The Schwab Foundation for Social Entrepreneurship

How Big can Small Become? Lessons from Social Entrepreneurs	Wednesday, August 28, 2002

The Earth Times

Pamela Hartigan, Managing Director, Schwab Foundation for Social Entrepreneurship

One of the oft-heard observations about the state of the world today is that the problems we face are so complex and enormous that only strategic, large-scale interventions can stem further deterioration. On the other hand, very few would argue that a "one size fits all" approach is effective. A happy medium is recommended, usually as follows: The empowered and visionaries of the world, living and thinking within governments, multilateral organizations and academic institutions from primarily industrialized countries come up with blueprints, and all the un-empowered in villages and communities of the developing world take up these blueprints and "adapt them" to their own circumstances and idiosyncrasies. This approach has worked well in large public health interventions where a simple vaccine or drug developed in an industrialized country has arrested deadly epidemics such as smallpox and polio. It has worked less well where cultural and social mores mess up a clinical intervention blueprint, as has happened with HIV/AIDS, tuberculosis, malaria and heart disease.

Certainly the work involved in ensuring sustainable development needs massive resources and a decisive, well thought-out framework. But government agencies are seldom the place to stimulate social innovation. Yet they are critical partners in its spread and depth of penetration. Hence, the importance of what I call a "nutcracker" approach to development. Such an approach requires the development and testing of practical solutions at the local level. Those that prove to have impact are disseminated widely so that society can mobilize to ensure that these solutions are incorporated into public policy. But such an approach is the opposite of what now happens. Successful social entrepreneurs have significant impact at the local level, but seldom are able to achieve wider social and environmental transformation. Part of the reason is that these social innovations are almost never incorporated into public policy.

Let's look at what can happen when the practical solutions developed, tested and disseminated by social entrepreneurs are taken up by governments.

Fabio Rosa is an agronomist. In 1983, when he began working in the southern Brazilian state of Rio Grande do Sul, he found that 70% of the rural dwellers in municipalities lacked electricity. The cost to bring electricity to one rural household through the then state- owned electricity company was US$7,000! Because Brazil's electricity distribution systems had been designed under military dictatorships to serve large farms, factories, towns and cities, high transmission costs placed electric service out of the reach of 20 million rural Brazilians, exacerbating poverty and environmental destruction and intensifying rural-to-urban migration. Rosa sought to develop a more cost-effective electricity distribution norm. In order to do so, he had to fight for years for permission and cooperation from the state government, electricity companies, bankers, mayors and equipment manufacturers.

Rosa's technology used just one wire to distribute electricity to rural properties. He further lowered costs by substituting materials, wood for cement poles, steel for copper wire, and steel and zinc conductors for aluminum ones, and using local labor to build the system. The general idea of this technology had been known for many decades, but the major problem was that the design was "illegal" in Brazil as it conflicted with the interests of the utility companies. After many years, Rosa managed to get the state government to waive the electricity regulation for his experiment, which he refined and tested with 420 households in Palmares, a rural community in Rio Grande do Sul. Rosa's project was a stunning success. He was able to provide them with electricity for approximately US$500 per connection, less than 10% of the government's cost. The Palmares Project also taught villagers improved rice farming techniques, made possible by cheap electrical irrigation pumps, boosting farm incomes by 200 to 400 percent and causing many villagers to return to their land from the city.

The success of the Palmares project stimulated the interest of the Brazilian development bank (BNDES), which provided US$2.5 million for low-cost loans to spread the technique to other parts of the state. Three years later, Rosa had provided electricity to 25,000 low income rural households in 42 municipalities. In 1996, the state of Sao Paulo launched a US$240 million project to replicate Rosa's approach, providing electricity to one million people.

How big can small become? Millard and Linda Fuller started Habitat for Humanity in an old chicken barn outside of Americus, Georgia in 1976. That first year, their income was US$70,000. Almost thirty years later, Habitat for Humanity International is a globally recognized organization, the first and largest to have developed a private solution to low-income housing. Throughout the world, the cost of its houses varies from as little as US $1,500 in some developing countries to an average of US $50,000 in the USA. Habitat houses are affordable for low-income families because there is no profit included in the sale price, construction involves extensive volunteer work and sweat equity by the prospective homeowners, and no interest is charged on the mortgage.

Habitat has built more than 130,000 houses in 3,000 communities in 83 countries, providing shelter for more than 650,000 low-income families. Homeowners gain the stability of home ownership for substantially less than the monthly expense of renting a similar property. Mortgage payments are placed in a revolving fund to finance the construction of more houses in the same community. Homeowners are thus empowered to help others and usually benefit from better health standards, safer neighborhoods and energy efficiency cost savings. Habitat's work is carried out at the community level by over 2,000 affiliates in 83 countries. Affiliates are independent, locally run, non-profit organizations that coordinate all aspects of Habitat home building in the area, including fund raising, site selection, partner family selection and support, house construction and mortgage servicing.

Habitat has strong collaborative linkages with governments, and while it does not accept government funds for the construction of the houses, it works hand-in-hand in the area of infrastructure development, road construction for easy access, and utility provision for Habitat homes.

How widely can one social entrepreneur transform traditional practice? There is no example better than that of Muhammad Yunus, Founder of the Grameen Bank. If imitation is a form of flattery, Professor Yunus is the most flattered social entrepreneur on Earth. He single-handedly revolutionized traditional banking and its policies by developing the concept of micro-credit, helping the poor become self-sufficient. By proving that micro-credit can be profitable and lift people out of poverty, Grameen has spawned imitators. There are now more than 7,000 micro-finance organizations worldwide. Professor Yunus sparked this global transformation in Bangladesh in 1976 with a US$26 loan to 42 women. Yunus's Grameen Bank now has over 1,150 branches and has provided loans to 3.5 million . More than 9 out of 10 have repaid their loans.

So when we reflect on the past 10 years since Rio and bemoan the lack of progress, laying the blame on a lack of political will and strategy, insufficient funds, and vested interests, perhaps our strategy for looking for answers is also misguided. Top down doesn't do it and bottom-up falls short of reaching scale. How about a nutcracker approach to policy formation and interventions?

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