Week of December 4, 2017

In terms of this week's through-line, I figured I might as well get in on the Star Wars jokes that are going to plague us all, apparently, for the rest of time--Tim Ogden

1. Social Investment: Last week I was at European Microfinance Week. Video of the closing plenary I participated in is here. My contribution was mainly to repeat what seems to me a fairly obvious point but which apparently keeps slipping from view: there are always trade-offs and if social investors don't subsidize quality financial services for poor households, there will be very few quality financial services for poor households.
Paul DiLeo of Grassroots Capital (who moderated the session at eMFP) pointed me to this egregious example of the ongoing attempt to fight basic logic and mathematics from the "no trade-offs" crowd. This sort of thing is particularly baffling to me because of the close connection that impact investing has to investing--a world where everything is about trade-offs: risk vs. return; sector vs. sector; company vs. company; hedge fund manager vs. hedge fund manager. The logic in this particular case, no pun intended, is that a fund to invest in tech start-ups in the US Midwest is an impact investment, even though the founder explicitly says it isn't, because it is "seeking potential return in parts of the economy neglected by biases of mainstream investors." If that's your definition of impact investing you're going to have a tough time keeping the Koch Brothers, Sam Walton and Ray Dalio out of your impact investment Hall of Fame. Sure, part of the argument is that these are investments that could create jobs in areas that haven't had a lot of quality job growth. But by that logic, mining BitCoin is a tremendous impact investment. You see, mining BitCoin and processing transactions is enormously energy intensive. And someone's got to produce that energy, and keep the grid running. Those electrical grid jobs are one of the few high paying, secure mid-skill jobs. Never mind that BitCoin mining is currently increasing its energy use every day by 450 gigawatt-hours, or Haiti's annual electricity consumption. And, y'know, reversing the trend toward more clean energy. Hey anyone remember the good old days of "BitCoin for Africa"?

2. Philanthropy: There are plenty of trade-offs and questions about impact in philanthropy, not just in impact investing, and not just in programs. Here's a piece I wrote with Laura Starita about making the trade-offs of foundations investing in weapons, tobacco and the like more transparent.
I could have put David Roodman's new reassessment of the impact of de(hook)worming in the American South in early 20th century under a lot of headings (for instance, Roodman once again raises the bar on research clarity, transparency and data visualizations; Worm Wars is back!; etc.). The tack I'm going to take, in keeping with the prior item, is the impact of philanthropy. The deworming program was driven by the Rockefeller Sanitary Commission and is frequently cited, not only as evidence for current deworming efforts, but as evidence for the value and impact of large scale philanthropy. Roodman, using much more data than was available when Hoyt Bleakley wrote a paper about it more than 10 years ago, finds that there isn't compelling evidence that the Rockefeller program got the impact it was looking for. Existing (and continuing) trends in schooling and earnings appear unaltered. 
Ben Soskis has a good overview of the seminal role hookworm eradication had in the creation of American institutional philanthropy. His post was spurred by an article I linked back in the fall about the return of hookworm in many of the places it was (supposedly?) eradicated from by Rockefeller's philanthropy. We may need to rewrite a lot of philanthropic history to reflect that the widely cited case study in philanthropic impact didn't eradicate hookworm and may not have had much effect. And while we're in the revision process, it may be useful to reassess views on the impact of the Ford Foundation-sponsored Green Revolution: a new paper that argues that there was no measurable impact on national income and the primary effect was keeping people in rural farming communities (as opposed to migrating to urban areas). Given what we now generally know about the value to rural-to-urban migration, that means likely significant negative long-term effects.
If you care about high quality thinking about philanthropy, democracy and charitable giving in general, which I of course think you should, you should also be paying attention to some of Ben Soskis' other current writing. Here he is moderating a written discussion of Americans' giving capacity. And here's a piece about how the Soros conspiracy theories are damaging real debate about the role of large scale philanthropy in democratic societies.
In the spirit of the holidays, I feel like I should wrap up an item on philanthropy with some good news. In the last full edition of the faiV I mentioned the MacArthur Foundation's 100&Change initiative, which is picking one idea to get $100 million to "solve" a problem. For all the problems I have with that, the program is doing something really interesting, thanks to Brad Smith and the Foundation Center. All of the proposals, not just the finalists, are now publicly available for other foundations to review.

3. Frustrated Employees: One of the core conceits of the microfinance movement is the idea that many (most?) poor people are frustrated entrepreneurs, with lots of ideas and opportunities available if only they had access to credit. It's one of the reasons that we didn't get the impact we were looking for from massive expansion of microcredit.
The idea of frustrated entrepreneurs still lives on for a lot of the general public, but I think (hope?) it's been largely abandoned within the core of the industry. But just in case, I thought I would pass along some more evidence that the poor are frustrated employees, not frustrated entrepreneurs. Here's a paper looking at small enterprise owners in Mexico, who shrink their businesses when jobs come to town, in anticipation presumably of giving up the grind of entrepreneurship for the dream of a paycheck. And here's a look at Thai entrepreneurs operating multiple micro-enterprises that concludes that it's not lack of credit that's holding back their businesses, but their own lack of skills.
One of the paradoxes of the microfinance movement was that co-existing with the idea that the poor were frustrated entrepreneurs just waiting to be unleashed was the emphasis on providing a loan with conditions that made entrepreneurial risk-taking difficult if not impossible. Field and Pande showed quite a while ago that if you relaxed the constraints on loan payment, some borrowers would make riskier investments and gain from it. Here's a recent follow-up to that work which adds further evidence--again finding that borrowers with a more flexible contract end up with higher business sales, but also that the contract does a good job of inducing self-selection of borrowers who do have more of the necessary characteristics for entrepreneurial success.
It's not just people in lower income countries that are frustrated employees. Many employees are frustrated employees--frustrated that the jobs they have are terrible. Here's Zeynep Ton on the case for relieving that frustration and creating better jobs.

4. Our Algorithmic Overlords: A couple of quick hits here. First, the Illinois Department of Children and Family Services tried to use big data and algorithms to predict which children were at most risk. They're scrapping the program "because it didn't seem to be predicting much."
And here's Zeynep Tufecki on the dystopia we're building "just to make people click on ads." Definitely not the impact we were looking for.

5. Household Finance: If there's any impact the microfinance movement was not looking for, it was to replicate the troubling situation with debt that we see in many lower income American (and European, though to a lesser extent) households. It's one of the reasons the industry was so fixated on emphasizing that they were making entrepreneurial loans not consumption loans. The Urban Institute has a new interactive map on debt in America, with data down to the county level. There's a lot to explore there--CityLab has a nice summary overview if you just want some takeaways. The Mimosa Index is doing something conceptually similar for microfinance, albeit at a much grosser level due to data constraints. Hey, MicroSave what about doing something like this for digital credit in Kenya?
And to tie everything together, from trade-offs to impact, here's some new work from Emily Gallagher and Jorge Sabat (via Ray Boshara's blog post) on the trade-offs households have to make between savings and debt--finding (in the US) that the short-term sub-optimal choice of saving at low interest rates while carrying high-interest debt pays off in the medium-term. The mechanism is having some liquidity to meet shocks without running up more debt. I have some ideas (and some organizations willing to try them) about how to maintain liquidity while reducing debt, so if you'd be interested in funding a pilot, just let me know. 
Ray's post is motivated by thanking his dad for giving him advice as a teenager to always have some savings on hand, even if it meant ultimately paying more in interest on loans, advice that now has an empirical basis. I can't let that opportunity for one of my standard harangues pass by: the state of personal finance advice is horrific. Here's a piece from the NY Times this week which under the heading of getting "better at money in 2018" advises readers that cutting out small indulgences can add up and that they should spend more on take-out to be happy. Gosh I wonder which of those pieces of advice is more likely to be taken?  

Via Barbara Magnoni of EA Consultants, a little video about international remittances to hopefully brighten your weekend. It's certainly better than a Star Wars joke.

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