Where are development’s venture capitalists?
This piece appeared in the June addition of @lliance magazine
Research increasingly shows that on everything from how to stimulate economic growth to how to improve the quality of public services, there are multiple pathways to success. What’s more, what works in one place and time may fail in another. Rather than a search for a non-existent universal ‘best practice’, we need new ways of understanding how change happens that describe this complex, pluralist world. The best model I have seen is evolutionary theory, memorably described in Eric Beinhocker’s important book, The Origin of Wealth. Beinhocker shows that the evolutionary process of random variation, followed by selection of ‘fit’ variants (and the extinction of non-fit ones), and their rapid amplification, is a much better description of the economy than economics’ preferred paradigm, drawn from 19th century physics, of systems that always seek to return to a stable equilibrium.
What has such abstract thinking got to do with aid? Aid agencies tend to be risk averse – no politician wants to see newspaper headlines about taxpayers’ money lost or ‘wasted’ on failed projects; NGOs like Oxfam are determined to make every hard-won penny count (and worried about what our supporters would say if it doesn’t). But there is increasing recognition that such caution comes at a cost – all too often, low risk is accompanied by a low return on investment. Compare this approach to a venture capitalist who perhaps unwittingly, adopts an evolutionary theory of change by backing 10 projects knowing that nine will fail (and on the tenth ‘fit’ one, he/she will make enough money to more than compensate for the other failures). Could such a high risk/high return approach work in development?
I think the answer is an emphatic yes, not least because I’ve seen it in action on the ground in Tanzania. With DFID backing, Oxfam is running a programme explicitly modelled on evolutionary theory to improve the accountability of local authorities to their citizens. In the first phase, the programme sets lots of different hares running, from ‘farm animators’ to ‘active musicians’ to primary school student councils. It then selects the fittest variants (or allows natural selection, as projects multiply or die of their own accord). The final phase will be amplification: creating an enabling environment for them, promoting synergies between different initiatives, but otherwise staying out of the way so that new ideas and approaches bubble up from the grassroots.
So far, the results are extremely encouraging, and are having a profound impact on the way Oxfam works in Tanzania, according to programme coordinator Jane Lonsdale:
‘We’re doing something different now, not just rolling out a load of community scorecards, or public expenditure tracking – the usual kind of governance work. We’re pushing ourselves to really think through how change happens in Tanzania and try out different things. The whole team and partners are now talking in terms of power analysis. We’ve got the same language to describe what change looks like. Everyone is picking up trends and patterns – it’s a lot better than using conventional [impact] indicators.’
We would love to do more of this, but the problem is that DFID’s willingness to fund an experimental programme of this kind, with lots of (relative) failures expected, is exceptional. Most funders want to see, in advance, a plan with a set of activities and intended results, against which the recipient’s performance can be evaluated (and the donor’s cash thus justified). ‘We’ll try loads of stuff, ditch the less successful ones, and see where we end up’ is not usually a compelling funding pitch, even if it is a much more sensible (and accurate) approach to development work.
Philanthropic foundations ought to have some their cultural affinity with venture capitalist approaches, given that most of their founders were VCs or at least entrepreneurs back in the day. So if any of them want to discuss setting up a ‘social VC’ facility, feel free to get in touch!
[And if you want to run the Tanzania programme, Jane’s moving on and her job is now looking for star applicants, closing date 20 July]