Is poverty inevitable? No, says author Paul Godfrey. More than Money shows how organizations can win the fight against poverty and create prosperity for people at the base of the pyramid in the developing and developed world.
This book presents a novel framework that shows how five types of interrelated capital—institutional, human, social, organizational, and physical—enable development and sustainable growth. In addition to a widely-applicable model, Godfrey provides principles to guide application. Core chapters articulate each specific form of capital and provide examples of how it contributes to the triple bottom line. Not just a theoretical examination of poverty, More than Money delivers timely advice to organizations that produce goods and services, implement policies, and create meaningful change on the ground. This book will guide social innovators and entrepreneurs in business, government, and civil society settings as they create a vision, assemble a team of strong partners, and effectively measure social innovation.
Is poverty inevitable? No, says author Paul Godfrey. More than Money shows how organizations can win the fight against poverty and create prosperity for people at the base of the pyramid in the developing and developed world.
This book presents a novel framework that shows how five types of interrelated capital—institutional, human, social, organizational, and physical—enable development and sustainable growth. In addition to a widely-applicable model, Godfrey provides principles to guide application. Core chapters articulate each specific form of capital and provide examples of how it contributes to the triple bottom line. Not just a theoretical examination of poverty, More than Money delivers timely advice to organizations that produce goods and services, implement policies, and create meaningful change on the ground. This book will guide social innovators and entrepreneurs in business, government, and civil society settings as they create a vision, assemble a team of strong partners, and effectively measure social innovation.
More than Money: Five Forms of Capital to Create Wealth and Eliminate Poverty
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Overview
Is poverty inevitable? No, says author Paul Godfrey. More than Money shows how organizations can win the fight against poverty and create prosperity for people at the base of the pyramid in the developing and developed world.
This book presents a novel framework that shows how five types of interrelated capital—institutional, human, social, organizational, and physical—enable development and sustainable growth. In addition to a widely-applicable model, Godfrey provides principles to guide application. Core chapters articulate each specific form of capital and provide examples of how it contributes to the triple bottom line. Not just a theoretical examination of poverty, More than Money delivers timely advice to organizations that produce goods and services, implement policies, and create meaningful change on the ground. This book will guide social innovators and entrepreneurs in business, government, and civil society settings as they create a vision, assemble a team of strong partners, and effectively measure social innovation.
Product Details
| ISBN-13: | 9780804789202 |
|---|---|
| Publisher: | Stanford Business Books |
| Publication date: | 12/11/2013 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 240 |
| File size: | 1 MB |
About the Author
Read an Excerpt
MORE THAN MONEY
FIVE FORMS OF CAPITAL TO CREATE WEALTH AND ELIMINATE POVERTY
By Paul C. Godfrey
Stanford University Press
Copyright © 2014 Board of Trustees of the Leland Stanford Junior UniversityAll rights reserved.
ISBN: 978-0-8047-8279-1
CHAPTER 1
MORE THAN MONEY
There are a thousand hacking at the branches of evil to one who is striking at the root.
—Henry David Thoreau
IT'S NOT ABOUT THE MONEY! In the global wars on poverty money has served as both the primary weapon and chief foot soldier for both academics and practitioners. If we deploy the right amount to the right place at the right time, the right things would happen, poverty would abate, and misery give way to human happiness. Development economists, business scholars, social entrepreneurs, and thought leaders all trumpet the right amount and mix of investment and spending by government, businesses, and consumers, as critical to meaningful gains by the world's poor.
I like Thoreau's observation. Most of the billions, or trillions, of dollars thrown at the poverty problem ends up in the branches—alleviating the symptoms of poverty—but little gets at the root and creates lasting prosperity for individuals. Money doesn't eliminate poverty. Money fails, primarily, because it does little to develop or encourage self-reliance; I'll make a case in these pages that self-reliance leads to a lasting solution to poverty. First, however, let's truly understand the fascination with money as the key to battling the curse of poverty.
The focus on money conforms to our conventional wisdom about what poverty is, and by implication how it can be overcome. The World Bank's operating definition of poverty tells us that
Poverty is "pronounced deprivation in well-being." The conventional view links wellbeing primarily to command over commodities, so the poor are those who do not have enough income or consumption to put them above some adequate minimum threshold. This view sees poverty largely in monetary terms.
Specialists and lay people alike may intuitively realize that it takes more than just money to create meaningful change, but requests for aid—often urgent—in monetary terms often force other critical conversations to the background. The "conventional view"—deeply engrained into our mental maps of poverty—means that the conversations about strategic solutions quickly devolve into tactical talk about fund raising, potential donors, and expected receipts.
Money also provides a seductively convenient soldier to deploy. When we move past the simple symptoms of want we begin to see the complex causes of need, and those deeper causes constitute what planners refer to as wicked problems: ones that defy definition, have multiple causes and potential remedies, and no definite or optimal solution. At one level, writing a check is easier than finding the causal roots in the quagmire of wicked complexity. At a deeper level, money-as-the-solution appeals to a deeper belief that money is the apparent solution to our own problems, so giving money to the poor should help them with their problems. Money acts as a quick palliative for the pain of the destitute.
For some, maybe many, money represents not only a convenient way to engage in a worthy cause; it also consoles the conscience. Living lives at or near the top of the economic pyramid, our drive for justice, or perhaps our sense of guilt over our abundance, encourages us to do something. But again, doing something requires getting our hands dirty and admitting our weakness in the face of an intractable problem. Giving money relieves our feelings of helplessness and hopelessness. Money becomes a palliative for the pain of the donor.
Money may conform to convention, provide a convenient and consoling way to get involved. What it hasn't shown, at least to date, is a curative effect on poverty. That's a bold claim, one I'll back up in a moment, but it will prove helpful to think more about poverty and the different levels where it exists. We can think of two overarching types of poverty, Big P and little p.
Big P poverty describes poverty driven by macrosocial forces and measured at very aggregate levels. Big P poverty isn't about people, at least not ones with names and faces; it's about people as statistics and the metalevel forces that drive them: famine, ignorance, marital and family institutions, political oppression, and war, to name a few. Percentages and aggregates matter in the fight against Big P poverty, the percent of people with clean drinking water, access to sanitation, or secondary education. It's not about whether the Agbetes of Accra or the Walkers of Window Rock have any of those things. The focus lies in alleviating—mitigating the effects of—poverty but tacitly frames its underlying causes as intractable.
Little p poverty focuses on individuals and families. It's about the Agbetes, the Walkers, and millions of other people with names, faces, lives, and real needs. Real people live in corrupt or fragile states; they often lack access to formal educational opportunities or participation in the formal economy. The causes of Big P poverty put real people in little p poverty, as do things like physical or mental handicaps, family dynamics, and personal choices. Fighting little p poverty means improving the lives and livelihoods of individuals, one at a time. Little p poverty can be eliminated, individuals and families can move from poverty to prosperity.
If Big P poverty focuses on statistics, then little p poverty concerns stories, the intimate arcs of individual lives. Slicing poverty into Big P and little p does more than provide a memorable metaphor; it highlights that those fighting it will be more effective when their efforts and organizations match the realities operating at each level. We'll talk more about that throughout the book. The division also illuminates the failure of money to make much of a dent in the global problem of poverty.
Money and Big P Poverty—the Failure of Foreign Aid
The most public debate about money and the fight against Big P poverty features cross-town dueling economists Jeffrey Sachs of Columbia and New York University's William Easterly. Both admit that foreign aid has proven less than stellar—more like an abject failure—in eradicating poverty and enabling sustained development. Much of the more than $620 billion that USAID has granted or loaned to foreign countries for economic aid from 1946 to 2010 in the form of foreign aid has not delivered anything like an adequate return on investment. Sachs and Easterly offer radically different explanations and proffer different solutions.
For Sachs the problem lies in the paucity of aid: the problems and shortcomings in developing countries are so extensive that foreign donations are too small to make a difference. For example, aid to Kenya for health care came to about $100 million per year a decade ago; to build a health system capable of providing substantive care to all Kenyans would cost about $1.5 billion per year, fifteen times the amount earmarked. Not surprisingly, Sachs calls for a new a massive infusion of aid large enough to get developing countries over the hurdle; we should supersede the big push of the 1960s with an even bigger push in the twenty-first century. Big P poverty requires staggeringly big sums to eradicate.
Easterly proffers the exact opposite explanation: foreign aid has presented developing country leaders with a glut of resources that creates and reinforces dependency, institutionalizing and enshrining Big P poverty into the fabric of these societies in the form of graft and corruption. Aid to improve the educational systems in Africa, for example, doesn't lead to economic growth (and may not do much for substantive learning either). Easterly's remedy lies in cutting foreign aid and replacing free public money with the miracle of the market; development policies should create a proper set of incentives for investment and private business. The abstract nature of Big P poverty requires an equally abstract institution, the Big M market, to fight it.
Given the failures of previous efforts, and the seeming inability of many developing markets to adopt Big M market mechanisms, it comes as no surprise that nations, businesses, and individuals express cynicism at worst, or suffer fatigue at best, toward well-intended efforts to attack Big P poverty. One response has been to abandon the focus on large-scale interventions and focus instead at the smallest scale of economic activity.
Money and Little p Poverty—The Unfilled Promise of Microcredit
The fight against little p poverty changed in the mid-1970s when future Nobel Laureate Muhammad Yunus discovered that many of the poor women in the villages of Bangladesh captured only subsistence wages, rather than the market price, for their work. What shut the women out of the market? Their inability to purchase the small amounts of raw materials on their own; they lacked the financial capital and relied on a middleman. Yunus lent $27 to a group of forty-two women and initiated the microcredit movement.
Undoubtedly microcredit has helped millions improve their livelihoods and given them a measure of control; unfortunately, it has also become a panacea for solving the problems of the poor. I attended a lecture given by a high-profile management guru who asked: "[Do] you want to eliminate poverty? Well, just give every woman a small loan and she'll pull her family out of poverty." That's a bold claim.
Does the reality of microcredit match the hype? The best research on microcredit shows that the tool appears to increase income; however, the biggest gains in income come to those who are the best off among borrowers; one study found that the poorest borrowers actually saw their incomes decrease. Microcredit produces contradictory outcomes; many borrowers see incomes rise but measures of health, housing, and nutrition decline. A devil's bargain: borrowers appear forced to trade off economic or social gains.
One challenge lies in the fact that microcredit is micro—small scale. Financing helps individual entrepreneurs purchase raw materials or other consumables but often leaves no slack to fund asset purchases or employees. Microcredit may facilitate individual self-sufficiency, but the model doesn't lead to job creation or growth in business scale; the ripple effects of microcredit don't extend out very far into the broader community.
Whether fighting Big P or little p poverty, a financial focus fails to eliminate poverty because at best it helps people have more; it can't help them be more. Having more relates to external things: what people own, possess, or can access. Being more happens inside; it captures capabilities, character, and desires that help people reach their full potential. Money may be the ticket that helps us have more, but being more requires more than money. Having more alleviates the suffering of poverty; being more eliminates the situation of poverty.
This book is about self-reliance, its role in eliminating little p poverty and helping people become more. Self-reliance interacts with five elements in our economic and social lives that I refer to as types of capital. The book presents and argues a simple thesis for those interested in eliminating little p poverty: real development—the kind that permanently lifts people out of poverty—requires harnessing and focusing five different types of capital in ways that enhance and leverage people's self-reliance.
SELF-RELIANCE AND THE FIVE TYPES OF CAPITAL
What is real development and how does it influence self-reliance? Jane Jacobs was not a professional economist but a writer and activist. In The Nature of Economies she offers a wonderfully concise way to understand real economic development as opposed to mere growth. Growth consists of a quantitative change in the output of an economic system, while development captures a qualitative change in the types of outputs of that system. Growth is about having more, development about being more.
For some, talk of self-reliance evokes images of Jim Bridger, the early nineteenth-century trapper who scratched out a meager existence in the rugged and untamed American West. Living and working alone, Bridger, like most Mountain Men, relied solely on his own skill, strength, and cleverness. Self-reliance, as I'll discuss at length in Chapter 2, captures something vastly different; two distinct, yet related, elements of people's economic actions: the inputs they use and outputs they produce. Self-reliance represents both a disposition, a bundle of beliefs and attitudes that drive behaviors, and a condition, or configuration of assets and resources that result from those behaviors. We all have the potential to become self-reliant, and our natural tendencies to be so will either be nurtured or hindered by the social settings in which we live.
Those social worlds provide sets of resources that strongly influence both the disposition and configuration that defines self-reliance. Individuals and families employ and leverage these resources to produce economic income as well as social satisfaction. I describe them as types of capital because they are durable sources of wealth that produce wealth. The types of capital are:
Institutional: The large social structures that provide meaning and structure to social life.
Social: The resources available to us by virtue of our relationships with family members, friends, or associates.
Human: Knowledge, skills, and attitudes that produce tangible outcomes and create wealth.
Organizational: Collective social endeavors we engage in or interact with that harness the powers of cooperation between and competition among people.
Physical: The tangible, and financial, resources we employ to produce products or services or exchange with others to create value.
To illustrate the role of the five types of capital and self-reliance in creating real, sustainable development, let's look at what may be history's greatest episode of development: the Industrial Revolution. More specifically, let's consider a single actor who made a big difference: James Watt, developer of the steam engine, the machine that powered the industrial economy. We'll return to Watt's story throughout the book to illustrate in greater detail each type of capital, but for now I'll sketch out the basics of the fascinating story of Watt's steam engine.
James Watt's Steam Engine
There are at least two great myths about the Industrial Revolution: that it was a revolution and that it began with James Watt's invention of the steam engine in the 1760s. The term Industrial Revolution appeared well after the supposed "revolution" began and didn't become the description de jour until historian Arnold Toynbee popularized the term almost a century after the supposed revolution took place.
Economic historians see industrialization beginning in the thirteenth century, with the Magna Carta and the gradual rise of the rule of law throughout Europe playing a starring role. Religious historians argue that the spirit of inquiry in thirteenth-century Christian theology that re-emerged with Thomas Aquinas enabled scientific progress and discovery. Military historians point further back to the twelfth-century Crusades, which planted the seeds of large-scale organizations, sophisticated communication and logistics networks, and the development of a banking industry. All these scholars argue that industrialization resulted from social evolution, not revolution.
The invention of the steam engine has been relegated to the stuff of a children's bedtime story, and legend has it that James Watt, as a very young boy, watched steam lift the lid of a tea kettle at his grandmother's home and had the epiphany that steam would be a tremendous source of power. James would then spend his life doggedly bringing that boyhood vision to life, first in the laboratory and then in industry. The reality of the steam engine includes trial and error, happenstance meeting, good fortune, and cleverness worthy of the best grown-up novel.
The power of steam had been known since Hero of Alexandria, who made steam-powered toys in the first century A.D., but that technology would lie fallow for more than a millennium and a half. By 1712 Englishman Thomas Newcomen had developed a commercially viable steam engine that became a familiar fixture in England's coal mining regions by the 1720s. Newcomen's engine, a huge, stationary steam-powered pumping arm, allowed English coal miners to pump water from their mines and thus pursue coal in deeper veins to fuel an already expanding industrial base.
While a marvel of technology and a quantum leap in industrial development, Newcomen's engine suffered from two major drawbacks. First, the machine couldn't be moved. The "engine" was really a large building; once constructed it became the embodiment of fixed capital. Second, the engine wasn't efficient, as it generated very little power for each ton of coal that fired its boiler. In consequence the expensive giant could be used only where coal was cheap and close—the rural coal regions of England and Scotland. Newcomen's marvel could fuel only the coal industry, but an engine that could fuel an entire economy would come within a generation at the hands of James Watt.
(Continues...)
Excerpted from MORE THAN MONEY by Paul C. Godfrey. Copyright © 2014 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press.
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Table of Contents
Acknowledgments ix
Introduction: Eliminating, Not Alleviating Poverty 1
1 More than Money 5
2 Self-Reliance: The Mechanism that Eliminates Poverty 21
Part I The Five Types of Capital
3 Institutional Capital: Yarn-Dyed Cloth 43
4 Social Capital: A Double-edged Sword 62
5 Human Capital: The Heart of the Matter 81
6 Organizational Capital: Power from Simple Machines 100
7 Physical Capital: The Last Puzzle Piece 121
Part II Creating Effective Organizations
8 Mission and Vision: Leading the Fight with Values 143
9 Ecosystems of Development: Systems to Fight a System 158
10 Measuring Impact: Are We Winning? 173
11 Eudemonia: Human Flourishing and the End of Poverty 188
Notes 201
Index 219