Following up on the “debate” I had with Barbara Magnoni on targeting microfinance at women, a review of research on the topic of women and development has appeared. Via Chris Blattman, I just found this review paper by Esther Duflo that surveys research on how economic development affects the status of women and how the changing status of women affects economic development.

I haven’t had a chance to closely read the paper yet, but any of Esther’s papers are, as they say, self-recommending. Here are a few choice bits:

“This paper reviews the literature on both sides of the empowerment-development nexus, and argues that the interrelationships [between empowerment and development]
are probably too weak to be self-sustaining.“

“The conclusion here is a more balanced, somewhat more pessimistic picture of the potential for women’s empowerment and economic development to mutually reinforce each other than that offered by the more strident voices on either side of the debate.“

For the record, my priors, as I hope are documented in the conversation with Barbara, are:
* If your goal is economic development, focusing on women is likely a sub-optimal strategy.
* Rapid economic development may have a greater impact on women’s empowerment than a strategy focused on economically empowering women.

I’m looking forward to having those priors challenged.

Describing the Bill and Melinda Gates Foundation as the world’s largest foundation is accurate but a substantial understatement. Its annual giving is more than six times larger than its closest “peer.” There are fewer than 100 US foundations that give more than $50 million annually. The Gates Foundation gives $50 million per week.

But it’s not just the amount of giving that distinguishes the foundation. As Ed Skloot puts it, the foundation “differs from the institutional norm in almost every way: in size, ambition, high-level connections, proactivity, long-term commitment, operational engagement, and public leadership.” The Gates Foundation is treading new ground, changing expectations and the policy environment of philanthropy by its very existence.

That’s why I was pleased to be asked to serve as Guest Editor of a special section in the Fall issue of Alliance Magazine, examining the impact of the Gates Foundation. The goal of the issue was not criticizing the foundation but honestly raising questions and issues that inevitably emerge from such a unique entity. You can read my introduction to the section here, where I provide an overview of the various contributions.

The issue has, I hope, moved some important conversations and discussions out into the open. This week I participated in a panel discussion based on the issue hosted by Bill Schambra at the Hudson Institute—you can see a recorded video of the session here. Caroline Preston has a summary here.

As Ed Skoot and Laura Freschi, contributors to the special section and co-panelists, noted there are many reasons to praise the energy and vitality the Gates Foundation has brought to its areas of interest. But there are also concerns. Some of the behaviors of the foundation while undoubtedly intended to accelerate positive change may have the perverse effect of limiting the foundation’s ability to hear and react to feedback.

Beyond the issues around specific programs, there is the larger question of how not only the approach but the very existence of such a large foundation will affect public policy and beliefs about philanthropy and the role of private foundations in society. As I asked toward the end of the session, how should we balance goals of honoring donor intent with huge institutions capable of affecting policy but only accountable to a few individuals?

If you find these questions vital and interesting, I’d invite you to join a webinar on Living with the Gates Foundation, hosted by Stanford Social Innovation Review next week. I’ll be moderating a panel that includes Ed Skloot, Laura Freschi, Megan Tompkins-Stange and Bruce Sievers as we wrestle further with these issues. The session won’t be a series of presentations but a conversation. I’ll be asking the panelists my own questions but also taking questions and comments from the audience right from the beginning. You can find all the details here—I hope you’ll join us. You’ll not only get access to the special issue of Alliance, but a discounted subscription to both Alliance and SSIR.

Barbara Magnoni, President of EA Consultants, an international development consulting firm with a specialty in finance, began a debate in the comments of our interview series with Abhijit Banerjee and Esther Duflo. Our conversation was focused on the issues around investing in microcredit focused on women. I asked Barbara to join me in an asynchronous “debate” that would be a bit more accessible than a conversation in the comments. Herewith is our discussion on the subject. Please weigh in with your own thoughts either in the comments or on your own blog of choice (but be sure to tell us where to find your thoughts via the comments or on Twitter). 

Barbara: I read your interview with Esther and Abhijit with interest. At one point you comment: “On average women entrepreneurs’ businesses don’t grow. But you dig a layer beneath the headlines and you find that a lot of women entrepreneurs don’t want to grow their businesses. They only want to work a few hours a week, that’s all they have time for and they need a lot of flexibility. Women like that are shut out of traditional labor markets so they start their own home-based business.” That caught my attention.

We worked on a study in Latin America on women entrepreneurs and didn’t find this at all. In “A Business to Call her Own”, we spoke to women throughout the region and found that it isn’t that they didn’t want to grow, but that they were severely constrained by the choice of sector they went into, their limited time, limited savings to use to make capital investments, and low skill levels. If you have a business that is ‘hand to mouth’ you want it to grow. Maybe not to become a huge company, but to become sustainable and offer a decent living for your family.

I would be interested in any further substantiation of your views. The issue of women and business is understudied, and is clearly linked to many of the issues posed in your interview.

Tim: I agree that most microentrepreneurs want their businesses to be self-sustaining and to generate cash flow (though their profitability seems to depend entirely on whether you account for the cost of family labor, see Poor Economics and David McKenzie on this). But there doesn’t seem to be much evidence that microentrepreneurs, women or men, aspire to grow their businesses to the scale that would have a societal impact or push a family into the middle class. When they do have access to fresh capital, they don’t seem to invest much of it in their businesses. Surveys tend to indicate that their aspiration is for a job, not to run a growing business.

Certainly this isn’t true for everyone but it is true for many. And if the evidence from developed nations is any guide, then it is more likely that men aspire to build these larger, truly profitable businesses. For the evidence for this claim, see Scott Shane’s book The Illusions of Entrepreneurship, pp 130 to 133, where he cites more than a dozen studies.

One of the explanations that is consistent, as you note, is that women tend to run businesses in industries that have less profit potential. In some cases this is clearly a societal construct around “appropriate” women’s work (see for instance McKenzie’s work in Sri Lanka), but it’s also likely that it has something to do with the choices women make about what industries to be in—in other words they choose low-profit, low-growth businesses because those are the ones that offer the flexibility they need to be able to meet their other commitments.

This is not an argument for restricting women’s access to capital. But it is an argument to think very differently about the value and purpose of microcredit focused on women. I believe it’s a mistake to think of such a product as entrepreneurial growth capital.

Barbara: I am still skeptical of this evidence. I don’t have the book handy, but it seems to be focused on only developed markets. In many of the developing countries that I work, formal sector wages for similar skilled people are lower than those in the informal sector and many SMEs pay their employees under the table, so they aren’t often in the formal sector, although they are employed rather than independent workers.

While I agree with many of your points, I am concerned that the limited recent research is leading to recommendations that promote lending to men’s business for growth rather than betting on women. Perhaps it depends on your goals, but I think that women’s businesses (some, not all) could be equally if not more successful with some capital, and additional support and mentoring. If we give up on that possibility, we give up on trying to reduce the gender gap, and promote the status quo, of men earning money and women in the household with limited financial resources. I believe development experts over 30 years ago agreed that this economic structure was not ideal in providing families with health, food and education they needed.

Of course another approach would be to work to change men’s role in the household so that they take on greater financial and family responsibilities, and thus prioritize those expenses more, but that may just lead to research saying that people shouldn’t provide men with investment capital, because they won’t put it to work.

I think ultimately, we don’t know enough and more research should be done around these questions.

Tim: We certainly agree that there isn’t enough research on this topic. As is all too common in development circles, the prevailing view seems to have swung from one distortion (ignoring women) to another (“we must focus on women and girls”).

In this case, I think that distortion isn’t exactly harmful but it isn’t helping. Here’s my operating hypothesis: as family incomes rise, families invest more in all their children, boys and girls. That investment often yields much higher levels of schooling for girls which in turn increases their opportunities.

If you accept that hypothesis, it makes sense to focus on raising family incomes in the fastest way possible. That in turn suggests that we should be paying attention to what groups generate the highest returns on capital. Given the status quo, that again implies that it makes a lot of sense to provide working capital to male entrepreneurs—and then work with them to encourage them to invest in all of their children.

For me, that’s as plausible a path to both increasing family welfare and addressing gender imbalances as focusing microcredit outreach on women who, until you change societal norms, will likely earn very low returns on capital and raise family incomes less.

I think you also have to take into account sociological research from around the world that men’s behavior in terms of investing in their families is strongly affected by their ability to be productive and be providers—in other words, to live into the existing societal norms. When men do not have opportunities to work and provide, they tend to abandon a role as investors in their families. By excluding them from access to credit in favor of their wives, we are creating a self-fulfilling prophecy about the behavior of the men.

In sum, I support working to address gender imbalances and creating equality of opportunity for men and women. But I think pursuing that goal via a “preferential option for the poor women” (to paraphrase from the liberation theology movement) isn’t the best way of achieving that goal.

Barbara: Your doubts about development practice focusing on women and girls are justified. That is, there is just as little proof that this is a useful strategy as there is that lending money to men will only drive them to drink and gamble it away (another popular and anecdotally common hypothesis).  However, what is extremely real is the discrimination and power inequality of women in many poor households. Family violence, low self-esteem and inaccessibility of land rights are only some of the conditions we run across frequently in women in our work. In your operating hypothesis above, you don’t take into account these issues but look only at financial wellbeing as a sign of development of socio-economic wellbeing. Additionally, you suggest those who currently wield the greatest power in the family should continue to do so, by supporting their earning potential over that of others in the family. I suggest that this is flawed from a humanistic perspective. I believe that we should strive to ensure that women and men have freedom, opportunity and choice. These are critical aspects of a developed society.

A final point about your hypothesis. It assumes that in general, men will prioritize the welfare of their families, and thus their wellbeing will trickle down to that of girls. I think like most trickle-down theory, there is some truth to this, but the practical reality is that it is all too slow and that it often leads to more inequality. I have some suggestive evidence that men don’t re-invest as much of their business profits as women into the family.  Without parallel efforts to encourage such investment by men, the “return on capital” for men’s businesses may be quite high in terms of the “math”, but low in terms if you look at the return to the welfare of the family. In the paper I note above, we interviewed male and female merchants in Nicaragua and found that men more often save to reduce their cost of capital while women more often save to plug up gaps in the family economy, pay for schooling, and make up for economic downturns. In the same study, we notice that men’s savings balances went up during economic crises, while women’s fell.  In sum, doing the math is useful, but probably not sufficient when thinking about who to support and how.

Tim: There are important questions that remain to be answered on family dynamics (and they may have very different answers based on a variety of cultural, geographic and economic contexts). Your point about women spending relatively more of their income on the family is true as far as I know but I think fails to take into account the dynamics of family dynamics. As I discussed with Esther in the interview, she and Chris Udry have found suggestive evidence that this disparity is a cultural construct. In other words, women spend more on families because caring for families is “women’s work.” As women gain disposable income from growing businesses their spending may end up looking more like that of their husbands. In other words, changing the cultural constructs that limit women’s opportunities may very well erode the basis for the difference in spending patters of men and women.

In terms of the research in Nicaragua, I find it very plausible—but it also underlies the basic point about how to think about investing in women via microcredit. The behavior of men you describe is consistent with what we would expect of entrepreneurs who were focused on growing their businesses and generating increased profits. The behavior of the women is not. Thus, thinking about microcredit focused on women as entrepreneurial capital—e.g. capital designed to foment growing, profitable businesses—may be in part contradictory. So if the goal is increasing the welfare of women and girls, why not look instead to direct cash transfers rather than requiring these women to start businesses with all the attendant demands that takes?

That’s were I return to my basic suspicion that microcredit dressed up as encouraging microenterprise for women is a poor way of achieving the stated goals whether those goals are benefiting women and girls or those goals are creating growing, profitable businesses.

Barbara: Ouch! So women and children at home getting handouts, huh? Well, that may get them better fed, but will it help women achieve more freedom? I look forward to hearing what others say.

Abhijit Banerjee and Esther Duflo certainly don’t lack for attention. Their papers are among the most cited in development economics over the last decade and last year Duflo won the John Bates Clark Medal as the best economist under 40. But their fame extends beyond the reach of the Economic Ivory Tower. Duflo has won a MacArthur “genius” grant, been profiled in The New Yorker, spoken at TED and recently gave a keynote at the Center for Effective Philanthropy’s conference. Banerjee is a regular staple in many national Indian newspapers.

If I had to summarize their work into a short phrase, it would be “radically small thinking.“ As I wrote in my review of their new book Poor Economics for the forthcoming Fall issue of SSIR: “One reading of Poor Economics is as the most thorough indictment of big thinking in social policy since Jane Jacobs’ The Death and Life of Great American Cities. That’s why the book is vital reading for everyone serious about confronting poverty. You may not agree with the conclusions, but the poor will be poorer if you don’t wrestle with the logic that informs them.“

Banerjee and Duflo’s work is bad news for cynics and optimists. It’s bad news for cynics because they’ve provided solid evidence, again and again, that small tweaks can bring about changes that materially improve the lives of the poor. In other words, they’ve shown that change is possible and aid, philanthropy and government policy can make a positive difference. Their work is bad news for optimists because it also shows, again and again, that the best of intentions often go awry, big efforts to change the world or “fix” or “solve” a problem faced by the poor don’t work very well, and that big changes take a long time.

Poor Economics has been receiving stellar reviews (you can see ours here) and exposing an even wider audience to Banerjee’s and Duflo’s way of thinking about poverty, development, economics and how to make the world a better place. Still, it seems, that plenty of readers miss some fundamental pieces of their thinking. See for instance my recent back and forth with Eric Meade on the Stanford Social Innovation Review blog (including Eric’s original post, my response and the comments that follow).

Whenever I read one of their papers or talk with them I walk away with the exhilaration that only comes from (as the economist’s would say) changing my priors—in other words, I learn something and look at the world in a new way. That’s why I was so excited to spend more than an hour talking with them this spring after Poor Economics came out. We’re publishing a transcript of that extended interview in parts because it runs to over 6000 words in its entirety. We hope to publish the complete interview as a Kindle Single shortly. 

Over the course of the interview we discuss microcredit, microenterprise funding and growth, labor markets in developing and developed countries, the evidence for focusing on women and girls with aid programs, the debate over RCTs and how they think about their own impact on changing the world.

Here is Part 1.

Here is Part 2.

Here is Part 3.

Here is Part 4.

Compassionate types may be feeling a bit sorry for Greg Mortenson this week. The author of Three Cups of Tea has been accused of fabricating details of his bestselling account of building schools for girls in Pakistan. He has thus joined the ranks of more than a few nonfiction authors who’ve leaned on the nonfactual, from the revered journalist Ryszard Kapuściński, to the former addict James Frey. In some ways we, the readers, are to blame. We cannot demand fiction-like entertainment from the nonfiction books we read and then act surprised when the writers feel like they have to fudge.

Mortenson is in a particularly tight spot for having to fulfill expectations for both nonfiction and for international development. Since its inception, development has thrived on Big Ideas, those major actions or programs that, in theory, will bring wholesale change for people living in poverty. Poor countries lack infrastructure, so let’s build a national network of roads. The poor need education, so let’s build schoolhouses.

Billions have been spent on such large-scale projects, but quite often, when their creators go back, they do not see major changes in income from market access, or major improvements in education levels for having that building (regardless of who built it). That is because Big Ideas often fail to account for the small changes in behavior necessary from the human beings that live near the roads or the schools. The roads are useless if they do not lead to buyers and the schoolhouses are not much good if the teacher never shows up. But would Three Cups of Tea and the Central Asia Institute Greg Mortenson runs have inspired so many devoted readers, and donors, if they had imagined their money would be used on an idea as small as getting teachers to show up (an act that most westerners take for granted—it’s their job, after all) rather than on one as large, solid and tangible as building a school?

Two new books from the world of development economics offer solid arguments for why all of us should care more about the small things than the big things: More Than Good Intentions, by Yale economist Dean Karlan and his co-writer Jacob Appel, and Poor Economics by MIT economists Abhijit Banerjee and Esther Duflo. (to read complete reviews of the books, click here for MTGI and here for PE).

Karlan, Banerjee and Duflo are members of a new cohort of development economists working at the intersection of behavioral psychology and economics. Their work shares a deep interest in how real people behave in real situations. There is a lot of attention right now on this mode of thinking, and as a result, all three are famous, insofar as economists can be, for pioneering the use of randomized control trials (RCTs), the classic tool of medical research, to test whether social programs implemented in the real world bring real benefits. Both books are rich with descriptions of RCTs that have taken place in many of the world’s poorest countries, and most of the same studies are highlighted in both, drawn respectively from Banerjee and Duflo’s work with the Latif Jameel Poverty Action Lab at MIT (J-PAL), which they co-founded, and from Karlan’s work at Innovations for Poverty Action (IPA), which runs RCTs in the field on behalf of researchers, including some JPAL affiliates. [FD: IPA is a client of Sona Partners, the sponsor of Philanthropy Action.]

The mutual focus on behavioral economics and the use of RCTs gives these books rigor, a significant amount of subject matter overlap, and a shared interest in the role that people play in development success. Despite these similarities, these are very different books; More Than Good Intentions is to Poor Economics much as Predictably Irrational is to Nudge. The books are trucking in the same material, but they are writing to very different audiences and they come to some distinct conclusions. Just as Predictably Irrational introduced the general reader to behavioral psychology and the illogical decisions that individuals make on a daily basis, More Than Good Intentions is for a layman reader largely unfamiliar with the use of RCTs (and only a passing knowledge of economics in general), the specific development questions they address and the studies they profile. The generalist tone and technique of More Than Good Intentions reflect Karlan’s ultimate goal of informing and influencing where the generalist’s individual donations of $10, $100, $1000 in giving go every year.

Poor Economics, in contrast, is more like the Nudge of development economics, well written and highly readable with a much greater focus on policy issues. As such it’s natural audience is institutional actors, those policy makers, practitioners and program officers who determine what is done when, where and how.

For detailed reviews of each book, see:
More Than Good Intentions
Poor Economics

This piece was originally published on the SSIR blog.

This is spring conference season in philanthropy, filled with such events as Skoll World Forum, the Council on Foundations annual conference, and the Global Philanthropy Forum (streaming live). At all of these conferences, there will be an invocation to dream big, to think big, to set audacious goals, and to reach for the stars—to believe in the power of social entrepreneurs, or foundations, or grassroots communities, or individuals to change the world.

Grand plans and expansive visions will be the order of the day.

I think we’d get a lot more value from these conferences if they encouraged people to think small.

Recently I’ve been reading bits and pieces of Jane Jacobs’ classic, The Death and Life of Great American Cities, and I stumbled across this: “The trouble with paternalists is that they want to make impossibly profound changes, and they choose impossibly superficial means for doing so.” I had a moment of depression thinking of how apropos that sentence is today—especially during conference season—even though it was written almost 40 years ago.

And it is apropos. A similar thought was powerfully expressed by Kathryn Schulz, Group Think about the spate of “Big Idea” books that have come to dominate the nonfiction shelves: “Solutions are not one size fits all; they are in fact, maddeningly bespoke. That’s because neither problems nor people are fungible.”

The problem with big dreams and big visions and “changing the world” is that it almost necessarily involves assuming that problems and people are fungible, and invoking impossibly superficial means to address these oversimplified problems.

This isn’t a cynical argument that change is impossible (it’s another way of advocating for Patient Optimists) and we should throw up our hands. It’s an argument that big changes don’t come from thinking big, but from thinking small. That by the way is one of the core themes of Abhijit Banerjee’s and Esther Duflo’s new book

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