How to Introduce Entrepreneurship within a Young Democracy – (a case study)

During a recent Charlie Rose interview, Christine Lagarde, the president of the IMF (International Monetary Fund), shared her views with a packed audience of international economists in Washington D.C. on how young democracies such as South Africa or Malaysia commonly have fragile dual economies operating in parallel, one run by the ‘haves’ or wealthy, while the other by the ‘have nots’ or the impoverished. The wider the gap between them the greater the chance social unrest will follow, such as what happened in Egypt with the Arab Spring in 2011 and most recently in Brazil 2013. Other areas that could potentially erupt include Ukraine, Argentina, Greece, Indonesia, Pakistan… In fact the list of countries is so long that one might wonder, what exactly could the IMF or similar international financial institutions do differently and can lessons learned from one country be leveraged elsewhere?

To further explore new insights with countries operating within dual economies, I recently led a facilitated discussion with 38 university students at the Universidad del Caribe (UNICARIBE) in Santo Domingo, Dominican Republic. This island is a foothold for over 10 million inhabitants and a micro version of a typical young democracy. My goal was to hear how young Dominicans felt about their dual economy and extract a list of recommendations to pass along to political leaders and international creditors. I also hoped their ideas might offer new insights to other country leaders.

Universidad del Caribe is not your typical university. With over 19,000 enrolled students and 330 instructors, the university covers an ambitious range of degrees and disciplines at their two building complex. Students work by day and attend classes, one to two days per week. Campus spirit is notably strong fueled by an enthusiastic faculty comprised of volunteers, many of whom hold other jobs to make ends meet.

Life for a young impoverished Dominican is a daily challenge. Most will spend their lives operating undetected by government scrutiny in an underground economy where basic financial stop gaps such as access to credit for emergencies or a reasonably priced business loan are rarely accessible. Their greatest asset is their ingenuity and vibrant personality, which shines in much of what they do. Job security does not exist. They earn what they can from odd jobs, pay no taxes, and cut corners wherever and whenever by, for example, stealing electricity off the national grid. Providing for family needs consumes their meager incomes leaving them with little to no savings. In short they have few options within their reach to improve their livelihood.

On the other side of the economic spectrum, the Dominican middle class have their own set of problems. As avid consumers they buy beyond their means and spend much of their time fighting frivolous lawsuits or fulfilling new government requirements. Aside from having to pay income taxes, they are also saddled with higher utility bills required to offset the electricity stolen by freeloaders.

Surprisingly, the number one aspiration for a young Dominican adult is not to earn a college degree or to own their own business but rather to align himself or herself with a political party early on in life. In their minds, the only way to obtain job security is by serving a well-connected political group. Competition for these positions can be fierce, not because of an over-supply of skilled workers, which are scarce to begin with, but more for the oversubscribed pool of politically connected job seekers.

Open positions require a minimum of three years working experience, which leaves first time entrants with no other alternative than to join a political party.  This type of politically-motivated workforce, one based on connections rather than qualifications, tends to create a vicious circle. On the one hand, managers and leaders, also mentors, will send the wrong message to younger Dominicans who will see little value in advancing their own education or training, since the better paying jobs can be won with less effort through political connections. On the other hand, less qualified government officials are less inclined to require professional certifications from contractors to ensure that state-of-the-art services are rendered. The end result is a less competitive workforce.

The upkeep for a politically motivated workforce can become prohibitively expensive for any government. Venezuela and Cuba are two good examples where individuals are forced into political alliances for fear of being denied even basic services. Over time the workforce becomes lazy, and their leaders complacent. To please their international creditors, government officials devalue their local currency, which only makes matters worse with higher inflation rates. Eventually, both public and private sectors become trapped by the weight of their own unwillingness to progress. Adding to the malaise are party leaders who fail to recognize the immense value their Informal Sector could otherwise render with existing resources. Instead they would rather keep a tight lid on their potentially vibrant young workforce who due to their discouragement will enter a life of crime making matters even worse for their government and the rest of society.

With these facts on hand, I asked the discussion group what they thought was the root cause for their dysfunctional dual economy. Some cited a lack of women’s rights as they affect the welfare of the family unit. Others pointed to the criminal justice system for sending hardened criminals back on the streets without offering them a job or alternative form of income.  After a lively exchange, the unanimous vote for the root cause focused on the country’s weak judicial system.

According to the participants, on paper the justice system appears formidable, while in practice, it is virtually spineless. Laws are readily legislated, approved, and published to please voters; however, in the courtroom, these same laws are rarely enforced as written or at all. For the right price, a political leader or powerful investor can influence a judge’s decision to their advantage.

Despite their impoverished status, these 38 student/workers recognized the importance an independent legal system. Participants noted that whenever politicians or influencers are allowed to operate above the law, trust between the government and its people erodes. This same feeling of distrust infiltrates society and its family units creating a precariously, wider gap in their dual economy. This revelation raised an important question.

In a dual economy governed by a biased legal system, what can the government and international financial institutions such as the IMF do differently to create a brighter future for the Dominican Republic?

To counter the gap-widening effects caused by a weak judicial system, the group suggested the formation of a student entrepreneur association based out of the University del Caribe.  Members would join the Association then be matched through an interviewing process according to skills, experience, and interest to a cluster of no more than ten students each. Each cluster would be be guided and arbitrated by a university appointed mentor. At least one member of a cluster would have a specific entrepreneurial venture in mind or a launched startup in its initial stages. Members of a cluster would become the new startup’s board of advisors and help in their varying capacities to further the entrepreneur’s venture. As the venture grows, members of the board of advisors can opt to work for the new entity or start their own venture within their same cluster. The University would act as an independent arbitrator to ensure members adhere to a clear set of rules and contracts.

On an interesting side note, one individual admitted that if a cluster were to help him launch his dream construction business, he would most likely leave the cluster and not return the favor. His revealing comment confirmed the inherent distrust among his peers, which our facilitated discussion found to be primarily caused by the lack of an independent judicial system in the country. His comment re-enforces the University’s role as the cluster’s so called ‘mini judicial system’, one that is independently operated. Initially the process will most likely be an uphill battle but after a few success stories should convince others of the many benefits that can be gained from trusting each other.

Although our time ran out, other questions remained unanswered that could serve for future facilitated discussions. For example, how should the contract among members be drafted and how should the spoils and liabilities of a successful launch be structured to ensure a sustainable business? Of course, securing funding for mentors, garnering support from government officials, attracting outside investors, and designing an eco-system for future entrepreneurs are important topics too. After the discussion ended, the enthusiasm from both the students and faculty was evident by the clusters that began to form immediately among them.

As I listened to their animated voices, I could not help but think how a this two-hour discussion with a sample of prospective local entrepreneurs could potentially change the course of a nation. Hopefully, members of the IMF and other international financial institutions can learn from this case study and consider including a similar cluster program as a funding requirement for young democracies.

© 2014 Tom Kadala

Will Sustainability become the Feared Equalizer?

Why is the price of oil still hovering around $100 per barrel, if global demand has fallen and the supply of alternative energy sources, including shale and renewables, are increasing? Could it be that commodity traders are reacting to a new series of less visible market forces? 

We know that whenever Iran talks up their nuclear energy aspirations or Israel fires missiles into Syria, oil prices tend to rise or as of late, not drop by much. There is also US Congress’ lack of a comprehensive long term energy policy that has kept a tight rein on infrastructure investments such as charging stations for electric vehicles. However, as I discovered recently, there is yet another force at play, one that is far more complex than society is prepared to confront today and which will surely cause the price of oil and similar fossil fuels to double, if not triple in price, in the coming decades. This invisible force is referred to as sustainability.

What exactly is sustainability? In simple terms, sustainability is about replacing a resource so it can be used again and again. Terms like ‘recycling’ trash or producing ‘renewable energy’ are commonly associated with the practice of sustainability or the act of sustaining an activity in perpetuity with minimal environmental damage. Perhaps the best example of sustainability are e-books because they never wear out from one user to another and can be reproduced millions of times from one stored copy. Nevertheless, sustainability is more than just a repeatable process. It is also a culture, an attitude, a way of thinking that inspires inherent behavioral changes on socially-acceptable consumption practices.

MIT’s Sustainability Summit
At MIT’s Sustainability Summit last month, I came away with a deeper appreciation for what sustainability can mean to different people, especially how it can motivate them to change their habits and the habits of others, and yet, I could not help feel discouraged by the global indifference and the immense size of the problem. What set me over the edge was a powerful video called, ‘The Art & Science of Chasing Ice’ produced by James Balog on how our north and south polar ice caps are melting away from the amount of black soot dispersed into the atmosphere from our factories and automobiles. If this visual does not do if for you then perhaps a TED video by Charles Moore on the Great Pacific Garbage Patch may bring it home. The visuals are truly stunning, rude awakenings of what a planet with 7 billion individuals are capable of doing wrong.

With the UN’s projected 9.1 billion people by 2050, one can be absolutely certain that issues of sustainability will be front and center in the daily livelihood of every individual and entity. Why? …for the simple reason that our planet resources are limited and our current lifestyles and diverse cultures have yet to align and adapt to a sustainably-friendly behavior.

After attending the MIT Summit, I concluded that the efforts to align sustainable priorities are not only a discombobulated entanglement of disparate, self-appointed initiatives but also an odd assortment of potentially conflicting outcomes. To get an idea,  take a look at two opposing car ownership attitudes by city dwellers.  While the new normal has shifted favorably to shared auto usage among urbanites in developed countries (i.e. US – zipcar.com), in emerging countries (i.e. Brazil, China), new consumers expect to own their own car as soon as they move into a city!

Walmart vs WholeFoods
Another similar example of conflicting outcomes was visible at The Atlantic Magazine press conference in Washington DC on December 4, 2012. A forum of experts showcased the sustainability policies of two retail food companies, Walmart and WholeFoods.  While both companies work closely with their suppliers to recycle waste and introduce biodegradable packaging, Walmart’s Beth Keck, Senior Director of Sustainability, explained that Walmart provides their tight-fisted consumers with environmentally friendly products and chooses not to educate them on how they should change their consumption attitudes toward a more wholesome sustainable lifestyle.

In curious contrast, WholeFoods’ counterpart, Kathy Loftus, Global Leader, Sustainable Engineering & Energy Management, stated that with one-tenth the number of retail outlets as Walmart, WholeFoods is deeply committed to educating its employees and the communities they serve. The company teaches sustainability as a shared problem that begins with each and every consumer. WholeFoods believes that the improved knowledge on how one’s food is handled and prepared can help consumers make better choices and therefore lead healthier lives that will result in fewer medical issues. The money saved from fewer doctor’s visits and drugs, for instance, could justify WholeFood’s higher prices, …which explains in part why Walmart with its cadre of low-priced, branded, processed food suppliers has avoided engaging directly with their consumers.

Will the term ‘sustainability’ just become another commonly used marketing term such as ‘green’, ‘organic’, and ‘hormone-free’ that companies can push at will to meet their own corporate business agendas?  …maybe not this time.

A Key Driver – Shareholders
Fortunately the investment community is making meaningful strides with shareholders and CEOs. According to Sustainalytics, a Boston-based firm, companies are eager to disclose their annual ESG scores (Environmental Social and Governance), a metric used to measure best practices.  A total of 3,600 corporations globally have signed on since 1992, but as Annie White, their Research Products Manager noted, they have only scratched the surface with over 40,000 public companies still remaining.

Driving the increasing interest for ESG scores are concerned shareholders who fear that unmanaged risks or ‘blind spots’ could unexpectedly pull a global company down to its knees as has happened with BP’s Gulf oil spill of 2006, Foxconn’s child labor practice that affected Apple earlier this year and the five garment factories for European and American branded clothing that collapsed in Bangladesh this month. With good reason, shareholders are concerned that similar disasters will become more commonplace and that reactionary foreign government retaliation could put them out of business.

According to Katie Grace, a Program Manager involved with the ‘Initiative for Responsible Investing’ at the Harvard Kennedy School, local governments do not have to wait for a catastrophe to legislate changes but rather can take a proactive role by setting project specific policies. Regionally, for example, they can rezone areas to attract private sector investments. They can also set standards such as LEED, which is used for certifying eco-buildings. For social projects, governments can issue ‘green bonds’ or payment guarantees for investment funds (i.e. Social Impact Bonds).  Some mayors like Philadelphia’s Michael Nutter have adopted these proactive recommendations with their sustainability efforts and are starting to see positive results.

The City of Philadelphia
Katherine Gajewski, Philadelphia’s Sustainability Director, a new position also held at over 115 municipalities across the US, spoke of her challenges working within an entrenched bureaucracy of over 22,000 public employees, most of whom are reluctant to change. Her reprieve has been her frequent conference calls with her 115 peers who openly share their best and worst practices. Their collective list of ideas has grown as the group continues to innovate together, while making most of their ideas up as they go along.

Some interesting cases that have already crossed Gajewski’s desk might surprise you. For example, an Enterprise Car Rental operation in an industrial section of Philadelphia was paying $400 per month for their water bill but was costing the City millions of dollars to purify their share of dirty runoff from their car lots. Eventually, the situation was rectified but not until Gajewski ran the numbers to show the disproportionality between what Enterprise was paying for their office water usage and the cost to clean up its runoff.

Just how many other industrial installations are out there in a typical city like Philadelphia where a company unwittingly gets away with paying a small fee to use a common service but whose operations account for a substantial cost of clean up? …probably a lot!

Gajewski’s job as a Sustainability Director requires more people skills than know-how. She must craft alignments of interest among internal groups to achieve meaningful consensus. Perhaps most important, her role as director and facilitator is to refrain from becoming too preachy and be willing to dole out credit to each participant. Easier said than done, Gajewksi knows that sustainability is a shared task that succeeds when everyone is on board.

As more Sustainability Directors like Gajewski identify similar imbalances in their respective cities, the idea of charging the same consumer for both usage and their share of the cost of cleanup will become more widely accepted. …and herein lies the reason why fossil fuel prices will continue to rise for years to come.

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Below is a summary of Best Practices that were shared during MIT’s Sustainability Summit.

Best Practices

  1. At a university-run, trash audit, MIT students sieved through a months worth of the university’s garbage to discover that of the 2.5 tons of trash collected, 500 pounds was food waste while the remaining 90% could be recycled! The visual impact of over $11.4 billion of trash that could be recycled in the US alone inspired one student to launch a 30-day waste challenge on https://www.facebook.com/30DayWasteChallenge where Facebook friends could commit to ‘be inconvenienced by their trash’ by carrying the trash they personally generate throughout their day for a 30-day period.
  2. Offering consumers a list of prices for the same product but packaged with different levels of biodegradable materials would help bring to light the importance of recycling.
  3. Wirelessly integrating a soda vending machine with a recycle bin located nearby could encourage consumers to recycle their containers.  Consumers would pay, say two dollars and fifty cents, for a soda and receive a one-dollar refund on their university credit card once the soda can was disposed of in the appropriate recycle bin within the allotted time.
  4. ‘Rewire’ individuals at opportune times so their behavioral changes continue well after a recycling program or contest. For example, students can be impacted for behavioral change during a time of transition such as the beginning of a semester.  Recycling contest rules would be established at the start of the semester and monitored throughout the year.
  5. The crop of graduating students who enter the workforce concerned about sustainability issues will inspire a new set of hiring qualifications. Already companies like WholeFoods have changed their hiring criteria to reflect their corporate goals for sustainability.
  6. Teaching children in lower school to become advocates for a sustainable future is the most effective use of funds for behavioral change. Not only will these youngsters represent the future of our planet but their unbound audacity to correct adults who forget to recycle would deliver a priceless message with an impactful and lasting effect.
  7. A practical solution launched this year in California involves a utility tax on a consumer’s bill that is merely collected by the utility company and paid directly into a Global Educational Fund for educational initiatives. The tax removes the utility’s burden of financing similar programs for its sector and uses the utilities billing capacity as a pass-through.
  8. WholeFoods spends time in Washington DC convincing lawmakers that refrigeration codes need upgrading.  Currently stores are allowed to have open refrigeration, which according to a WholeFoods spokesperson, Kathy Loftus, spends considerably more energy than if the same refrigerator had a door.  Another sustainable tip from WholeFoods is the wider use of ships to transport goods rather than trucks. According to Loftus, ships have a lesser impact on the environment than trucks.

© 2013 Tom Kadala

Recycling the Debate of Sustainability

What is sustainability? Is it a personal commitment to save the planet or just another opportunity to charge higher prices?  No one really knows.  When you think of the need for sustainability you might envision countries at war over water rights or abandoned vehicles along highways due to gas shortages.  These ominous images are not fantasy but possible realities, unless we, as a planet, can figure out how to curtail the depletion of our natural resources. Who should be in charge of such an undertaking and what can they do, if anything, to help reverse the inevitable? 

Sustainability is a very complex subject.  It is a byproduct of a long chain of technological advancements that over time have created the problem we face today, namely, the production of cheaper products.  As the global population balloons so too does the demand for our limited resources needed to produce these products.  It is only a matter of time before key resources such as iron ore, petroleum, or phosphates (used for fertilizers) are 100% depleted.  Higher prices help fuel additional exploration into harder-to-find deposits, but sooner than later, those new discoveries will get consumed as well.  Perhaps, what is needed is a comprehensive international sustainability plan that buys time to develop substitutes or alternative solutions.  In my quest to gain a deeper perspective, I recently attended three sustainability conferences.  What I discovered may surprise you.

Conference #1 – Sustainability
My first conference was at MIT’s 4th Annual Sustainability Summit (www.stabilitysummit.mit.edu).  Experts, thought-leaders, and entrepreneurs traveled from as far away as South Africa to compare and exchange ideas. Their animated presence gave credence to the dire urgency for a global mandate among our leaders.   The wide range of ideas and opinions that emerged from the Summit sounded hopeful, but also left one wondering, if a solution to such a large problem was even plausible.  I left with a list of nagging questions such as, who should be responsible for implementing sustainability programs, what steps would be taken to monitor progress, and how realistically ‘sustainable’ would these ideas stand on their own for years to come.  I felt as though our society had reached a turning point between progress and preservation, the same way a sailboat feels while turning into the wind to change its course.

Ironically, the same technological innovations (some of which originated at MIT) that helped make our natural resources readily available to the masses is being called upon to prevent its potential demise.  For now, at least, experts are focusing on remedies to slow depletion rates through improved management, communications, and efficiencies, but these changes only postpone the inevitable and do not provide a ‘sustainable’ solution.  At the MIT Summit we heard two presentations that I felt stood out.  One was from Starbucks and the other from the City of Boston.  As they both shared their experiences and best practices, I noticed an interesting pattern that I will later use to compare with my two other conferences.

Starbucks
Jim Hanna, the Director of Environmental Impact, leads the sustainability charge for Starbucks.  Starbucks began by evaluating the carbon footprint of every activity along their supply chain and focused on those areas that offered the greatest positive impact to the environment.  In one case they discovered that the nitrous oxide used to make their whip cream was 300 times more damaging to the environment than it’s equivalent volume in carbon dioxide.

Along with other like-minded corporations, Starbucks subscribed to a green certification process for their five roasting operations and, in addition, re-engineered their stores to use 25% less energy and water. They also empowered members of their supply chain to reduce their respective carbon foot print (i.e. paper mills) and supported their revered coffee farmers with fixed pricing, stable contracts, and business know-how.

City of Boston
Jim Hunt, the Chief of Environmental and Energy Services for the City of Boston took a similar infrastructure approach to Starbucks.  His research unveiled that ‘buildings’ and ‘utilities’ together offered a 65% improvement impact, vastly greater than other types of improvements including ‘consumer behavior’, which came in at a surprising 7%.  In conjunction with a third-party advocacy group known as LEEDS, Mr. Hunt’s team focused on new construction and retrofitting of buildings throughout Boston with a goal of becoming a carbon neutral city by 2030.  The improved office buildings would attract like-minded tenants who in turn would offer better jobs. One such building called the ‘Atlantic Wharf’ is rated with distinction as a ‘LEED Gold’ building.  It uses 42% less energy, has a 43% reduction in GHG emissions, and recycles 90% of the rain water for its cooling towers.  This clean energy initiative has rendered more than just savings for the City of Boston.  It has also accounted for over 64,000 clean-energy jobs from R&D to installation.

What struck me most from these two presentations was how both entities focused their resources on infrastructure improvements rather than on consumer or voter awareness.  Their consumers or voters were almost an afterthought and probably not worth the investment.  Perhaps they both felt that consumers/voters would eventually change their behavior or awareness on their own as they adapted to new and improved surroundings at the workplace, especially at companies renting the LEED’s-approved, ‘green‘ office spaces.

Conference #2 – Innovation vs Sustainability
At Reagan National Airport earlier this month, Boeing’s CEO, Jim McNerney, unveiled their new Dreamliner 787 aircraft boasting a 15% fuel reduction due to a whole host of technological advancements including a parabolic wing span and a lighter hull structure made of 100% carbon fiber.  The event attracted other sustainability leaders such IBM’s chairman, Samuel Palmisano, and iRobotics Chief Strategy Officer, Joseph Dyer.

Organized by ‘The Atlantic’, a Washington-based political publication (www.theatlantic.com), these influential  companies delivered a unified message on sustainability that contrasted with the MIT Summit.  Unlike Starbucks and the City of Boston, Boeing, IBM, and iRobotics focused less on infrastructure changes and more on new ways to apply ‘sustainability thinking’ to the process of innovation.  They wanted members of Congress to listen to their views on their collaborative strategic approach to innovation where each player, including the government, would have a specific role.

Boeings Mr. McNerney, felt that the US Government should not invest in specific companies, citing the recent Solyndra bankruptcy.  Instead they should focus on investing in tomorrow’s education and research, write laws to regulate a balance between economic growth and safety, and approve tax policies to help pay for these projects.

IBM’s Mr. Palmisano, noted that the politics of ‘offshore’ manufacturing no longer applies.  According to him, global business no longer has any ‘shores’ to have an ‘offshore’.  As a consequence, Congress should endorse more liberal immigration policies that will allow the global elite who study in US universities to remain working in the US rather than be forced to leave upon graduation.  To the underemployment issue, Mr. Palmisano announced a multi-corporate initiative with Mayor Bloomberg in New York where they are jointly offering a 6-year High School/Associates Engineering Degree program to qualifying students with a promise of a $50k/yr job after graduation.  This program is in its second year and has demonstrated dramatically improved test scores when compared to other schools.

Finally, iRobotics’ Mr. Dyer, felt that innovation companies like his, need a government mandated 30% financial cushion to meet all of the regulatory requirements. At the scale required to make a sustainable difference, innovation companies can no longer rely on the bootstrapping talent of a few eager entrepreneurs.  Just like new employees, startups need ‘an insurance policy’ of sorts to innovate successfully.  Mr. Dyer also shared an imperative discipline for generating successful R&D projects.  The first 10% of a project’s funding should include extensive planning and scheduling for the remainder of the project.  According to him, too many promising projects begin on loose terms that are based on hope rather than on sound planning.

Conference #3 – Excess Capacity
The third event I attended was an MIT presentation given by the co-founder of Zipcar.com and the founder of Buzzcar.com, Robin Chase.  Ms. Chase’s world looks at sustainability from a different lens.  Rather than address depleting resources, Ms. Chase focuses on organizing excess capacity to help alleviate the demand pressures from a growing population.  For example, assets sitting idle such as a parked car can be used by another person who might otherwise purchase their own vehicle.  Another example she cited is in Bogota, Colombia where a 130km stretch of a roadway is opened for pedestrian usage on Sundays.  …and of course, there is ‘cloud computing’.

The conclusions from Conference #3 were strikingly different from the other two.  First, unlike Starbucks and the City of Boston, Ms. Chase’s approach to Zipcars leaned heavily on the community for both endorsement and feedback and paid little attention to infrastructure improvements.  Once more, Robin’s approach to innovation was far simpler than Boeing’s, IBM’s, or iRobitics.  In her case new ideas could evolve with one or two trials at a near zero cost per trial.

Despite their common goal to achieve sustainability, each entity identified the approach that best suited their immediate needs.  Obviously what would work for one may not necessarily work for another, making the task of promoting sustainability that much more difficult.  No doubt sustainability is complex and the debate of how the planet can achieve sustainability will continue through many more iterations.  Allowing the debate to recycle freely and often, may be the optimal universal approach to lay the foundations for an international master plan.