November 2011 Archives

What We Buy Matters

It's Sunday after Thanksgiving. Christmas must be tomorrow, or maybe "Black Friday" has become "Black Every Day" based on my email inbox and all the TV commercials I've seen the past few days.

Buying stuff is alive and well.

But something else is in the air, something I'm reminded of as I plow through end-of-course papers written by my students in my course on "Solving Societal Problems Through Innovation and Enterprise." That something else is the spectrum of ways we can vote with our wallets to bend corporate behavior.

I believe that we can shape the evolution of a better society by creating better tests and then amplifying the efforts of companies that pass them ( What follows are sketches, inspired from students, that give illustration. As these ideas continue to percolate, you'll be hearing more from me about nouveau consumerism.

Mia B. alerted me to consumerism for "slactivists." These are people who aren't deeply involved with political or social causes but can be induced to participate when the situation is right.

Carrotmobs (carrot: as in reward, as opposed to a stick) are relatively ordinary consumers who, when given a signal, mob a store that commits to using an agreed-upon percentage of the mob's revenue to make "sustainability" improvements like changing its lighting or buying organic seeds to grow and sell more healthful produce. 9carrots (9: I have no idea) operates similarly by letting shoppers find participating stores, buy lunch or a ladder there, and receive "9carrot receipts," which direct 10% of their purchases to the proprietor's energy upgrades and allow consumers to track these energy improvements.

For consumers, these can be fun experiences, maybe a bit time consuming if lines get long (but, hey couldn't that make them more fun?), and they just buy what they already intended to anyway. Companies learn that a more inclusive way of being tested ("I'll shop at your store more if you're more socially relevant") can help their business.

TOMS Shoes (TOMS: as in "tomorrow," not Thomas) creates a generational dividing line. I've polled friends and family in my age group -- above 30, well above -- and no one (and I've asked at least two people) has heard of TOMS. But as Mary Fritz begain her paper, "It's impossible not to notice that all the cool kinds are wearing TOMS." TOMS combines consumer choice with a business model built at its foundation to create a better society.

TOMS Shoes creates a better world through consumerism by donating one pair of new shoes for every pair that someone buys. This model has placed one million pairs of shoes on the feet of poor children.

Why shoes? When kids go barefoot it shows that they're poor, but it also contributes to their poverty by increasing the odds that they'll contract disease, get injured, or be denied admission to school. Other buy-one-give-one companies are sprouting up, selling everything from eye glasses and clothes to books, food bars, and even services like tutoring.

Whereas 9carrots lets consumers know that, if they need Crest toothpaste, they can purchase it "sustainably" by shopping at a particular store, the buy-one-give-one business model shapes consumer preferences. Consumers view TOMS as "social" shoes and seek them out, creating a strong, "hip" brand.

GoodGuide is a step ahead of TOMS, possibly 140,000 steps. GoodGuide lets consumers choose products based on characteristics covering their entire life cycle (from manufacture to disposal),  helping put in place new and better tests of which products are best.

GoodGuide takes publicly available information and lets consumers conveniently use it to compare various products. Consumers choosing coffee, T-shirts, or even cars can make comparisons based on societal/environmental considerations including their toxicity, greenhouse gas emissions, labor practices, etc. All told, 140,000 products are rated using over 1,000 different indicators. GoodGuide's genius? Making its free information operate in the background on consumers' computers and smart phones while they create shopping lists, order items online, or want to spot compare at the supermarket. Social comparisons become no more burdensome than deciding that 2 for $1.50 is a better price than 1 for $1.

Bigger efforts to promote sustainable purchasing, led by other parties, are under way, too. Those will have to wait for another day.

Still, the best way to vote with your feet may just be to walk the other way. Ask Patagonia.


Thanks, Detroit

I have much to be thankful for -- certainly my family, friends, and the opportunity to do what I love -- but let me single out a city that I'm thankful to see on the rise.  

Forbes recently listed the places where young people are happiest.  By grading cities on economic factors like compensation and benefits as well as non-economic factors like work-life balance, they gave each city a kind of overall "grade point average."  The cities grading out the highest were Redmond, WA (been there), Ft. Lauderdale (done that, a long time ago), and Orlando (been and done more recently -- but with my wife and kids).

But another top-ten city made me smile:  Detroit, at #6.  It's a happier place to live than Chicago, San Francisco, and LA.

Why am I gratified to see Detroit included among the winners?

Teaching at the Ross School of Business, University of Michigan, in Ann Arbor, forty miles away from Detroit, I've seen a parade of talented students come to town, get their education, and take their skills and training elsewhere.  Students are inspired by the "change the world through business" courses I teach, but when it comes to applying what they've learned in the real world, they've preferred jobs in India, Africa, or Latin America.

That appears to be changing.

Entrepreneurial efforts are  harnessing the city's energy.  An organization that I've worked with, Ascension Health, the largest nonprofit healthcare system in the country, has launched Enterprising Health, a business-development organization aimed at identifying, supporting, and launching "bottom-up" enterprises that improve the health and lives of urban dwellers. 

Among the social enterprises being supported: businesses that use games or sports to encourage and educate about health; a fresh food "dollar store"; and an activity that delivers health services to the poor where they naturally congregate, thus encouraging health care among a group that is often excluded from, and suspicious of, traditional health care delivery.

Visionary thinkers like Josh Linkner, Dan Gilbert, Brian Hermelin, and Earvin (Magic) Johnson have a larger scale vision to reclaim, re-define, and re-brand the city. Though not everything they touch turns to gold (Gilbert owns the Cleveland Cavaliers), the new-age venture capital firm they've formed, Detroit Venture Partners, plans to hit a homerun in Detroit (yes, a metaphorical non sequitur -- maybe because I've got half an ear on a soccer game on TV in the other room).

DVP's culture includes its Big 11, with "passion" topping the list:

  • Build something larger than yourself
  • Stay close to your purpose and "why"
  • Rebuild Detroit
  • Drive social change

The energy of change and the opportunity to re-create a city (and create a great life)  have not been lost on students.

In a class I'm teaching to undergrad business students, Base of the Pyramid: Business Innovation for Solving Society's Problems, students work on addressing real, vexing societal problems.  In previous years, the kinds of problems students have clamored to work on have mainly been in the developing world, and this year, too, students are working on problems in settings including Haiti, Liberia, and Honduras.  

But fully half of the students this year chose instead to work on problems affecting Detroit:  health care, education, business and economic development, and food deserts.  (Watch this space as the Impact / Call to Action videos they're creating are completed.)

At the graduate school level, the Revitalization and Business Club at the University of Michigan is planning its second annual conference on using business as a force for positive societal change.  The club recognizes the overlapping desires of graduate students of all stripes -- business, policy, urban planning, and other disciplines -- to explore how innovation and entrepreneurship can create a vibrant, inclusive city.

The jury on Detroit's growth and revitalization is still out.  Richard Florida, the urban scholar and commentator, contends growth will come from increased productivity of the population rather than strategic contraction.  

Economic development today is about literally hundreds and thousands of little things that you do slowly and cumulatively at the neighborhood and community level. Building partnerships involving universities, building clusters, many, many small things that accumulate, that create some economic viability. ... That's what Detroit has to do and [it] all the assets ... It has spectacular universities like Wayne State, it has the Cranbrook Academy, the center of modern design, industrial design, and furniture design. It has two of the greatest research universities on the planet, very close by at Ann Arbor and Lansing, the University of Michigan and Michigan State. And it has a fabulous design/architecture community, creative energy in its low income communities, a tremendous, really resilient African-American community, a phenomenal Arabic community that will do anything to save and pitch in... [and] it has this legacy of musical talent that is just incredible and it continues to propulsively create new musical styles. 

All of those things add up to a kind of creativity and innovation being in Detroit's DNA. But [sustainable growth is] not going to come from a federal bail-out from the auto industry, it's not going to come from a big casino and convention and stadium project, it's going to come from really the small-scale efforts when people are empowered, where neighborhoods are empowered.

And that, it seems to me, is what we are seeing beginning to take hold.

Thanks, Detroit.

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Microfinance, USA: Grameen America

If it's November, then I must be teaching microfinance.

For the last several years, as fall starts giving way to winter, I start to wind down my teaching  about social enterprise and "wind up" my teaching of microfinance.

The past week, my class focused on microfinance in the United States. Microfinance is a considerably more developed activity overseas than here. 

In the US, the FDIC estimates that about $320 billion flows through alternative financial services every year, likely more.  This band of payday lenders, pawnshops, check cashing services and other providers offer financial services helps the poor participate in the financial system, but at far too high a cost.  (Example: pawning may have interests up to 300% APR, payday loans may carry an APR of 400%.) All told, 10 percent of all Americans may be unbanked, and 40 million households may be under-banked.  $8 billion of too-high fees are collected from the poor so that they can conduct their financial lives.  

If there is so much money to be made, shouldn't others -- others with more respectable motives -- be entering the game?  Yes, and they are:  New not-quite-banks like and Wal-Mart are starting to cater to the US poor's financial needs.  And so is Grameen America

I saw the film "To Catch a Dollar" when it played in theaters briefly last spring.  What follows is what I wrote then.  I remain hopeful that Grameen can serve the poor of the United States, just as they do in Bangladesh.


I just returned from watching the film "To Catch a Dollar: Muhammad Yunus Banks on America."  Yunus founded Grameen Bank in Bangladesh, which disburses $1 billion in loans annually to poor women in the developing world, without ever asking for collateral, and achieves a repayment rate of nearly 100%.

Grameen America, launched in 2008, is not a bank but it makes loans ranging in size from $500 to $3,000 to women living in poverty in the United States.  Whereas a bank can take deposits from its customers to lend out to others, Grameen America relies on contributions and long-term loans for its source of funds.

The movie tells the story of several extremely hard-working women in Queens, New York, who need to "catch a dollar."  This is the phrase Yunus uses to explain the plight of the poor who seem trapped in a cycle of poverty.  

Either they can't find a job.  Or their wages, minus their expenses for childcare, carfare, and all the other, unrelenting financial requirements that still accompany a low wage job, are entirely consumed by rent and food -- if they even cover that.  Or they get locked into a permanent cycle of indebtedness:  They get a loan at an incredibly high interest rate, can only afford to pay the monthly interest, and thus their loan balances never drop by even a penny:  a loan shark's dream -- a paying customer for life.

If they could "catch a dollar" -- meaning they could obtain money that they could use in productive ways -- they could use it to build their lives.  This is where Grameen America helps a baker buy a power mixer; a cook obtain financing to open her own restaurant; a hair stylist to buy her own "chair" in a salon so that she is now running her own business (and selling shoes on the side).

Grameen America, like Grameen Bank, turns the idea of lending upside down.  Yunus explains:  The more money you have, the easier it is to get a loan.  Banking should give priority to those who have the least money, or none at all.  Grameen America is reaching out to the 40 million un-(der)banked Americans so they can "catch a dollar" to better their lives.  

When people told Yunus that his ideas about making small loans to the poor in Bangladesh were foolish, he simply shrugged and made them anyway.  When they said that the same ideas that worked in the developing world couldn't work in the United States, he shrugged again.  

Grameen America is founded on the same principles that Grameen Bank used to start Grameen in Bangladesh, the core of which is the "self help group." Five women band together into self-selected groups.  In this group setting, each member applies for a loan (which must be used to start or expand a business), receives money from Grameen America, makes weekly payments on her outstanding balance, and shows receipts and other documentation demonstrating how her business is doing.  

All business plans must be approved by the group, and if any member fails to make her required weekly payment, the whole group suffers because Grameen America will refuse to make any other woman in the group another loan, no matter how successful her business or her repayment history.  This creates powerful social pressure to repay, even in the absence of any kind of collateral. The group also serves as a source of encouragement and helps members support each other's efforts. 

Grameen America insists on the same financial discipline required by Grameen Bank in Bangladesh.  Customers must first take five classes in financial literacy and open a savings account before they receive a loan.  Typically, 2% of the initial loan principle is paid back each week, ensuring a declining balance and repayment of the loan within a year.  Borrowers also pay interest (at an annual rate of 7.5%) and make small savings deposits every week. 

Vidar Jorgensen, President of Grameen America, and Premal Shah, President of, explained in the panel that accompanied the video:  The poor are disadvantaged by the financial system in so many ways.  If they're on welfare, they can't receive a bank loan. And even if that weren't a restriction, they have no credit history and have FICO scores so low that no bank would make them a loan. With slightly higher scores, they may become eligible, but they will receive the worst interest rates the bank offers.  On top of all this, low FICO scores create a serious impediment to renting a place to live and getting a job.  Being poor keeps you poor. 

Which, again, is why Grameen America hopes to let its clients catch a dollar.  By making business loans and providing business support, it increases its clients' incomes.  By insisting on savings and consistent, on-time repayment of loans, it helps clients establish respectable credit histories.  Favorable credit histories can lead to larger loans (possibly by banks), better opportunities to rent, and possibly the opportunity to get a job that one would otherwise have never been considered for.

Grameen America uses a "bottom up" approach that relies on empowering individuals to enable them to lift themselves, and their fellow group members, out of poverty.   It is now hoping that individuals take up the mantle of leadership and support for its efforts.  Tell others what Grameen America is doing.  

Grameen America currently operates in Queens (New York), Brooklyn, Manhattan, Omaha, Indianapolis and, most recently, the Bronx.

To learn more, get involved or contribute, see their website which includes multimedia information.

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How strongly is one set of outcomes connected to another?  

First, consider T. Rowe Price.  

You may be familiar with them from their TV commercials.  Yes, commercials are meant to sell, and persuasiveness outsells accuracy. Still, the firm claims wisdom that borders on omniscience, including understanding the relationships among:

  • Luminous protein in jellyfish, life expectancy in the US, real estate in Hong Kong, and the optics industry in Germany.  
  • Rice production in India, wheat output in the U.S., the shipping industry in Norway, and the rubber industry in South America. 
  • The oil industry in the North Sea, fishing markets in Japan, marine legislation in the U.S., and food consumption in Italy.

Let me be completely accurate and state that their commercials ask, "How can luminous protein in jellyfish  ...", "How can rice production in India  ...", "How can the oil industry in the North Sea" affect the laundry list of seemingly unrelated concerns mentioned in their commercials.  But they sure leave the viewer thinking that they fully understand these connections (and others don't) by answering their own questions:  "We understand the connections of a complex, global economy."  

(Also: jellyfish researchers won a Nobel prize in 2008 and human cells, injected with jellyfish proteins, lighting up like weak lasers and may, some day, provide new medical treatments.)

Next, consider Rick Perry.

Perry, the governor and presidential candidate, seems not to believe in connections at all.  He claims that the growth in jobs in Texas was his doing, and his alone, without any benefit from connection to the federal government, or from regulation.  ("I'll work every day to make Washington, D.C., as inconsequential in your life as I can.")  

Yet, much of Texas' growth has been due to federal stimulus money, growth in the military, NASA, jobs in local government, additional police, and other public sector hiring.  Oh, Texas also had surprisingly tight regulations in the housing industry, preventing both predatory mortgage practices and excessive home equity loans.  Texas thus took a much less of a "hit" than most other states whose less-regulated citizens are more likely to have lost their homes or be on the verge of foreclosure.

So ... is everything connected in ways we can comprehend?  Is nothing?  Or how do we find a reasonable position in between?

The field of complex systems takes a practical position on these questions.  It suggests that we build models, with relatively simple, comprehensible rules, and then see what results they produce.  One of the earliest, and still highly influential models of this sort is Thomas Schelling's model of segregation    (The magazine The Atlantic gives an easy to follow account.)     

Think of Schelling's work this way:  You have a very large checkerboard on which there are some some empty spaces and some coins -- both pennies and silver dollars.  Pennies are "happy" if at least half of their neighbors directly above, below, and to both sides are also pennies.  Silver dollars want to be "happy," too, by having at least half their neighbors be other silver dollars. Unhappy coins can move to squares on the checkerboard that are unoccupied.  

You'd think that pennies or silver dollars that are happy living with 50% of their neighbors of the same denomination as themselves would end up with diverse, integrated neighborhoods.  Yet, the neighborhoods that results are extremely segregated -- pennies living near each other, and the same with silver dollars.  

In fact, even when each type of coin is happy when only a third of its neighbors are of its own kind, the same rules about happiness and moving to new squares again produce highly segregated neighborhoods.  (For the curious, you can try this out. Using this website, adjust the %-similar-wanted (i.e. "happy" percentage), click "setup," click "go," and watch the results unfold).

Effects like these are often called "emergent":  even though individuals follow rules of one sort (in this case, accepting diversity), their interactions produce an effect that "emerges" in aggregate and is quite different (here, segregation).

The same type of emergent phenomena occur in economics.  Another well known set of experiments by Epstein and Axtell shows that income inequality is very hard to avoid.  In these models, coins are replaced by "agents" who have certain traits that make them more or less likely to get wealthy.  Even when every effort is made to make these agents identical, some get extremely wealth, but most become poor.  

The income inequality comes not from agents being: less capable, less hard working, less shrewd, or anything else that might be offered as a rich-poor explanation.  Instead, advantages that arise by chance compound; so do disadvantages.  Together, these effects create highly skewed income distributions, Lorenz curves, and Gini coefficients that are found in every economy in the world today.

We are in the midst of the Occupy movement.  What lessons can be gleaned from the kinds of models I've been sketching:

  1. Markets and trade are beneficial for promoting overall economic progress; yet as they do so, they also increase the inequality between "haves" and "have nots."  
  2. Different local markets can have different prices for the same goods, with the poor often paying the most.
  3. The easier it is for everyone to interact with each other economically on even terms, the better for reducing poverty.  
  4. Volatile investments (and investments are an opportunity almost exclusively for the wealthy) actually worsen the rich-poor divide.
  5. Small, "bottom up" changes in economic policy and activity might produce surprising (and positive) results. 

Need convincing?  Get out your checkerboard.

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