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Is the way we think about charity wrong?

The Way We Think about Charity is Wrong

https://www.youtube.com/watch?v=bfAzi6D5FpM&feature=youtu.be&t=152

(Most relevant is 2:32-10:28)

From the local mom-and-pop shop to trillion-dollar companies like Apple, the goal of for-profit businesses is typically to make as much money as possible for their stakeholders. For charities, the goal is to help as many people as possible, be it people with cancer, the homeless, people with disabilities, etc. Despite their differences, businesses and charities are, fundamentally, the same in that they seek to improve the lives of their stakeholders. However, in trying to achieve their goals, society expects businesses and charities to operate very differently. The following expectations create a contradiction where we expect charities to tackle massive issues, but we require the charities to be small by restricting their possibility to grow.

  1. Compensation
    1. People react negatively when charity workers are compensated at their full market rate, yet we expect charities to attract the best and brightest. For well-qualified individuals, the loss in annual income may be too much to ignore. For example, a Stanford MBA graduate may make $400,000/year working in the for-profit sector, while a similarly qualified individual may make only $85,000/year – 21% of the for-profit worker’s income. As such, a person wanting to make a difference could reasonable choose to work in the private sector and donate $100k per year, still make $300k per year, and been seen as a philanthropist, while the CEO of the receiving charity still makes $86k and struggles to obtain a $10k raise out of the belief that money could better be used toward the cause.
    2. We do not like the idea that people make lots of money helping other people, yet do not mind when people make a lot of money not helping other people. For example, most people would object to the CEO of a charity making $1 million per year, but do not have a problem with a star athlete making $50 million per year.
  2. Advertising and Marketing
    1. As consumers, we accept that companies must market to grow their market share. However, as donors, we do not like to see our donations used on advertising for charity—we want out as much of our money as possible to go directly to the the cause. Charitable giving has remained at 2% of annual GDP for the last 40 years. How can we expect the charity “market share” to grow without marketing?
    2. If your $50 donation bought an ad that brought in an additional $200 worth of donations, is this not better for the cause overall?
  3. Risk taking
    1. When you prohibit failure, you prohibit innovation.
    2. As investors, we accept that businesses must take risks, and accept that risks sometimes do not pay off. A failure does not necessarily ruin a company’s reputation. However, as donors, we expect charities to play it safe and only work with tried-and-true methods of fundraising. If a charity invests in a fundraising drive that flops, it ruins their reputation.
  4. Time
    1. A private company can fail for years to return a profit to shareholders who wait patiently because they believe in the overall plan. However, charities are not allowed to build for the future; they cannot invest in an organizational infrastructure that will, with patience, better address the cause.

Questions

  1. In the last 40 years, poverty has dropped from 20% of the population to 12%, and breast cancer mortality rates have dropped from nearly 100% to 23%.
    1. Does this not suggest that the traditional model of charity is working?
    2. Should we be expecting more over the course of 40 years?
  2. Pallota’s organization had 40% overhead. However, after his organization lost its sponsorship, his sponsors lost 84% of their incoming donations in one year. Does overhead really matter when the total amount going toward the cause increases? (i.e. is it not better to have 60% of $100 million (60 million) go towards ending breast cancer than 95% of $10 million ($9.5 million)?)
  3. While marketing may increase the total donations an individual charity receives, is it not likely that some of those donations are coming at the cost of donations to other, lower-overhead charities? Does this not decrease the overall amount going to causes?

 

Resources

Why It’s Time to Rethink How We Run Charities

https://www.npr.org/transcripts/181693499

https://www.forbes.com/sites/richardlevick/2013/04/08/everything-you-know-about-charity-is-wrong/#374a44514659

https://trust.guidestar.org/why-is-overhead-a-punishable-offense-for-nonprofits

https://ssir.org/articles/entry/persistent_poverty_in_a_smug_meritocracy

Innovation’s Role in the Law

The topic of today’s class revolves around law’s role in innovation, so I decided research the inverse of this question: What role does innovation play in the legal field?

I focused on “legal field,” as it relates to traditional “big law” law firms.  I was interested in learning more about how law firms are adapting (or refusing to adapt) to changes in the marketplace and client needs, as well as changes in technology. Ultimately, I wanted to be able to discern what the “law firm of the future” would look like.  While uncertainty permeates, I was fascinated by the divergent approaches of various industry leaders.

Some relevant discussions are summarized (and linked) below:

 

 

Do Governing Bodies Hamper Innovation or Incite It?

A marathon stretches just over 26 miles. According to MarathonHandbook.com (a website devoted to long-distance runners) the average marathon finishing time is 4 hours, 21 minutes, and 49 seconds with some participants finishing in the 6 to 7-hour range. A sub-3-hour marathon is considered an excellent time. But a sub-2-hour marathon? Impossible…. that is, until Kenyan long-distance runner Eliud Kipchoge completed a marathon in 1 hour, 59 minutes, and 40 seconds in Vienna in October 2019, becoming the first person in recorded history to break the 2-hour barrier. Interestingly, fellow Kenyan long-distance runner Brigid Kosgei shattered a 16-year-old women’s record by 1 minute and 21 seconds the very next day.

 

There’s only one tool of the trade: the sneakers that the athletes use in competition. But no pair of sneakers have caused as much fanfare and tumult in recent history than Nike’s “Alphafly Next%” – the sneakers that both Kipchoge and Kosgei wore when they broke their respective records. Technological innovation is the name of the game when it comes to running sneakers used for competition. The Alphafly boasts a lightweight midsole foam called “Pebax” and a carbon fiber plate. The sneaker was scrutinized and its use in future competition was questioned: there was a call for banning the sneakers as some claim that they essentially act as a spring, giving athletes more forward push from each stride. Thus, some argued that using them pose an unfair competitive advantage that erodes the integrity and spirit of the sport.

(WSJ Video)

With the 2020 Summer Olympics in Tokyo just around the corner, the international governing body of athletics, World Athletics, acknowledged that there was a cause for concern: regulations state that shoes cannot confer an “unfair advantage” and must be “reasonably available” to everyone. Ultimately, in January of 2020, World Athletics ruled that the Alphafly (and another controversial sneaker, the Nike Vaporfly) would not be banned from competition, but it did establish guidelines for sneakers to be used in competition following its investigation:

  • The sneaker’s sole must be no thicker than 40mm.
  • The sneaker must not contain more than one embedded “plate” that runs either the full length or only part of the length of the shoe. The plate may be in more than one part but those parts must be located sequentially in one plane (not stacked or in parallel) and must not overlap.
  • For a sneaker with spikes, an additional plate (to the plate mentioned above) or other mechanism is permitted, but only for the purpose of attaching the spikes to the sole, and the sole must be no thicker than 30mm.
  • Any sneaker used in competition must have been available for purchase on the open retail market (online or in store) for a period of four months before it can be used in competition.

 

Nike’s success with the Alphafly and the Vaporfly has forced competitors to adapt to the market and produce comparable goods – companies including Brooks, Adidas, Hoka, Saucony, and more are set to release their own foam and carbon-fiber plated models. This competition will continue to drive new technology that benefits athletes and consumers alike.

 

In laying down ground rules, questions arise as to whether a governing body such as World Athletics undermine or impede the innovativeness that we have come to expect from industry leaders (such as Nike). For example, if no regulations existed, what would Nike’s unbound, “true” innovation nature look like? (i.e. Create the lightest sneaker you can and there are no restrictions on how much cushioning or how many plates you can implement in the midsole). Or on the other hand does true innovation take shape amid forced restrictions? (i.e. Create a shoe within these defined regulations and you can only work within these parameters).

 

Additional sources:

 

Questions to consider:

  • Should governing bodies intervene and regulate at the cost of innovation?
  • Are governing bodies stewards or obstructions to innovation?
  • Are there any other examples that come to mind? What about the automobile industry? Airline industry? Architecture industry?

Bill Gates, Micro-financing, and African Entrepreneurship

What is Microfinancing?

Microfinancing is the provision of financial services, targeted at individuals and business who lack the provision to access conventional banking services.  It increases access to finance in developing countries where a traditional banking institution would not extend credit to people if they have little or no assets. By using credit ratings, relationship banking, and microinsurance it helps families to take advantage of income-generating activities and enables users to better cope with the risks.

What is going on?

In the past decade, investors such as Bill Gates have begun pouring in capital in rural African communities.

In 2007, Opportunity International in Oak Brook, Illinois, one of the world’s largest microfinance organizations, has announced a $5.4 million grant and $10 million program-related investment (PRI) from the Bill & Melinda Gates Foundation in support of its efforts in five African nations.

The infusion of capital was used to fund new microfinance banks in Rwanda, Uganda, Kenya, and the Democratic Republic of Congo (DRC), as well as expand the organization’s operations in Ghana. The $10 million PRI, to be repaid over ten years at 1 percent interest, will be used to help fund the new banks during their second and third year of operation — typically, a difficult time for a microfinance institution to attract enough savings deposits and/or commercial debt to generate growth. In addition to strengthening the banks’ balance sheets, PRI funds used as intermediate loans can make them more attractive to external lenders, while also greatly increasing the amount of money they are able to lend to poor entrepreneurs. The banks opened in Rwanda, Kenya and Uganda in 2007, and the DRC in 2008.

More recently, in 2018 The Gates Foundation will contribute $50 million (€40.9 million) in financing, as well as an additional $12.5 million (€10.2 million) in technical assistance, to investment projects in the health sector in Africa through the EU’s framework to improve sustainable investments in Africa. This pooling of resources is designed to encourage additional private investment towards achieving the Sustainable Development Goals, and will allow successful projects to be scaled up more rapidly. The European Commission welcomes this strong support to its efforts towards sustainable development in Africa, and will match this contribution with another €50 million.

Why is this relevant to our class?

These loans help provide entrepreneurship opportunities and financial stability for those otherwise lacking the resources to make it possible. Microfinancing provides an alternative to the paternalism approach seen in “Poverty Inc.”.

For example, in sub-Saharan Africa, the poor have very limited access to long-term financing for housing, which is almost invariably limited to commercial banks offering formal, multiyear mortgages. Only 2.4 percent of the Kenyan population, for example, is able to afford typical loan rates. At the end of December 2018, there were only 26,187 active conventional mortgages in the whole country — the majority of which were granted to urban professionals. In Uganda, which has a population of 42.8 million, the number was just 5,000 in 2018.

Microfinancing for businesses and home loans helps improve society in a way that fosters entrepreneurship and small business development. It creates capital markets, an improvement of infrastructure, civil stability, and a healthier happier, more educated employment pool. For example, houses in Kenya which were micro financed reported in a significant decrease in vomiting, sore throats, and rashes, all illnesses associated with allergies and poor environment. There are countless studies that demonstrate the importance of a healthy home environment for a child’s future success, and microfinancing helps make this possible.

See also:

https://ec.europa.eu/commission/presscorner/detail/en/IP_18_361

https://philanthropynewsdigest.org/news/gates-foundation-provides-15.4-million-to-opportunity-international-for-microfinance-efforts-in-africa

https://www.wsbi-esbg.org/SiteCollectionDocuments/0587_ESBG_BRO_CENTRALREPORT%20(004).pdf

https://www.devex.com/news/sponsored/opinion-how-housing-microfinance-in-africa-can-improve-quality-of-life-93964

https://www.fintechmagazine.com/fintech/empowering-women-africa-through-microfinancing

 

 

 

 

Need for Business Innovation in Developing “Smart Cities”

Introduction

A series of articles posted to Infrastructure Intelligence, like the one posted here and its embedded report, outline the increasing need for greater innovation to be built in to every day interactions within a city, creating a “smart city.” According to the report, a smart city is one that “requires city authorities to completely reimagine their service offering, and opens up opportunities to act proactively rather than reactively.” Instead of discussing the specific technological and green advancements that can be applied to create and promote smart cities, the article and report look at 21 cities across the globe and measure their efficiency at using such technology in the environmental sector. The report finds that while there has been an increase in focus on the environment in Asian, Australian and European countries, there is still vast areas where innovation has not been infused. For example, in the United States, this often focuses on increasing air quality, missing the opportunity to use other technological advances to improve a city’s management of waste, water, carbon, green travel, and green infrastructure.

Room for Improvement

According to the report and the article, this is a result of “siloed thinking,” the misperception that air quality, carbon emissions, waste and green space are entirely separate issues to be dealt with in entirely different ways coupled with the added segregation of environmentalists from tech experts, engineers and city planners. The report advances the need for a more holistic “smart city” that is treated as a single system.

Additionally, the focus in the US and in the United Kingdom is on compliance instead of efficiency or public health. Cities, therefore, work to achieve legal-compliance as opposed to creating a better life for its’ citizens. The report also cites business models as an impediment to creating smart cities, explaining the tragedy of the commons and the difficulty in monetizing environmental solutions.

The report cites a few interesting examples that can be illustrative here: Glasgow’s Smart Canals and Breathe London. In Glasgow, Scotland, the City Council decided to use predictive technology to mitigate flood risk while opening up 110 hectares of land for development. While such predictive technology might not be entirely useful in the Midwest,  using technology in location-specific ways that are both environmentally-friendly and development-enhancing is a lesson we can all take away from Glasgow.

Canal in Scotland – taken July 2016.

Breathe London combines three separate projects to measure London-citizen’s exposure to air pollution, one that maps air quality from 100 sensor lamps on street posts, one that uses Google map street cars to measure roadway-level air pollution, and a third measuring the air quality of children and school-teachers on their way to and from school using wearable technology. While air quality is not uniquely a London issue, London has historically had an issue with air quality. Both London and Glasgow teach that understanding each city’s issues and measuring the harm is an important first step but technological innovation can also go so much further.

It seems that the missing piece here is not at all a lack of innovation in technology or a lack of drive to create such smart cities, but rather a lack of communication. Related articles on Infrastructure Intelligence also cite to a different kind of “siloed thinking” between the construction and infrastructure sectors, the technology sector, and the environmental sector. Perhaps this issue can be mitigated while working towards another goal: a business that combines these three areas and works to promote the application of innovations to environmental needs within cities; after all, can something really be innovative if it is not being utilized?

 

Other Related Articles:

http://www.infrastructure-intelligence.com/article/jan-2020/more-smart-designing-cities-heart