and overhalf (56%) had experienced at least one near miss. Ten percent of respondentsreported three near misses during the previous year.3

Surveys show that a preponderance of board directors and seniorexecutives are poorly informed about emerging risks.

• In a survey of 250 executives and board members, the two largest barriers toeffective risk governance systems were a lack of tools for analyzing non-financial issues and a culture of skepticism that such non-financial indicatorsare directly related to the bottom line.4

• Only one-third of respondents said their non-financial reporting measureswere excellent or good.

• Nearly half of respondents said non-financial factors were ineffective orhighly ineffective in informing the decision-making process.5

Companies tend to silo risk specialties and often fail to connect the dotsbetween risk intelligence and strategic planning.

A study by Deloitte Research found that many of the largest losses in valueamong the world’s largest global companies resulted from their failures to man-age risk effectively and systemically. Almost half of the 1,000 largest global com-panies suffered declines in share prices of more than 20% in a one-month peri-od between 1994 and 2003, relative to the Morgan Stanley Capital International(MSCI) World Index. And the value losses were often longstanding. Roughlyone-quarter took more than a year for their share prices to recover, sometimesmuch longer. By the end of 2003, share prices for one-quarter of these compa-nies had not recovered to their original levels.6

Most companies monitor multiple risks—from environment, health andsafety to market and credit risk to compliance and IT security, but less than 30%report strong interaction between the risk silos and proactive sharing of infor-mation.7 And, unfortunately, risk doesn’t respect silos. A data breach is not justa problem for IT professionals; it can rapidly evolve into a reputation risk, a lit-igation risk, and a financial risk that engages the entire enterprise.


Technological risks to societies are rising as well. Although the number of acci-dents is dropping, the losses for each one are much higher.• In aviation, the number of accidents per one million take-offs has fallen dramat-

ically, but the number of fatalities per accident has doubled—and will rise high-er still with 800-passenger planes.

• In rail, state-of-the-art safety has reduced the probability of accidents, but high-speed trains multiply the possible consequences because a doubling of speedmeans a quadrupling of colli-sion impact.

• Urban areas are growing verti-cally: more traffic areas andshopping centers are relocatedunderground, where fires canhave devastating conse-quences and escape routes aregetting longer. Worldwidethere are 37 residential blockshigher than 200 meters anddozens more on the drawing board.

Global welfare now depends on the resilience of a set of complex technologi-cal systems (much of it privately owned), economic activities (much of them pri-vately conducted), and resource utilization that affects the lives and livelihoods ofpeople around the world.

Companies, communities and citizens create an ecosystem of resilience.Businesses cannot be resilient if the communities in which they operate and thecitizens they employ are not also resilient. A company may be ready to resumeoperations following a disruption, but the surrounding infrastructure might notbe functioning or the citizens might be psychologically unready to return to nor-malcy.

To prepare for turbulence and change, governments must be ready to changethe way they prepare and partner. They need to reexamine the relationships andresponsibilities of the public and private sectors, understanding the crucial web ofmutual interest and interdependencies. And a critical new skill is required foreffective policy and governance: an ability to adapt to the unexpected. But thatadaptability is rarely spontaneous.

Resilience requires more than reactive responses; it reaches beyond proactivepreparation. Resilient systems, enterprises, and individuals put into place the cul-ture, training, and processes to manage change with agility and resourcefulness.

ENDOGENOUS VULNERABILITIES: A PARABLE OF THE PRESENT

Just as the industrial age showed us that environmental vulnerabilities are an eco-nomic and social reality, so the post-industrial age in which we now live is expos-


To prepare for turbulence andchange, governments must beready to change the way they

prepare and partner.


ing a different set of vulnerabilities: the endogenous security vulnerabilities of acivil society.

Private actors seeking to increase competitiveness through greater operationalefficiency will normally outsource, automate, or eliminate tasks they see as periph-eral to their core business competency, and they will avoid investing in equipmentthey see as redundant. To reduce costs, managers may seek ways to make use ofexternal infrastructures for which others bear the cost: consider how firms use theInternet as the backbone of their internal corporate communications. They mayundertake to reduce redundancy in internal systems and decrease the depths oftheir protective firewalls to levels consistent with “normal” levels of risk.8 They maytake other actions, including mergers and acquisitions, to realize economies ofscale and scope: to improve corporate performance by embracing a wider range offunctions and opportunities.

Distributed efforts to improve productive efficiency at the firm level haveyielded countless improvements; together, over the past decades, these have result-ed in staggering reductions in costs. Yet competitive pressures do not allow firmsto make large investments aimed at reducing vulnerability to disasters that arehighly unlikely and nearly impossible to predict.

The public can also be vulnerable to endogenous events: those whose outcomeresults at least partly from human actions. Hurricane Katrina is a good example.The hurricane damage was magnified first by the failure of the system of levees andbarriers protecting the city of New Orleans, and second by the failure of the pub-lic officials responsible for protecting its people. For example, the communicationssystems collapsed and no security protocols were in place that would enable infra-structure service providers from the private sector to reach affected areas.

An exogenous counter-example is a meteor strike: this event is completely theresult of actions beyond human control.9 Until recently, hurricanes and otherextreme weather events were similarly viewed as exogenous events and weredescribed, in the language of faith rather than of economics, as “acts of God.” Butwe increasingly understand that human actions affect not only the impacts ofextreme events but actually the probability of their occurrence. Cumulative deci-sions weaken natural barriers to storm surges, place human populations in vulner-able areas, and change environmental and climate patterns on a global scale.Natural disasters are no longer acts of God; they are now a function of humanchoices. In all the millennia of human history, this has never happened before.

Thus the abstract concept of an endogenous security vulnerability is presenteverywhere today in the brick-and-mortar world of everyday business decision-making. Moreover, the increasing race for competitiveness and economies of scalepushes firms to develop ever-larger systems, with larger potential associated risks.Many examples exist of large-scale and/or highly connected infrastructures vul-nerable to unlikely events, with severe consequences if they do occur. Athletic facil-ities can now hold 100,000 persons, aircraft like the new Airbus 380 can seat up to850 passengers, and a new Royal Caribbean cruise liner that carries 6,400 vacation-ers. Food processing and distribution firms serve ever-increasing shares of the



national market, and power distribution networks serve a third of the nation’spopulation. 10 In each of these examples, the quest for economies of scale inducedby a highly competitive market economy has the potential to amplify the conse-quences of a catastrophic failure in an infrastructure system.

Ironically, the existence of endogenous vulnerabilities has now been moststarkly illustrated right where we thought we had the most robust quantitative sys-tems for managing risk: in the financial markets. A May 2007 article in TheEconomist describes the relationship between incremental innovation, growth inprofitability, and increased vulnerability. Read in retrospect, it documents how theunderlying risks that unraveled capital markets this past fall were hidden in plainsight for more than two years:

[I]nvestment banks have played a crucial part in bringing about theextraordinary changes seen in the financial markets, starting in the 1980sand accelerating dramatically in the past five years. Technology and inno-vation have brought unprecedented breadth, depth and richness tofinancial instruments. According to McKinsey, a consultancy, the stock ofshares and public and private debt securities held in America grew from2.4 times GDP in 1995 to 3.3 times in 2004. In Europe the increase waseven more dramatic, albeit from a lower base. These figures do notinclude derivatives, notional amounts of which traded privately, or “over-the-counter” securities, which had soared to $370 trillion by last June,from $258 trillion less than two years earlier, according to the Bank forInternational Settlements (BIS). Given such torrid growth, the marketsare becoming increasingly vital to global financial stability…11

To be sure, private firms have a strong incentive to avoid calamities in whichtheir actions (or inactions) are functionally related. But alignment of public andprivate incentives goes only as far as the scale of the smallest event that could putan end to the firm. It is precisely where the accountability of the private firm leavesoff that the responsibility of the public sector picks up:

Investment bankers themselves have a vested interest in not blowing uptheir firms. The biggest banks are thought to be investing hundreds ofmillions of dollars a year in technologies to measure risk and stress-testit. Comfortingly, regulators who scrutinize the banks’ risk-weighted cap-ital say it is stronger than ever. But capital is only one line of defense. Thebanks’ ability to cope with liquidity crises and credit crunches is harderto gauge.

Facing rapid innovations among firms in the financial sector, govern-ment officials were placed in the uncomfortable role of either impedinginnovations, with the risk of undermining the prospects for longer-termgrowth, or permitting innovations, with the risk of exposing the publicto costly outcomes.12



Taking risks and managing them is an investment bank’s core business.Bankers believe that through their risk-taking, their industry supports entrepre-neurs and hence economic growth. The trouble is that new risks are almost invari-ably explored before anyone has developed a good way to measure them.

[R]egulators reckon that on balance the growth of markets has been agood thing, making the financial system safer than more traditionalforms of bank lending. The trouble is that given the complexity of thenew instruments and the range of clients and countries involved, theycan never be absolutely sure that a monumental crisis is not brewingsomewhere.13

A system-wide liquidity crisis is exactly the sort of failure of interdependentsystems that risk models, calibrated against a business-as-usual baseline, cannothandle. Yet it is also the sort of low-probability, high-consequence event for whichresponsible officials in the public sector must, seemingly against all odds, seek toprepare.

SOCIAL INNOVATION AND RESILIENCE:THE NEED FOR NEW PUBLIC POLICIES

Given the risks created by endogenous vulnerabilities—be they related to financialmarket instability, network resilience, climate change, or high-consequence terror-ist attack—governments must begin to examine the nature of the relationship withthe private sector.

Key questions to consider:• Where the public interest in outcomes is substantial, what role should the gov-

ernment play in minimizing citizens’ exposure to risk? • How can government initiatives aimed at addressing the public’s risk exposure

be designed and implemented so that they enhance, rather than inhibit, thefunction of the markets on which the economy depends?

• How can companies that invest in resilient operations be rewarded for theircontributions to public welfare?

Markets alone cannot, and will not, correct for endogenous vulnerabilitieswithout the engagement of government. This is because markets don’t price thetrue value of the risk to the public caused by endogenous vulnerabilities. This is afamiliar concept. In the case of environmental externalities, the price mechanismis ineffective because the good in question (clear air or clean water) is not traded.In the case of the security externalities, the absence of the relevant market is onlypart of the problem. The other, more severe part of the problem is that privateaccountability leaves off where public vulnerability picks up.

A paramount challenge to government, and governance, in the 21st century isthus to arrive at a set of policy instruments that will firmly and insistently“nudge”14 markets toward resilience—protecting the public interest without dic-tating operational terms of action.



The government can affect private decision-making to reduce public vulnera-bilities in three ways:• affect relative prices and profits;• expand technological options; and• reinforce market incentives for change.

Affect Relative Prices and Profits

To address situations in which private actors do not take into account the publicconsequence of their actions, government can simply tax (or subsidize) the offend-ing (or beneficial) activity. Taxes designed to change behavior, as opposed to taxesdesigned simply to raiserevenue, are known as“Pigouvian” taxes, afterthe early 20th centuryEnglish economist ArthurCecil Pigou.15 SomePigouvian taxes, such asthose on cigarettes, seekto limit consumptionbehaviors that primarilyharm the consumerdirectly; others, such asthose on gasoline andother environmental“bads,” seek to limit con-sumption behaviors thatdo not harm the con-sumer directly but areunderstood to harm society. The most obvious example in public discussion todayis the gas tax. With commodity prices recently in freefall and the public more awareof the negative externalities of gas consumption, the United States has a greatopportunity to begin to bring the amount of its gasoline tax into line with thatimposed in other developed countries. An increase in the gas tax could helpfinance reductions in taxes on income—which, as anyone employed will be glad toreport, is a “good.”

Pigouvian taxes like those on gasoline work because, in an otherwise stableenvironment, we expect that increasing the price of any existing good, service, or(notably) input into a production process will lead to a decrease in its usage.However, and importantly, the magnitude of the change in usage generated by aPigouvian tax depends on the availability of good substitutes, as well as the overallcost share of the input. As a consequence, while policy can predictably affectbehavior through a Pigouvian tax, the magnitude of the induced impact will varysubstantially depending on the particulars of the situation. So, getting back to a gas


A paramount challenge togovernment, and governance, inthe 21st century is thus to arrive

at a set of policy instruments thatwill firmly and insistently

“nudge” markets towardresilience—protecting the public

interest without dictatingoperational terms of action.


tax, a winning policy agenda involves not only reducing taxes on “goods” but alsospending some significant share of the revenue to improve the quality and avail-ability of substitutes to gasoline. The better the available substitutes, the moreeffective the Pigouvian tax.

Consider a second example related to societal resilience: management of vul-nerabilities associated with the transport of toxic inhalation hazard (TIH) chemi-cals. Increasing the rail rates charged for TIH-chemical shipments may inducefirms with good substitution options—for example, water treatment plants usingchlorine gas—to reduce or eliminate their TIH usage, as intended. Other firms,however, may have more limited substitution options—for example, plastics man-ufacturers using chlorine gas. For them the increased rates will simply amount toa transfer from chemical producers to the government without any significantpublic benefit having been achieved, as presumably intended, through a reductionin the quantity of TIH chemical shipments.

Pigouvian taxes are likely to be even less effective in inducing changes inbehavior when the good or service in question is a capital good rather than aninput into production. Price is only one of the various parameters of interest to afirm contemplating the purchase of a capital good. Also of first-order importanceare performance, durability, and the costs of finance. Policy can affect each of thesedecision-making margins in different ways. It can contribute to improved per-formance by setting standards. It can partly resolve uncertainty regarding per-formance and durability through testing and certification. Various policy mecha-nisms to facilitate capital investments can also encourage adoption. And, of course,the government can employ a procurement mechanism to increase volumes andreduce the costs of capital goods and other products whose adoption by industrywould reduce public exposure to risk.

Thus, Pigouvian taxes are good at affecting the mix of inputs into a productionprocess. And, in some circumstances, they may induce firms to seek entirely newapproaches.

Expand Technological Options

Policy action can also influence risk reduction by increasing the range of techno-logical options in areas that pertain to the public interest. The primary mechanismavailable to government along these lines is direct or indirect support of researchand development.

The difference between this sort of subsidy and the Pigouvian subsidydescribed above is that an R&D subsidy is provided in an entirely different marketfrom the one in which the external effect is present. For example, returning againto the transport of toxic chemicals, a Pigouvian policy might levy a surcharge onrailcars containing TIH chemicals. In a technology-based approach, a governmentR&D program would subsidize firms that seek competitive new approaches toaccomplish industrial tasks with less intensive use of TIH chemicals.



While the benefits of improved technology are evident and continued advancea necessity, a public policy strategy that emphasizes technology development alonefaces at least three fundamental obstacles:

Uncertainty. Research is an inherently uncertain process. Technical solutionswith desirable specifications may be achievable, but they cannot be counted on tomaterialize when they are needed.

Long Time Horizons. To research new technical options and bring the mostbeneficial among them into practice is a process that routinely requires a decade ormore. Such time-frames put outcomes outside of the scope of accountability forcorporate leaders, directors of federal agencies, and elected officials alike.

System Integration Challenges. Industry supply chains are large, complex tech-nical systems whose modification can result in unintended consequences. Thegeneric challenge of transitioning an invention into a market-ready innovation isexacerbated here by the difficulty of embedding a new innovation into these com-plex systems.

But government can play a positive role in aligning public and private interestsby using technology collaboratories, changing procurement standards, and mod-eling vulnerabilities and failure paths.

Technology Collaboratories.The U.S. Department of Energy (DOE) has usedstrategic collaboration to reduce risk and encourage investment in more secureenergy control systems. The public stake in and need for such systems has becomeincreasingly obvious since 9/11. In 2001, a disgruntled employee hacked into thecontrol system of a sewage plant in Australia, triggering a large discharge. In 2003,the Slammer worm infiltrated the operations network of a nuclear power plantand for five hours disabled a panel used to monitor the plant’s safety indicators.More organized, malicious actors could have increased the toll immeasurably.

Rather than regulate a security standard, the DOE created an opportunity forcompanies to test security software packages in a simulated environment beforedeploying them. The National Scada Test Bed (NSTB) used the latest cyber attacktools and computer experts to probe the vulnerability of the systems and providea confidential assessment and mitigation roadmap. Within a few years, more than80% of vendors of control systems in the oil, natural gas, and power sectors hadtaken advantage of the opportunity.

Procurement Requirements. The government should never underestimate itsability to influence the private sector through the procurement process. In theUnited States, the federal government buys around $400 billion in goods and serv-ices and could leverage that purchasing power to set new standards for resiliencefor its vendors. In fact, many private firms have already adopted contract require-ments to ensure that their supply chains are resilient. Although the federal govern-ment has traditionally supported social objectives, such as reserving percentages ofprocurement for affirmative action and small businesses, it has yet to exercise itsmarket clout in requiring vendors to meet resilience standards.

Simulation and Modeling. The government could also provide access to high-performance computing systems, resident in the national laboratories, to create



more visibility into vulnerabilities for private enterprises. With better modelingand simulation capabilities, the interrelationships among different types of risk,potential failure paths, and the company’s exposure to loss can be modeled andquantified—and such data might motivate CEOs and corporate boards to takeaction. Such models have been developed for complex engineering challenges butare equally relevant in providing insight into multiple, interacting risks in the busi-ness processes.

Reinforce Market Incentives for Change

Since the data show that the companies that are more risk intelligent and resilientactually do better in the market, the question might well be asked: Why doesn’t themarket reward these qualities with better ratings and lower insurance premiums?And what can the public sector do to reinforce market mechanisms?

The ratings agencies and insurers are already moving in this direction.Standard & Poor’s, for example, is carefully integrating enterprise risk manage-ment into its ratings assessment. And some of the leading insurers and re-insurersare creating market incentives to encourage their adoption.

Government could reinforce these trends. It could adopt new disclosurerequirements that accelerate our understanding of how companies are managingrisk and change. It could incorporate more sophisticated approaches to total riskengineering in its own policies and risk-management responsibilities, and it couldcreate new pre-event financing options that leverage commercial markets to dif-fuse risk.

Adopt New Disclosure Requirements. The government could reinforce thesetrends is through more targeted disclosure of non-financial and strategic risks tothe Securities and Exchange Commission (SEC). It could also require companiesto disclose more about their risk-management processes.

We can look back a decade to see how this might work. The year was 1998 andY2K concerns were sweeping the globe. The SEC chairman, Arthur Levitt, sent thisstatement to more than 9,000 publicly traded firms:

At midnight on December 31, 1999, the vast majority of computer sys-tems may not be able to distinguish the year 2000 from the year 1900.Many experts feel that this programming flaw could debilitate computersystems worldwide….Time is short. Because the lack of informationregarding your preparations for the year 2000 could seriously underminethe confidence that investors place in your company, it is imperative thatyou provide thorough, meaningful disclosure on this topic.16

In the Y2K case, the government asked the companies to expose not their vul-nerabilities but their readiness to deal with risk. Today, the capacity to manage riskand to rebound from disruption is increasingly relevant to earnings and share-holder value.

Companies may not be able to project a specific probability of risk for all con-tingencies. But they can certainly disclose more about their risk management prac-



tices, the composition of their risk committees (which traditionally has been lim-ited to credit and market risk specialists), and their oversight by the governancesystem. Understanding a company’s readiness to deal with risk and capacity torespond to disruption is likely to become extremely relevant as a predictor offuture earnings—and extremely useful in creating incentives that make societiesmore resilient.

Incorporate Risk Engineering Principles. Public policies for insurance coveragethat ignore the relationship between level of risk and risk pricing have been lessthan effective—and may actu-ally reduce expenditures forpreparedness and prevention.17

In contrast, some of theleading insurers and re-insurersare developing robust princi-ples and best practices for riskengineering and resilience andrewarding clients that adoptthem.

Consider this case. OceanSpray, with a plant on the GulfCoast of Florida, calculated thata major hurricane could cause a$75 million to $100 millionloss. Risk engineering expertsadvised it on how to secure sec-tions of the buildings most vul-nerable to high winds and rec-ommended investing in backuppower generators to protect itsgrapefruit inventory. During the wild hurricane season of 2004, the plant tookdirect hits from two of the four hurricanes that struck the Florida coastline withonly superficial damage and minimal losses. Indeed, the data show that risk engi-neering approaches yield dollar losses that are 75% to 85% lower. DuringHurricane Katrina, clients of FM Global collectively invested $2.3 million to pre-vent losses that were estimated at $480 million. In other words, for every dollarspent on targeted preparedness measures, $208 was saved in one single majorevent.18

Government could incorporate the systems approaches into public sector risk-management practices as well. For example, public officials could factor in the costof reconstruction and assistance following a major disaster; they might discoverthat they would save tax dollars by undertaking similar risk engineering in pub-licly-owned facilities and infrastructure and offering homeowners incentives to dothe same—before a disaster occurs.


Since the data show that thecompanies that are more risk

intelligent and resilientactually do better in the

market, the question mightwell be asked: Why doesn’t themarket reward these qualitieswith better ratings and lower

insurance premiums? Andwhat can the public sector to

reinforce market mechanisms?


Create Market Financing for Disasters. Finally, government can partner with theprivate sector to create innovative financing mechanisms that fund recovery fromnatural disasters. Floods, storms, earthquakes and heat waves place a huge burdenon the public sector, which not only carries the cost of relief efforts but is alsoresponsible for rebuilding public infrastructure. Moreover, public entities con-sciously or unconsciously decide to retain risk by not insuring their infrastructure.

For example, in 2005, economic losses from natural catastrophes hit a recordhigh, with direct financial losses of $230 billion (0.5% of total worldwide GDP).

Despite a record insurance payoutof more than $83 billion, unin-sured direct losses of $150 billionhad to be carried by individuals,companies and the public sector.More recently, in 2007, a total of335 natural catastrophes led tolosses of $64 billion across theglobe, of which $40 billion wereuninsured.19

Traditionally, the public sec-tor has adopted a post-eventapproach to disaster funding,including increasing taxes, reallo-cating funds from other budgetitems, accessing domestic andinternational credit, and borrow-ing from multilateral financial

institutions. Most rely on assistance from international aid. Pursuing a post-disas-ter strategy has several potential disadvantages for governments. Funds are divert-ed from key development projects to pay for emergency relief. Governments mustpay the premium to raise new domestic debt in a credit constrained, post-eventmarket, and raising taxes can weaken the economy further and discourage new pri-vate investments. Finally, international aid often arrives too late for immediate dis-aster relief.

Governments could also save considerable amounts by shifting from relief topre-event risk financing; that is, by setting up solutions that involve financialreserves, contingent debt agreements, insurance and alternative risk transfers.

How could this work? One example is catastrophe bonds that transfer risksfrom the sponsors to market investors. In essence, the bond offers investors anattractive risk/return profile. The issuer invests the capital in low-risk securities(such as treasuries) and the interest plus a premium is paid to the investors. If thebond matures without the pre-specified event occurring, the principal is repaid tothe investors, similar to regular bonds. If a catastrophe does occur that “triggers”the bond, investors may lose some or all of the investment principal they have paid.In that event, the funds are paid to the bond sponsor to cover losses.


Today’s threats are tooubiquitous to be isolated andtoo nimble to be contained.In such a world, responsiblecompanies and governmentsare compelled to emphasizeaccessible actions rather thanillusory remedies.


CONCLUSION

We are now facing a new set of risk dichotomies that demand new approaches inthe way countries, companies, communities, and citizens prepare for and managerisk and prepare for resilience.

While technology creates both quality of life benefits and competitive advan-tages for societies and enterprises, it also carries the potential for larger and morewidespread disruptions. Rates of technology diffusion have been increasing geo-metrically. It took 55 years for the automobile to spread to a quarter of the coun-try, 35 years for the telephone, 22 years for the radio, 16 years for the PC, and only7 years for the Internet.20 Innovation, and its rapid global diffusion, has made lifeeasier for hundreds of millions of people and driven up productivity rates world-wide. But it has also increased the extent of disruption when the technology net-works fail, and has increased the cost to companies. For example, the hourly costsof downtime for U.S. companies were estimated at $2.8 million for the energy sec-tor, $2 million for the telecom sector, and $1.6 million for manufacturing.

Globalization both mitigates risk and creates new ones. So some companies areleveraging geography to disperse risk. Rather than creating static backup sites(which often gather dust until a disruption occurs), they are creating shadow seatsin each of their locations and cross-training employees in different geographies toensure that critical functions continue in case of an emergency. On the other hand,the diffusion of interconnected operations also increases a company’s exposure toinfrastructure disruptions—in the systems of transportation, communications,and information that otherwise enable the enterprise to operate seamlessly acrossdifferent geographies. Suddenly we see the rapid spread of other phenomena: fromcontagious diseases among employees traveling between sites, to widespreadgeopolitical instabilities and terrorism.

Private risk failures now have the potential to create public sector catastrophes.Risk failures in the public sector—for example, a failure of public health systemsto contain outbreaks of contagious diseases or manage the availability of vac-cines—can cascade into the private sector’s ability to rely on its workforce andmanage its workflow.

In the 20th-century, paradigms of security evolved from Maginot lines, to doc-trines of containment, to firewalls. Each succumbed in its turn to technology andglobalization. At the start of the 21st century, the very notion of security definedin terms of “perimeter defense” or “threat containment” has become all but obso-lete. Today’s threats are too ubiquitous to be isolated and too nimble to be con-tained. In such a world, responsible companies and governments are compelled toemphasize accessible actions rather than illusory remedies.

In such a world, resilience is no longer an afterthought. It is an imperative.

1. ILO, Media and Public Information, October 20, 2000. Reference Number: ILO/08/45 http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Press_releases/lang—en/WCMS_099529/index.htm .



2. Adrian Slywotzky and John Drzik, “Countering the Biggest Risk of All,” Harvard Business Review,April 2005.

3. Lloyd’s of London with the Economist Intelligence Unit, Taking Risk On Board, 2005, p. 6.4. Deloitte Research and Economist Intelligence Unit, In the Dark: What Boards and Executives Don’t

Know About the Health of their Business, 2004, p. 4.5. Deloitte Research and Economist Intelligence Unit, In the Dark II: What Many Boards and

Executives Still Don’t Know About the Health of their Business, 2007, p. 2.6. Deloitte & Touche, Disarming the Value Killers, 2005, p. 1.7. Ernst & Young, Global Internal Audit Survey, 2007, p. 5.8. This section draws from Philip Auerswald, Lewis Branscomb, Erwann Michel-Kerjan, and Todd

La Porte (eds.), Seeds of Disaster, Roots of Response: How Private Action Can Reduce PublicVulnerability, Cambridge, U.K.: Cambridge University Press, 2006. Many additional examples arecited in National Research Council, Making the Nation Safer: The Role of Science and Technologyin Countering Terrorism, Washington DC: National Academies Press, 2002.

9. For discussion a variety of catastrophes, including one that could be caused by a large meteor hit-ting the earth, see Richard Posner, Catastrophe: Risk and Response, Oxford U.K.: Oxford UniversityPress, 2004. The meteor case illustrates a catastrophe in which human actions could mitigateimpact, but not the probability of an event occurring.

10. For further discussion see e.g. Swiss Re,The Risk Landscape of the Future, 2004.http://www.swissre.com/pws/research%20publications/risk%20and%20expertise/risk%20percep-

tion/the%20risk%20landscape%20of%20the%20future.html11. The Economist, “The alchemists of finance,” May 18, 2007, special section pp. 3-6.12. Ibid.13. Ibid.14. See Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth,

and Happiness. New Haven, CT: Yale University Press, 2008.15. Former Chairman of the Council of Economic Advisors Greg Mankiw is among the founding

members of a recently constituted “Pigou Club” advocating for higher Pigouvian taxes.16. Debra van Opstal, Transform, Council on Competitiveness, 2007, p. 41.17. As a consequence of the debate over the government’s recent intervention in financial markets,

the principle of “moral hazard,” on which this observation is based, has moved from textbookobscurity to global notoriety in a matter of weeks.

18. William Raisch and Matt Statler, Crediting Preparedness, International Center for EnterprisePreparedness, NYU, August 2, 2006. http://www.nyu.edu/intercep/research/

19. Swiss Re, Disaster Risk Financing: Reducing the Burden on Public Budgets. Swiss Re, June 2008, p.2.

20. Council on Competitiveness, Innovate America, 2005, p. 37.


GEORGE MASONUNIVERSITY

School of Public Policy

Center for Science andTechnology Policy

HARVARD UNIVERSITY

Kennedy School ofGovernment

Belfer Center for Science and International

Affairs

MASSACHUSETTSINSTITUTE OFTECHNOLOGY

Legatum Center forDevelopment andEntrepreneurship

INNOVATIONS IS JOINTLY HOSTED BY

with assistance from

The Lemelson Foundation

The Ewing Marion Kauffman Foundation

The Ash Institute for Democratic Governance and Innovation, Harvard University

The Center for Global Studies, George Mason University

mitpress.mit.edu/[email protected]

innovationsTECHNOLOGY | GOVERNANCE | GLOBALIZATION

Support for Production of the Innovations


Provided by the Schwab Foundation for Social Entrepreneurship

School of Public Policy

Innovations Special Edition Annual Meeting 2009

Documents

Transcript of Innovations Special Edition Annual Meeting 2009