The 2/3 : 1/3 Rule

With the new administration coming to power in the US, there is a flurry of new proposals on how to reform the aid system. However, few of them propose real change. Instead, there are proposals to increase aid to such and such issue or country. Or to strengthen such and such agency - or to appoint a strong new leader.

Few of these proposals get at the root of the problem. As Bill Easterly has pointed out, we have spent more than $2 trillion in aid over the past fifty years with not enough to show for it.

The problem is the centrally planned, expert-driven, top-down nature of the current aid system. Just like under the Soviet regime, this approach does get things done. But the quality is bad, shortages are common, and the people have little say in what gets produced.

So let me propose the 2/3 : 1/3 rule. Henceforth, 2/3 of all aid resources will be allocated through an open-access, bottom-up, market mechanism, while 1/3 of the resources will be allocated through existing top-down approaches.

I will write more about how the marketplace system would work in coming posts and columns.

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What percentage of your brainpower are you using?

Last week I posted a trailer of the documentary of Bill Easterly's White Man's Burden.

Below is a clip where I talk about how much brainpower is wasted in top-down hierarchical systems like the World Bank:




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The Clint Eastwood of International Development

Check out the trailer for the coming documentary for The White Man's Burden, a book by Bill Easterly. The movie is coming out in 2010, and I urge you to read the book in 2009 if you have not already.




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"Any other result is possible"

Last night, my friend Clive lent me some music by John Martyn, an outstanding but little known Scottish singer.  Martyn's obscurity led us to talk about the influence of chance, serendipity, and randomness on success.  Much of what happens in life is influenced by unforeseen (and often unnoticed) events and factors that we do not control.

A nice study by Matthew Salganik and others shows the degree to which musicians' success is hard to predict. The key take away is: "Success was also only partly determined by quality: The best songs rarely did poorly, and the worst rarely did well, but any other result was possible."

Hit songs, books, and movies are many times more successful than average, suggesting that "the best" alternatives are qualitatively different from "the rest"; yet experts routinely fail to predict which products will succeed. We investigated this paradox experimentally, by creating an artificial "music market" in which 14,341 participants downloaded previously unknown songs either with or without knowledge of previous participants' choices. Increasing the strength of social influence increased both inequality and unpredictability of success. Success was also only partly determined by quality: The best songs rarely did poorly, and the worst rarely did well, but any other result was possible.

The full study is here. (Free registration required.) And thanks to Richard Thaler and Cass Sunstein's book Nudge for the tip.


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Leadership is about creating a new reality.

What could they have done? For starters, just one of them could have shown up at one of those closely watched investor conferences and stolen the show by giving a strong speech declaring that things were getting out of hand...

That is from Steve Pearlstein's piece in the Washington Post today about the leadership failures in the current financial crisis.  He notes that most of the CEOs involved have either claimed they made no mistakes or that they had no alternative to the path they took.

In my experience, real leadership is about saying "I don't accept that the world has to be like A.   I declare that it can be like B, and I am going to take action to create this new reality."  It is the opposite of following the herd and making excuses.

Fred Smith, founder of FedEx, is a good example of such a leader.  During a period when mail service around the US was highly variable and unpredictable, he declared that it was possible to absolutely, positively deliver something overnight from anywhere to anywhere in the US.  People thought he was crazy.  And indeed he had to go to extraordinary lengths to make good on his promise in the early days (for example, he authorized low-level managers to charter airplanes if they needed one to get a package to a remote area on time.)

Guess what?  Now we take it for granted that we can get a package to or from someone overnight.  Our expectations have shifted.  That's what leadership is all about.

So I was very happy to see that Pearlstein has also launched a new Leadership Section of WashingtonPost.com with an interview with Fred Smith (see video below). Talk about leadership!   




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In praise of competition

Who is your competition?

People ask me that a lot. Usually the tone is "Who is out to eat your lunch?" And to be honest, that is the way that I often respond to new entrants into the market, or (especially) to new features introduced by existing organizations.

But the reality is that competition is good. It is good for the development of the online philanthropy market. And it is good for our own progress at GlobalGiving. At this stage, high quality new entrants in the field raise overall awareness - and they increase the size of the pie. The stream of new features that we are seeing forces us to provide better and better service to both donors and recipients.

Two of my favorite GlobalGiving "competitors" are DonorsChoose and Kiva. The three of us constantly vie to have the most compelling websites, the most efficient check-out, the best feedback loops, and the highest impact. Whenever one of us develops a successful new feature, the rest often imitate it. This is a form of collective experimentation and learning that improves our services much faster than if none of us faced competition.

Although we are competitive by nature, we also help each other out, often swapping best practices about back office systems, gift card campaigns, and PR. At GlobalGiving, we once encountered a potential major donor who was interested primarily in US education. Without hesitation, we referred him to Charles Best, the head of DonorsChoose, and he became a major donor there. The donor was happy, DonorsChoose was happy, and the vigor of the overall online philanthropy marketplace was increased.

And DonorsChoose has done the same for us more than once (someone recently told me they were going to donate to GlobalGiving on the recommendation of Charles Best, and said she found it "amazing" he referred her to a competitor ). A month or two ago, I was on the phone talking to Premal Shah at Kiva conferring about some common issues we face. Overall, we find that friendly competition helps us all.

Last year, I was at a conference at Oxford University discussing new ideas for the official aid sector (including the World Bank, UN, and bilateral agencies such as USAID and DFID.) There was much discussion of the need for "partnership" and "elimination of duplication." One speaker passionately called for the aid agencies to "divide up" Africa. USAID would take a few countries or sectors, the Swedes would adopt a couple of countries, the Brits would take some, the Canadians others.

This sounds good until you realize that each recipient country would be stuck with no choice. If the quality of programs offered by one donor were poor, the recipient would have no ability to choose a better alternative. And you can be sure that, without competition, the quality of the services offered by the donors was going to be far below what it should be.

So competition is good. It drives innovation, efficiency and better service to all users. My only complaint about DonorsChoose and Kiva is that they are run by guys who are younger and much better looking than I am. And there is nothing I can do to compete with them there :)


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Small changes can make all the difference.

Some apps wander around the wilderness for a while until they can find the perfect home. For Evernote, that home is the iPhone. The note-taking, picture-capturing, voice-recording, handwriting-recognizing universal memory service has been under development for years and launched last February in private beta on the PC. But it wasn’t until May 29 that it debuted on the iTunes store as an iPhone app. That’s when it started to take off.

That is from Tech Crunch, and it reminds us how context-dependent successful innovation can be. Just a modest change in the context can make all the difference between failure (or muddling along) and rapid adoption. The full post is worth reading.

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We hold these truths to be self evident...or do we?

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Those words from the Declaration of Independence were written in 1776 by a team led by Thomas Jefferson. They marked a revolution in political history: the American colonies declared "That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed." The American revolution was not just the overthrowing of a despotic king's power, but also the founding of a new form of government.

Though all men were declared equal in 1776, a terrible political compromise meant people of certain racial heritages were not considered full men. Thus they were denied the unalienable rights of liberty and the pursuit of happiness (and often of life, too).

Nearly ninety years later, that terrible compromise fell apart. And standing on a bloody battlefield in Gettysburg, Pennsylvania, Abraham Lincoln declared:

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure.

Lincoln led the country through that awful test, and proved that not only could such a nation endure, but that it could endure even as it defined African Americans as full men. Slavery was abolished.

Yet still African Americans were unable to enjoy their full rights of life, liberty, and the pursuit of happiness. It was another ninety years before the Supreme Court (in Brown v. Board of Education) declared segregation of public schools to be unconstitutional in a case argued by Thurgood Marshall.

And still discrimination and even segregation continued for years.

This month's election of Barack Obama to the Presidency of the US marks, I hope, the beginning of the end of our heritage of racism in the US. Even most Americans with opposing political views are happy that this nation has voted to affirm at last that African Americans are created equal. This is cause for some pride and celebration, even though it took us over 230 years.

Which raises for me the following: Now that we have fully affirmed that our fellow black countrymen have full rights, what is the next frontier? Who among our neighbors are still suffering from discrimination? Who among us are unable to exercise their full rights to life, liberty, and the pursuit of happiness? 

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Four Score and Seven Years Ago...

It was a wonderful night in my neighborhood after the election results came in last Tuesday.  I live in the U Street neighborhood of Washington, DC -- the old center of African American culture and business.  Duke Ellington was born just a couple of blocks away.  Now the neighborhood is highly mixed racially, culturally, and socio-economically.

At 11 pm, when the polls in California closed, the networks all called the race for Obama.  Almost instantly a huge roar went up from all quarters:  people opened their windows and cheered, other poured out of the restaurants and bars and sang, total strangers hugged on the streets, and cars honked their horns.  I finally went to sleep at 2 am, but the celebrations continued until 4 am or later.

Because I had to travel to California the next day, I never got a chance to put my feelings to paper.  And since then, many people (from all parts of the political spectrum) have commented more eloquently than I could about the meaning of the elections.   But of everything I have read and seen, perhaps nothing sums it up better than the cover of the New Yorker that arrived today:

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How elections will change

It's been a much more positive election season this year than four years ago. Even Alex Tabarrok voted (for the first time). Change is in the air. But the election process itself is still stuck in the middle ages.

I had to stand in line today for more than an hour and a half before voting. And while I like the idea of going to a common place to vote and meeting my neighbors, thirty minutes would be plenty.

I have been struck by the huge gulf between: (a) the technology used to recruit voters and raise money; and (b) the technology used to record votes. The voter recruitment and fundraising efforts leverage Facebook, Skype, LinkedIn, email, text messaging, and Twitter. Voting still involves for the most part standing in line. Even the voting machines are nothing really new - we had mechanical versions of those in rural Kentucky in the 1960s.

A lot of people turned out today (and more voted early) because they felt so strongly about the state of the country and the candidates. But we can't take for granted next time. If we want to keep voter turnout high, we need to find a much better way to let people vote, probably via the internet. 

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