In the last two Finance Friday posts, we discussed debt and equity, the two most common types of financing available to start-ups. Last Friday, we did not post anything (sorry!), as we were very busy running the first of six workshops in the Village Capital Nairobi Programme at the GrowthHub! But now we are back to continue our discussion about specific types of financing, today talking about grants and hybrid securities. Next time, we will move on to discuss even less common, but more creative, alternatives for financing.
It may have occurred to some entrepreneurs that we have not yet addressed what might at first seem to be the most appealing source of funding available: grants (money that never has to be paid back). Grants are sometimes available from governments and foundations if your business is providing a service that helps achieve certain goals. Most businesses, however, should probably not hold out too much hope for such funding. First, compared to the amount of money available as debt or equity, grants are relatively rare, and they are seldom suitable for the large-scale funding that will become needed if your start-up grows quickly. Second, grants are generally not a sustainable funding source, as priorities of grant-makers shift, and grant funds may even dry up entirely during difficult economic times. Finally, grants often do not provide the right incentive for a business to really be competitive and get to scale. While this is beginning to change, many grantmakers require little accountability – as long as you spend your money along certain guidelines, there are often few checks to ensure you are making effective and efficient decisions. (There are exceptions, such as the Tandaa grant in Kenya, which over the years has been increasing its accountability requirements.) Other forms of funding encourage you to make good decisions by requiring a return on the investment, with significant repercussions if you fail to deliver. To top it off, investors who see businesses consistently applying for grants may hesitate to become involved, as this practice may signal a lack of seriousness and focus in building your business. Thus, you should consider the downsides carefully before making a habit of relying on grants to finance your business in the long-term.
There are a number of vehicles that combine debt and equity, such as convertible notes/bonds, which begin as debt and convert to equity after a certain time period or based on pre-specified criteria. (Bonds are essentially a type of loan, but whereas loans are not easily traded, bonds are highly tradable.) Such vehicles are normally used for start-ups whose value is not easily calculated. For instance, in GrowthAfrica’s case, investment in companies in the Village Capital programme uses a convertible note, beginning as a loan, which, if not paid off after a certain period, automatically converts into equity. However, in this case, as in most, the automatic conversion is a last resort. The two better outcomes, from the investor’s point of view, are that 1) the entrepreneur simply pays back the loan or 2) the outstanding balance of the loan is converted into equity when another investor offers financing. To understand this second case, an example is useful (explanation below):
In this example, the 1st round investor has invested $100,000 in Company X using a convertible note. The interest rate is 18% per year and the note is convertible to a 15% equity stake after 24 months if the loan is not repaid and no other investors materialize. If another investor comes along, though, the first investor’s remaining investment converts into equity at a 25% discount to whatever price the new investor is paying.
Fortunately for Company X, 16 months later, another investor provides a second round of financing. This investor ends up infusing $500,000 in capital for a 10% stake. Because the company has 100,000 shares in total, that means the investor is paying $50/share for 10,000 shares. Company X has only been paying the interest on the convertible note, so the principal for the first investor is still $100,000. Thus, due to the arrangements of the note, the 1st investor now converts the remaining $100,000 principal into equity at a 25% discount to the price paid by the 2nd round investor. That is, instead of paying $50/share, the 1st round investor only pays $37.50/share, purchasing 2,667 shares and now owning roughly 3% of Company X.
This is just one example, but the specifics of convertible notes are completely up to the investor and, to some extent, the entrepreneur, and vary widely. So as an entrepreneur, the parameters you need to consider if you use a convertible note are primarily: the interest rate on the loan, the repayment period, the discount given to the investor when converting to equity (assuming a 2nd round of financing), and the conversion rate to equity if you do not repay the loan or cannot secure more financing. There are also other types of hybrid securities, but they generally share the feature that they initially pay a dividend or a set interest rate and then provide the option to convert into equity at a later date.
What other hybrid securities have you come across in your journey to find financing? Have you encountered convertible notes with very different terms than the ones in this example?
Check back next Friday for our final post on types of financing, covering topics like revenue and profit sharing, supplier credits, and more!
Filed under: Business Tagged: convertible note, debt and equity, entrepreneurship, financing, grants, hybrid securities
Building on the post on debt from last week’s Finance Friday series, today we will consider another common means for financing a start-up – equity. At the end of this post there is a table showing the pros and cons of debt and equity. Next Friday, we will discuss some of the less common, more creative avenues for financing a business.
For equity financing, a business cedes partial ownership in exchange for capital. The benefits of this type of capital are several. First, you don’t necessarily need collateral or cash flow to obtain this kind of financing. The risks are also much lower for the entrepreneur – if the company fails, the investor is out of the money, not you personally. Equity financing often comes from venture capitalists or angel investors, and these types of investors usually bring relevant expertise and advice to your company as well. In fact, this expertise and partnership is one of the biggest advantages of equity financing. Since investors are betting on a bigger payoff from your company down the road, they have a significant interest in investing in you as an individual, making sure you have the knowledge needed to make your business work. The investors often will be able to leverage their skills and networks and funnel them toward your business, strengthening areas where you are weak and providing very valuable insights you may not have considered.
The main disadvantage of equity funding is that you are relinquishing some control in your company. You are no longer just accountable to yourself, and equity investors often want more reporting and monitoring to ensure you are staying on track. While this is a downside, it can also have the benefit of keeping you focused, forcing you to make sure you are taking prudent steps forward. Some entrepreneurs may find the idea of giving up a share of their company very unpalatable, but if you find a strong investor you can work well with, the payoff for your company can be huge, especially at an early stage.
Investors want to know how their money will be returned; that is, they want to eventually “exit” the investment, hopefully with a sizable return. For debt, the investor’s exit is built into the instrument – there are defined terms for repayment with interest, which, if broken, lead to specific mechanisms for recovering as much of the investment as possible. The equity exit is not as clearly defined, and many entrepreneurs neglect to consider it at first. Entrepreneurs are often understandably attached to their businesses, and may want to continue managing them indefinitely. But it is important to realize that equity investors do want their capital returned at some point.
Thus, it is important to consider possible exit strategies for your equity investors, and there are two main routes to follow. The Initial Public Offering (IPO) is easily the most glamorous, and in the West an IPO is the dream of many start-ups. In an IPO, a company offers a portion of its shares to the public, to be traded on a recognized exchange. But IPOs are relatively rare, even in the West, as companies must be quite large before an IPO is possible. In Africa, they are even less common.
The more common exit is through either a merger or an acquisition. Perhaps your company builds mobile applications to help businesses manage their affairs. After developing your products and proving demand and profitability, a larger firm, such as Google or Safaricom might find your business attractive as an easy way to expand its services. Global companies who want to enter African markets may also be interested in acquiring a local company that is already established in Africa.
A new African exit strategy?
Exit strategies are largely defined by what has already been done in the US and Europe. But might there be more appropriate strategies for the African context? For instance, in the US, an investor providing a second round of funding is often unwilling to buy out the seed-stage investor’s share of equity, instead plowing all of its capital into the company in hopes of a large return down the road in an IPO or acquisition. But waiting for an IPO or acquisition in Africa might take many years, discouraging initial seed-stage investment.
At GrowthAfrica, we have been thinking about alternatives. What if we were able to set up an ecosystem of investors at different levels who were willing to return the initial capital of the previous investors?
For instance, a seed-stage investor puts $50,000 into a company, and a year later, the company is ready for larger financing. Then a venture capital firm puts $250,000 into the company, paying back the $50,000 to the seed-stage investor (though the first investor will still retain equity in the company, as the investment will have grown in value). That way, the seed-stage investor is more willing to invest in the first place, knowing that if the company is growing, the investor will not have to wait 8 or 10 years before seeing any returning capital. The same process could be repeated at each level of financing all the way to an acquisition or the rare IPO, improving financing for enterprises at all levels and reducing risk for investors.
What other solutions have you thought of to deal with the limited number of exit opportunities?
In summary, depending on the financial status of your business and your needs, equity may be more appropriate than debt. The table below summarizes the key differences between debt and equity. Having a firm understanding of their pros and cons will help you make better decisions as you seek funding. Check in next week for more creative (or less common) ideas for financing!
|Loans paid back with interest over a specific time frame
|Money given in exchange for ownership in the company
|- No authority relinquished- Clearly defined expectations- Easy to renew once early loans are paid off; good long-term source of incremental funding
|- No financial risk to entrepreneur- No need for collateral- More flexibility on cash generation
- Gain access to investor’s expertise and network
|- Often requires physical assets for collateral- Need cash flow to ensure lender you will pay back on time
|- Must give up a share of the company and with it, some control- More burdensome monitoring and reporting
At what stage in development?
|Generally most appropriate once your company has begun to generate regular revenue and has some physical assets. Very appropriate for continuing operations as your company grows.
|Often most appropriate at very early stages when the company is still getting to market and has not generated much revenue or acquired many assets. Becomes a good source of revenue much later at the IPO stage as well.
Filed under: Business Tagged: entrepreneurship, equity, exit strategies, financing, IPO, mergers and acquisitions
Every entrepreneur needs money to get an idea off the ground, but securing funding can be time-consuming and stressful. Adding to the stress of finding a willing investor is the fact that many entrepreneurs are not very familiar with finance. The jargon can be confusing and the pros and cons of various types of financing may not be clear. To help you make sense of the options, we are starting a series of weekly “Finance Friday” blog posts to address important aspects of finance for entrepreneurs. In this first post, we will discuss the most common type of financing—debt—and the pros and cons associated with it. Next time we will take a look at equity.
In all of these posts, we would love to hear your thoughts and questions, so please contribute to the discussion!
Informal and Small-scale Debt
For many entrepreneurs, the first sources of funding that come to mind may be family and friends. This close network can be very supportive of early-stage business ideas – they all want you to succeed, and you may be able to secure some small loans from them. The advantages of this are obvious – approaching them is comfortable, they will probably not be overly demanding, and they already know you, so the process for securing the money is minimal.
But such informal sources of debt also have their problems. Expectations for repayment are often not made clear, the amount of money available is normally minimal, and if the business does not work out, failure to repay can have serious consequences for important relationships.
Even if such informal debt works at an early stage, it is often not enough to get a business very far. Scaling a business only using such financing is out of the question. The same is true of microfinance. While microfinance can be an excellent source of funding at the very start of a business, microfinance institutions seldom provide enough capital to expand and grow your business significantly, and the group-lending model (essentially a form of social collateral) that dominates microfinance is not as appropriate for larger-scale investment.
Once family, friends, and microfinance have been exhausted as sources of capital, banks are generally the next common source for larger loans, but loans can also be provided by private investors, governments, or other corporations. At this level of financing, the main benefit of debt is that you don’t have to give up an ownership stake in your company to receive funding (as we will cover next time with equity). Just pay back the loan with interest and you are done. Depending on the cash flow you will be generating, you may be able to obtain a loan with an initial grace period, which would allow you to delay payments until you are generating more revenue (but grace period longer than 12 months are rare).
The main disadvantage of debt financing is that collateral is often required. Lenders want to know that if you can’t pay back your loan, you have some assets they can possess and sell to reduce their loss. This fact means that debt is often not an appropriate way for some young companies to fund themselves. Especially for companies in IT or mobile/web application development, which may not have any significant physical assets to speak of, loans will be harder to secure (unless you take the risk of using your home or vehicle as collateral). After all, a bank cannot take your coding and sell it like they could take a car, a piece of land, or a building. Debt will also be harder to secure if you are not generating revenue already. Lenders want to know that your product will actually sell so that you have money to pay back the loan.
So if your company is too big for loans from family and friends and too small to secure a larger loan from a bank, the next source of funding, equity, may be more appropriate for you. We will discuss that topic next week.
Until then, hopefully we can discuss debt a bit more. What challenges have you faced in trying to secure loans from family, friends, banks, or other sources? Have you come across any solutions that have made the process easier or more effective?
What is your experience – and thoughts on how you have or wish to finance your start-up?
Filed under: Business Tagged: debt, entrepreneurship, finance, Financing a business, Growth Africa, GrowthHub, loans, microfinance
Nairobi is heralded as having some of the worst traffic in the world. But I lived most of my life in Atlanta, last year ranked 13th worst commute in the US by CBS News, and now I call the Washington, DC area my home, ranked the absolute worst US commute by the same report. So I was a bit skeptical that Nairobi could really be so bad. But I think IBM got it right in their Commuter Pain Index. Measuring the merits (or demerits) of a commute involves more than just the length of time it takes to get to your location. This survey measures commuting time, time stuck in traffic, how often driving causes anger, and seven other metrics to assess the pain of commuting, and Nairobi ranks as the 4th most painful on the survey of 20 major world cities.
I live and work a few kilometers west of downtown Nairobi, so I don’t deal with the traffic of the biggest roads daily (though I have experienced the larger roads at rush hour – not fun). But that is perhaps part of the problem. My route, which follows roads color-coded by Google Maps as “major,” takes place entirely on two-lane roads. They simply cannot handle the volume of cars that want to use them every day.
So what about walking? It’s about a 30-40 minute walk to work, and with the wait for a matatu and the stop-and-go traffic, the commute time via bus is similar. All in all, walking is probably more pleasant, but there are different problems when walking. Sidewalks only exist in a few places, so you are inevitably very close to traffic, though it is often slow-moving. The bigger issue is the air. Right now, during the dry season, the air near the road is thick with dust and smoke. Matatus are mostly ancient, and the exhaust they pour forth is dark and noxious. The volume of cars also stirs up quite a lot of dust. Together they create an airborne concoction that the lungs simply adore.
My experience with traffic in Nairobi highlights an important issue. Looking at the IBM index, it is clear that developing countries have much more painful commutes than developed countries. Before coming to Nairobi, I didn’t adequately appreciate the quality of the commute in the US, even when the commute is lengthy. I could sit in a climate-controlled car, listen to the news, not have to deal with excessive uncertainty about what other cars would do (like suddenly switch which side of the road they were using), and be fairly sure I wouldn’t suddenly find myself in a cloud of dust and smoke, largely prevented by environmental regulations and high quality roads. This last point I think is significant. In the US, it is easy to ignore the impact that environmental regulations (e.g., emissions standards) can have on everyday life. But once you find yourself tromping along a road packed with old vehicles, pollution clearly swirling around you, it is easier to recognize the importance of such regulations.
The debate about the environment between developed and developing nations often revolves around what is just – the developed world had their chance to pollute extensively while they developed; thus, developing countries should also have their chance to pollute and develop. But environmental damage has significant direct costs, depleting capacity for future or even current growth, and many of the same factors that harm the environment also have deleterious health effects. For instance, the World Health Organization estimates that indoor air pollution from wood-burning stoves in poor countries contributes to the premature deaths of 2 million people per year. The WHO also estimates that outdoor air pollution causes about 1.3 million deaths per year, predominantly in middle-income nations.
While some of the largest developing countries (like China) have been loath to sacrifice GDP growth for environmental protection, some of the most ardent advocates for prudent environmental policy are also developing nations. The developing world will be affected by rising sea levels much more than the developed world, both because so much of their population lives in vulnerable, coastal or island areas, and because developing nations have fewer resources with which to stave off the effects of climate change. Thus, in some cases, the developing world is racing ahead of developed countries in attempts to adequately address the very real costs of environmental damage.
Even here in Nairobi we can see that change is coming. Nairobi recently announced it was planning to make itself a “smart city” through heavy investment in technology to improve the efficiency of everything from traffic flows to water pipes to electricity. While these changes are focused on promoting business competitiveness, they will also likely reduce congestion and the smog that accompanies it, along with other environmental costs from inefficient electricity production. I may not be here to witness the transformation, but I’m very glad that change is on the way.
Economists have always said that nothing is free; our use of the environment is no exception. In the US, many have ignored this reality because the most apparent ills caused by environmental degradation have been banished to memory. Environmental problems are somewhere else, far away and out of mind. But in the developing world, the costs are very obvious and directly affect the daily lives of millions. The US needs to finally realize this and get on board. It may take some time, due to fortuitous geography, but eventually, the costs that are clear to see elsewhere will also catch up with the US as well.
Filed under: International Affairs, Politics and Current Events Tagged: climate change, environment, environmental regulations, global warming, IBM Commuter Pain Index, Nairobi, pollution, smog, Traffic
A matatu pulls up to the stop. A man dangling from the open door peers into the faces of the waiting travelers, looking for customers.
“Yaya?” I enquire, the minibus still moving.
“Yaya.” The dangling man steps off the bus as two or three passengers disembark. I climb in, squeezing my way among the 15 people packed into the bus originally meant for probably 6-8. Before I have the chance to sit, the dangling man raps on the roof of the bus, still hanging out the door and the driver abruptly reels us into traffic. Eventually I manage to sit down, after having bashed three or four people with my backpack.
From my new position in the back of the bus, I survey the scene. I’m glad I got in first, because the person right after me sat on the seat in the doorway. As soon as we lurch into traffic, the dangling man slams the door shut and basically pushes the last passenger off her seat in the door, leaving half of her to hover in the narrow aisle.
The bus itself might be crumbling, but the sound system looks brand new – Pioneer surround sound – and music blasts, rattling some of the loose bits of the vehicle. I have to keep my head down to prevent it slamming into the ceiling when we hit bumps. And whenever the traffic is moving too slowly for the taste of the driver, he will suddenly pull into the lane with oncoming traffic, trying to skip ahead of as many cars as he can. Often this leads to oncoming traffic simply stopping, as they are completely blocked. Other times, the road manages to fit three lanes, flexing itself for the needs of our driver.
By the time we reach my destination – the Yaya Centre, a shopping center across the street from where I work – I am getting used to the setting. But getting in and out is the worst part of the journey. I undoubtedly break all sorts of cultural rules on both occasions, and I am glad if I can complete the journey without ripping my clothes. But I do manage to get out, and I wonder how the next journey will be.
Having now been in Nairobi for a few weeks, I am getting more used to matatu travel. But it is certainly always an adventure. Just the other day I failed to meet my primary objective – a journey without ripping clothes. It had been a fairly good journey at first – I’m fairly certain I only roughed up one person when entering the bus. But as I exited, I felt my shirt suddenly catch on something. The subsequent ripping sound confirmed my fear. It was one of my favorite shirts (alas!), but the tear was fortuitously small and discretely placed, so I think it can be salvaged.
Aside from the experience getting in and out of a matatu, this mode of transportation offers two other exciting components. While a few matatus are clean and unadorned, the vast majority bear some sort of banner written across the windshield or back window (see first picture above for example – “Glory to God”). Many are of a religious nature – “Jehovah,” “Jesus is my hero,” “Annoited [sic]”, and my personal favorite, “Biblical Avisory [sic] – Jesus saves.” Suffice it to say that public religious expression seems to be common here, much more so than in the US.
But many other banners are decidedly not religious, “Limousine Exotica” and “Bend Over” being two I have seen. Others do not seem to have a particular message, other than perhaps the preference of the driver – “Infinity,” “Las Vegas,” and “Weezy F,” for example.
The final excitement comes from payment. Native Kenyans have no problem with this, but as a mzungu (white person, or literally “aimless wanderer”), I stick out as an obvious target for exploitation, understandably. Within the first day, thanks to my friend here, I learned what I ought to pay for a ride to work – 30 Kenyan shillings, about $0.35. There are a few exceptions: the larger (and nicer) buses charge about double, weekends are normally cheaper, and so on.
Normally there is no problem. The operator taps you on the shoulder after you’ve been in the bus for a minute, and you hand him 30 KSH. But the other day I did not have exact change, so I gave a 50 KSH note instead. Usually the man will hand back the change promptly. But this time, he didn’t. So after both of the people sitting next to me had paid their 30 KSH, I started bugging the man to give me my change. But he was having none of it:
“It’s 50 shillings.”
“No it’s not – I know it’s 30, and both of these guys just paid 30.”
He laughs a winning laugh and flashes a smile. “Ha ha ha – no my friend, the charge is 50.”
“Dude, I saw them pay 30!”
“My friend, these are our people.”
Frankly, I was shocked that he had admitted he was overcharging me because I was a foreigner. Usually if you know the price, no one will give you any trouble, though of course they will try at first to overcharge (as they do for locals as well). I hassled the man some more but he simply wouldn’t budge. Eventually I got off and warned him I’d never take his matatu again, not that I even remember what he looked like now (as I’m sure he knew would happen).
Bargaining is part of life here, and I clearly lost that round, though that is the only time I know I was overcharged. I guess the story is worth the quarter it cost me anyway.
Needless to say, matatus are an adventure every time. I’m sure I’ll have more matatu stories for later posts.
Filed under: Life and Culture, Travel Tagged: driving, Kenya, matatu, Nairobi, transportation
I approach, nervously smiling, and offer my hand. “Hi, I’m Jonathan.”
“I’m Lamar.” He shakes my hand.
“So, Lamar, what do you do?”
“I’m a property developer. You?”
“I’m a student – international affairs, development especially.”
“That’s nice.” I sense an utter lack of interest. Or maybe I am the uninterested one.
Another awkward pause.
“Well it was nice meeting you Lamar.” He nods; we part ways.
This meeting never actually occurred, which is too bad, because I’ve always wanted to meet someone named Lamar. But the scene is a familiar one for me. I can be a distinctly crazy person – those of you who knew me in high school or outside of class in college can testify – but when I am presented with a room full of people I don’t know, I generally recede into myself or, preferably, man the table with the crackers and fruit punch, intermittently making trips to the bathroom to make it look like I’m actually doing something.
It doesn’t help that I’m not terribly into sports (beyond UGA football); among men at least, sports commonly prepare the discussion for more serious topics. And many of my other significant interests are also becoming decreasingly common – classical music, literature, cooking – worsening the situation.
But these practical issues are not the biggest reason I have tended to dislike networking. More than anything else, I don’t like networking because it makes me feel like I’m using other people, and that I am being used in turn. Building a friendship is about enjoying another person, about sharing some sort of common ground that binds you together, genuinely caring about the other person. But networking is generally about self-benefit, getting in touch with people who can offer you something, in terms of connections or opportunities.
This perception of networking especially bothered me when I was in the business world. Networking in that context is, obviously, always tied to money. You needed to meet the right people to expand your client list or to improve your career options – both of which will lead to more money for yourself. So networking was tied in my mind to greed. Of course I wanted to make more money – who doesn’t want to? – but specifically using other people to pursue that goal didn’t seem right to me.
Through the years I have had discussions about this with many people, and generally I am told that, when networking, everyone is in the same boat. Everyone knows that the other people are looking for opportunities, just like you, so it isn’t bad – you are all creating a space for mutual benefit. I understand this argument, and I don’t have a particular response to it, but it never changed the way I felt.
Some of the new members of my local network!
But this summer it all changed.
I am new to the world of social enterprise, but I am very excited about its potential. And along with all of its potential, it has also solved my networking dilemma. I arrived in Nairobi just as the recruiting of entrepreneurs for our program was reaching a fever pitch. (For a description of the program, see my last post.) Recruiting involved a lot of cold-calling people I didn’t know and reaching out to people in alumni networks, random contacts I had through friends, and the like. And in all of these cases, I was asking people to do me a favor – namely, to let me know of any entrepreneurs who might be interested in our program. Even though this was in some ways even more blatant “using” of other people compared to networking at an event, I had no guilt.
Because this time I was networking for a cause.
I was no longer networking just to improve my own career, although that might be a pleasant side benefit, or even to help the business I was working for, although that would be a direct result. I was networking to improve the lives of the poor, a cause I think is well worth fighting for. Our program aims to kick-start social enterprises that address issues of poverty, health, education, environmental sustainability, and other important causes. But to find such enterprises, we have to take advantage of our networks and build onto them. Networking is tied up with the job and its goals.
My experience with networking is actually very similar to my experience with careers in general. I left my previous career, despite its potential for provision and comfort, because I was passionate about improving the world more directly, especially the lives of the poor. Once I became involved in something I was more passionate about, networking wasn’t an issue, because it contributed to my larger aspiration of helping the poor.
This discussion is clearly not a philosophically rigorous view of the morality of networking, but it makes sense to me. In many careers, networking is simply part of the job, so finding a job that you are passionate about may be the most important catalyst to making networking more comfortable.
Filed under: International Affairs, Life and Culture Tagged: careers, networking, social enterprise
I got up at the usual time. I showered. I dressed. I went to catch the matatu. I worked. I walked home, stopping to get some groceries on the way. I rested, too tired to go back out tonight for a celebration.
There is nothing like a holiday abroad to remind you of your foreignness. Today is Independence Day in the US, and I am in Kenya. I had no work-appropriate red shirts with me, and white signifies nothing whatsoever, so my homage to my country today consisted of a blue shirt and a post on Facebook. I am still settling into life in Nairobi, and while I am certainly enjoying my time here, I am especially aware today of the blessing that it is to be an American.
If you know me, you know I can be a bit of a cynic. This is especially true when speaking of matters of politics. I love to discuss politics, but politicians always seem to provide the world’s best examples of idiocy. Politics is situated at the confluence of money and power, both of which are often potent enemies of character, so it is no surprise that politicians can be so rotten. This tendency is just as common in the US as elsewhere in the world.
At the international level of politics, the situation is very similar. Power and money distort the character of entire nations, and in many ways the US has abused its primacy of power and money tremendously. The sad truth is perhaps most ironically evident in US foreign aid, which so commonly does harm to those it professes to help, while propping up US industry and interests (see Easterly, Moyo, Hancock, or basically anyone else who does not subscribe to Jeffrey Sachs’ view of the world for details). And though I think improvements can be made, I am basically a pessimist about global power structures – I expect that great powers will act in the same way for many years to come, if not forever.
As a result, the US is any easy target for anyone who wants to be a critic. There are many aspects of current US policy and society that I myself don’t like: the marginalization of immigrants (even those who had no voice in deciding to come to the US), the general lack of acceptance of science (evolution, climate change), the hyper-partisanship and refusal to compromise, the persistent distortion of truth by both sides of the aisle. But at the same time, I acknowledge that for me personally, the US has been a setting of abundant blessings: a strong education, a safe and enjoyable lifestyle, individual freedom to do as I please, checks and balances on the powers of government, beautiful landscapes, mostly sound infrastructure, and a multitude of affordable goods and services, to name a few. Not all people have the experience I have had, and I recognize that, but the same is true in all countries. And compared to many countries, the US seems to have done a fairly good job at providing a positive setting for a majority of its citizens, founded on an emphasis on personal freedom and checks and balances on power.
I know some Americans who never have anything good to say about the US – never – despite the fact that the US is clearly not the source of their problems. To me, this is unacceptable. There are some who can legitimately complain about problems in the US because they have been directly affected by miscarriages of justice, but for others, the US has become a scapegoat for self-induced problems. No country is perfect, and it is always valuable to point out problems in the US and work on them. But the vast majority of Americans enjoy standards of living that are unheard of in most of the world, and we ought to be thankful for that. Every day in Nairobi I am reminded of the small (and big) things that make life in the US so pleasant. We must be vigilant and care more about when improvements in our own standards of living mean harm to the lives of others, but much of what America enjoys has few downsides.
Furthermore, the most important changes in any country can only come from within, which means that denying one’s homeland removes one of the most fertile settings for change. Outsiders can only do so much, even if they intend to be helpful. For this reason, we all have a duty to change our own country, our own home, for the better. I yearn to have an impact on the poor abroad, but I know that natives will always have more potential to effect change than I will, and I must not become so cynical as to forget opportunities to do good in the US.
Thus, I wish you all a happy 4th of July, and I celebrate my homeland, imperfections and all. It will always be my home wherever I roam, and I hope we all can contribute to its improvement in years to come.
Filed under: Life and Culture Tagged: 4th of July, America, critique, cynicism, holidays, homeland
Now that I have given a little bit of background on social enterprise and impact investing, I can better describe my work this summer. For those of you who don’t know already, I am spending the summer in Nairobi, Kenya as a part of the Frontier Market Scouts program, run out of the Monterey Institute of International Studies in California. The program began with a week of classes in Monterey at the beginning of June and follows with placements around the world with various partners.
In my case, I was placed in Nairobi to work with two groups. First, there is Village Capital, a US-based non-profit impact investing group. Village Capital focuses on enterprises that are post-income (i.e., they have already sold at least one item/service), aiming to improve funding for enterprises in the so-called “missing middle.” As seen in the charts below, in high-income countries, small and medium enterprises (SMEs) are common, but in low-income countries, there are relatively few SMEs. This is significant because in developed countries, SMEs provide about half of GDP and more than half of all employment. The resulting gap of SMEs in developing countries is referred to as the missing middle.
One of the reasons why this gap exists is because financing can be very hard for SMEs to find. Microfinance institutions (MFIs) abound in developing countries, and even where there are no MFIs, microenterprises may be able to raise enough money from friends, family, or, if necessary, the local moneylender, to start a microenterprise. But to move beyond this stage, more significant capital is required, roughly $50-250K. While this amount of funding can be more easily acquired in the US, through banks, venture capital, and other means, for entrepreneurs in developing countries, there are significantly fewer options. For potential investors, the cost of vetting businesses of this size, in markets unfamiliar to most larger investors, often makes loans of this size unprofitable. So something else is needed.
Village Capital has an innovative solution to the problem. It forms groups of 12-15 entrepreneurs to go through a program together which provides mentoring, practical business skills/knowledge, and networking. But most importantly, at the end of the program, the entrepreneurs evaluate one another, and the two best entrepreneurs receive an investment of $50K (they also evaluate each other throughout the program). Essentially, the program democratizes entrepreneurial capital. The entrepreneurs evaluate each other along the same lines that investors would, so the program also does the vetting for the investor at a much lower cost.
In order to effectively carry out such programs around the world, Village Capital always partners with a local impact investor. This is where Growth Africa comes in. Growth Africa is a business consultancy and impact investor here in Nairobi with extensive experience and networks. At the end of this summer, the program will begin, facilitated by Growth Africa. In all cases, half of the investment capital is provided by Village Capital and the other half by the local partner.
So this summer I am working for both Village Capital and Growth Africa. I arrived in the thick of recruiting season, shortly before applications for the program are due. Currently we are still focusing on finding the best entrepreneurs possible for the program, mostly leveraging Growth Africa’s extensive network to do so. Once the applications are all in, we will begin the process of reviewing them, interviewing entrepreneurs, evaluating their businesses’ potential – including social impact, profitability, and ability to scale – and selecting semi-finalists. Then these semi-finalists will make a last pitch, after which the finalists will be selected.
The program will begin in early August, though unfortunately I will not be here for the conclusion of the program, as it is spread out over several months. So while I am here I will be helping get the program started, continuously looking for more entrepreneurs for future programs, working with entrepreneurs in the program, and, I’m sure, learning a ton about what makes a good social enterprise, both from the business side and the investor side. Hopefully that gives you a better idea of what I’m doing here, and for those of you interested in this topic specifically, I will plan to talk about things I learn as I go along.
 Entrepreneurial Finance Lab Research Initiative, Center for International Development at Harvard University, http://www.hks.harvard.edu/centers/cid/programs/entrepreneurial-finance-lab-research-initiative/the-missing-middle
Filed under: International Affairs Tagged: entrepreneurship, impact investing, MFIs, microfinance, Nairobi, social enterprise
“So, what exactly are you doing again?”
This has been the refrain of the last month of my life. I am interning this summer in a field known as social enterprise or impact investing, and most people haven’t got a clue what that means. But I understand the confusion; I wasn’t very familiar with the field myself until fairly recently. Fortunately, this line of work is not all that confusing when properly explained. So for those of you who are interested, I thought I would take a post to explain in more detail what social enterprise and impact investing are and why they matter.
Social enterprises/businesses are businesses that provide goods or services that improve the lives of the poor, and impact investors are investors who provide funding for such enterprises, hoping to make both a financial profit and a positive social impact. (Though I should note that some definitions of “social enterprise” simply stress the importance of environmental and social impacts on top of profit, with less of an explicit focus on serving the poor, while “social businesses” focus on the poor.) This is not the over-simplified justification for business-cum-development that is often heard on Wall Street (businesses create jobs globally, improving the lives of the poor). Indeed, it is clear that large corporations have both positive and negative effects on the poor around the world, and it is not always clear which effect is greater. But social enterprises are businesses that incorporate a social impact into their business models in such a way that without the benefit to the poor, the businesses would collapse (because the poor form the customer base). Such businesses provide cheap health services, clean water, low-cost communications technology, affordable education, and many other goods and services to those at the Base of the Pyramid (BOP), the world’s enormous untapped market of the very poor, particularly in Africa, Asia, and Latin America.
So why does this matter? It matters because so many efforts to improve the lives of the poor in developing countries over the last 50 years have failed miserably. There are numerous reasons for the failure of development projects, but the biggest problem is often the lack of proper incentives. Improper incentives flow into every element of a development project. In particular, there is no incentive for most donors to make sure projects are maintained, and until recently, when monitoring has become more popular, there has been no real incentive to ensure that projects actually make a positive difference. Wells are drilled but no one is around to maintain them. Large initial funds are spent but after the headline has been flashed on the evening news, no one has a stake in actually making the program work. The deliverable is dollars spent, not impact made. And much of the time, the person receiving aid never has any say as to what aid is given, when, or how.
This is not to say that all aid is bad. Some groups do tremendous work, and humanitarian aid in general seems to be largely beneficial. In addition, as I mentioned, monitoring and evaluation are becoming much more common, improving the quality of aid given. But in most cases, donors who do good work do so in spite of bad incentives, not because of them.
Social enterprise and impact investing offer a unique answer to the problem of sustainability. No business survives unless the customer actually purchases something, thereby voting that the product is valuable and desired. Thus, for a social enterprise that serves the BOP, the benefit of the poor is essential for the business to survive. Unlike in traditional aid, the incentives of the business and the customer are completely aligned; the good of one is tied to the good of the other. Thus, if a business provides a socially needed good or service that the very poor will purchase, the incentives to make a lasting impact are built into the system. Social enterprises cannot fix all problems, especially those that involve public goods, but they provide a promising method for improving many of the services most urgently needed by the poor.
That covers the basics of the enterprise side of things, but there is also an investor side, from whence “impact investing.” The main difference between impact investing and normal investing is that social benefits and environmental sustainability are considered alongside financial profit as criteria for investment. Each impact investor will have slightly different priorities, but as the field grows, standards are likely to develop that define the importance of each factor more precisely. Additionally, impact investors generally have a much longer time frame, willing to wait five or ten years or more for a payoff. For this reason, the funds provided by impact investors are often called “patient capital.”
So that is a brief overview of the field I am working in this summer in Nairobi. In my next post I will discuss my specific job and the organizations I’m working for in more detail. Later posts will discuss various topics related to both life and work in Nairobi this summer – I’m sure there will be plenty to write about. Those of you who have followed my blog for some time will know how sporadic I can be, but rest assured that I will post at least once every two weeks this summer – my job requires it. I hope to post more frequently though, so check back soon or subscribe for updates!
Filed under: International Affairs Tagged: aid, base of the pyramid, development, impact investing, Nairobi, patient capital, social enterprise
“Ultimately I am confident that the Supreme Court will not take what would be an unprecedented extraordinary step of overturning a law that was passed by a strong majority of a democratically elected Congress.” – President Obama, 4/2/2012
Judicial activism is the idea that judges are “legislating from the bench,” essentially crafting new laws that run contrary to the will of the people, as represented by Congress and the President. Arthur Schlesinger coined the term in 1947, but the idea of judicial activism has been present from the beginning of US history. Arguments over the role of the courts stretch back to John Marshall greatly expanding the role of the federal government shortly after the founding of our nation, through Roger Taney concluding that African-Americans could not be citizens in the Dred Scott Decision, and into the modern era with FDR battling the Court over initiatives in the New Deal. Today, we see its fruits in the ongoing conservative fight to roll back the Roe v. Wade decision and, of course, the current attacks from the Obama administration against possible judicial activism concerning the healthcare act. The idea is not new and both sides of the aisle have used it in their political arsenal.
Edward Lazarus, in his 1998 book Closed Chambers concerning the modern Supreme Court, makes the point well:
Partisans on both sides wage a destructively misguided war against what they deride reflexively as judicial activism. For liberals, this judicial overstepping takes the form of every recent decision that has cut back or overturned a Warrenesque ruling of the past. Meanwhile, conservatives cry foul at every decision in which a federal judge finds the police or prosecutors to have violated constitutional rights or those that impinge on favorite political causes such as school prayer. (516-517)
These “convenient charges” clearly reveal that “activism is in the eye of the beholder.” But Lazarus continues: “judicial ‘activism’—of the right or of the left—is no sin unto itself….The sin is not judicial activism, which may be warranted and healthy, but judicial activism bereft of persuasion and its crucial ingredients: reason, consistency, and principle.” (517)
I agree that judicial activism is not a sin unto itself. However, I would go further and argue that these sins are bound to occur, there is little we can do to stop them, and they are simply the symptoms of schismatic political philosophies. The system of appointing judges in the US is extraordinarily partisan. Especially when it comes to the Supreme Court, presidents tend to pick appointees who are as far to their side of the aisle as possible who will still be able to win Senate approval. The vast majority of these appointees have demonstrable records as judges in lower courts, or at least significant evidence revealing their political predilections. Why would anyone assume that once the appointees attain the bench that they will drop all of these prior beliefs at the door?
Like many people, especially those who work in government, these judges hold fundamental political beliefs deeply. While some justices have changed political beliefs during their time on the court, this is not the norm, which is why it is often fairly easy to predict the votes of many justices on politically polarizing issues. Once someone has come to believe strongly in certain fundamentals, they are unlikely to be swayed without repeated, strong undermining of their positions. And these justices are much too intelligent to be logically undercut on a regular basis. Justices tend to stick to their existing political beliefs because they think they are true, not because they have a malevolent plan to rule by decree from the bench. Conservative justices are likely to strike down laws that expand the federal government because they legitimately believe the federal government largely gets in the way of liberty. In contrast, liberal justices are more likely to uphold laws expanding the federal government if they believe such expansion expands the freedom of less-privileged groups.
These views stem from more fundamental understandings of freedom. Conservatives tend to view freedom as “formal,” that is, a lack of limitations on doing something. Liberals on the other hand tend to view freedom as “effective,” that is, the provision of a feasible means for doing something that is desired. So in the case of healthcare, conservatives view our current system as free – anyone can buy health insurance and no one is stopping them. Liberals, though, do not see the system as free because many people cannot feasibly pay for coverage due to its high cost. These are fundamentally different understandings of freedom, and justices who hold one or the other view are not likely to suddenly become enchanted with the other.
Thus, what many label judicial activism I would simply label as sticking to your guns. People have different opinions; disagreement is bound to occur. A vote against the healthcare act is not a sign of ignorance; neither was a vote against Citizens United. Both examples merely showcase the justices’ varying political philosophies. Deciding whose political philosophy is best is in fact the ongoing experiment of any democracy, an experiment that will never end.
Last year The Economist ran an interestingly article that discussed how parole boards were much more likely to grant prisoners parole immediately after breaks for food (see chart on right). Clearly objectivity is an illusion. Not even science can be purely objective, as the act of observation affects the observed (as we know from the Heisenberg Uncertainty Principle) and greater precision is always possible.
Human psychology is extraordinarily fickle. We are pulled to and fro by forces beyond our recognition. As the overly objective Ebenezer Scrooge suggested, even a tiny bit of bad potato can have an outsized effect on the mind. Of course accusations of judicial activism will continue, but they are seldom warranted. The bulk of Supreme Court votes seem to align with logically thought out philosophical positions, even if we don’t always agree with them. And in the end, while judicial decisions can delay or speed the application of what most of us consider to be just, it seems that, at least in the US, justice has the upper hand in the long run anyway.
Filed under: History, Politics and Current Events Tagged: Affordable Care Act, effective freedom, formal freedom, Judicial activism, Obamacare, Supreme Court
The vitriol has just kept coming. From the start I thought it was clear that some of the critiques of the viral Kony 2012 video were valid, but never did I expect them to continue with such unabated intensity and even personal hatefulness (to the point of driving Jason Russell, the maker of the video, to an apparent mental breakdown). Today, another critique has been making the rounds. The article in The Atlantic by Teju Cole, “White Savior Industrial Complex,” is an exposition on a series of tweets he posted as the Kony video was gaining momentum. The tweets, reprinted in the article, critique the apparent neocolonialism and hypocrisy in the video and are reproduced below:
- From Sachs to Kristof to Invisible Children to TED, the fastest growth industry in the US is the White Savior Industrial Complex.
- The white savior supports brutal policies in the morning, founds charities in the afternoon, and receives awards in the evening.
- The banality of evil transmutes into the banality of sentimentality. The world is nothing but a problem to be solved by enthusiasm.
- This world exists simply to satisfy the needs—including, importantly, the sentimental needs—of white people and Oprah.
- The White Savior Industrial Complex is not about justice. It is about having a big emotional experience that validates privilege.
- Feverish worry over that awful African warlord. But close to 1.5 million Iraqis died from an American war of choice. Worry about that.
- I deeply respect American sentimentality, the way one respects a wounded hippo. You must keep an eye on it, for you know it is deadly.
-Teju Cole, in The Atlantic, http://www.theatlantic.com/international/archive/2012/03/the-white-savior-industrial-complex/254843/1/
These are all standard claims that others have made, and there is some merit to them. Aid efforts from the West to the developing world have done considerable harm in the past and will certainly continue to do harm in the future, but that doesn’t mean they only do harm. After some thinking, I believe the critiques have quite simply gone too far and overlook several positive elements.
Earlier this week, my international development class met for the first time since the Kony 2012 video was posted. The topics for that class did not specifically deal with anything related to Kony, but it’s not every day that a development issue goes viral, so we took some time to discuss the matter. To kick off the discussion, my professor asked a prescient question, and one I would not have thought of myself: “How many of you had heard of Joseph Kony and the LRA before this video?” To my surprise, several classmates, maybe a third of the class, raised their hands. This is among aspiring development practitioners! These are people who want to go to Africa and help the poor, people who have already done Peace Corps, people who keep track of things like the LRA. Or so I thought.
But upon further reflection, I realized that the only reason I personally knew about the issue is because of exactly the same group that had just informed my classmates: Invisible Children. As I mentioned in my earlier post summarizing some of the arguments from the Kony 2012 debate, Invisible Children came to UGA when I was an undergrad, and they showed a video with some of the same footage as that used in the most recent incarnation to inform us all about the LRA and Joseph Kony. But if they had not come to UGA or if I had not attended the viewing, it is perfectly plausible that I would never have heard about Kony and the LRA until this recent video did the rounds. This realization, more than anything, woke me up to the reality of the discourse on development, or, more accurately, the general lack of any discourse on development among the US public. This leads to my first point on why the video has done more good than harm.
1) It’s not every day a development issue goes viral.
- I already stated this, but I think it deserves repeating. The Kony 2012 video was unbelievably successful in spreading the news about a problem that does matter. And it was an issue that few people would have ever heard about otherwise. For all its critics, the video does a tremendous job of raising awareness. True, as I myself pointed out, it does not identify the root problems, it does not propose a plausible path for remedying those problems, and it does present a simplified version of reality. But as my professor pointed out, every NGO has its niche. Invisible Children has one too – the LRA and Joseph Kony – and it has clearly shown it has one particularly strong skill as well – raising awareness using social media. This explains why so much of IC’s money goes to awareness rather than on-the-ground efforts, which, in my opinion is fine. At least they are honest. And more importantly, their funds clearly effected results, which is more than can be said for many agencies who spend 90% or more of their money on the ground. Awareness is in important piece of the puzzle and should not be attacked just because it occurs in the US.
- More than anything, Kony 2012 has shown to the world just how much attention can be brought to an issue – any issue – if social media are properly harnessed. Even if you disagree with IC’s goals or methods, you have to acknowledge that this is probably the first time any issue related to development has been so high up on the minds of so many people at once. Such efforts do not solve the problem, but knowledge must come before action. And when something is so successful in spreading the news about an issue, critiques are quick to point out possible factual issues (as is extremely evident), hopefully leading to a net gain of important information on a worthy topic. Unfortunately, in this case the critiques seem to have gone so far as to possibly reverse any gains of knowledge achieved by the video, leaving instead a sense that those who want to do good in the world might as well just stop trying. Somehow I don’t think that will help.
2) Norms governing US foreign policy will only change one step at a time.
- Cole and others claim that it is hypocritical to call for interventions like this one when US foreign policy in general does so much harm: “If Americans want to care about Africa, maybe they should consider evaluating American foreign policy, which they already play a direct role in through elections, before they impose themselves on Africa itself.” Unless I’m mistaken, what the video called for is for Americans to evaluate American foreign policy, trying to push it toward an issue that has received little attention in the US – and by the same means that Cole suggests, namely, by putting pressure on our elected officials.
- But disregarding the slight confusion in Cole’s statement, I presume his intention was to promote reevaluation of the general principles of US foreign policy, but such a goal is simply not pragmatic. The norms of US foreign policy will not change overnight just because we want them to. The way we interact with the world has been built up over centuries and strongly reinforced by the ever-present desire to view the world in the anarchic, self-help way that realists have always done. If we are ever to break free of this mindset, it will only happen with slow, small steps, and this video calls for one such step. It calls for the US to redirect effort towards something that is based quite heavily on moral obligations (even if the depiction was slightly naïve), obligations which have been recognized by the rest of the world (the ICC’s number one most-wanted person is Joseph Kony). Most foreign policy experts will tell you that from a strategic perspective, sending troops to help catch Kony was not in the US’s interests as generally conceived – something else was operating here. Could it be the beginning of a new norm in foreign policy? Could the US actually make decisions based on what it can do to help others, legitimately, not to help itself?
Many will be skeptical that such an outcome is ever possible, saying instead that the world would be better off if the US did nothing abroad at all, but I’m optimistic. I think it is possible for major powers to do good in the world, though it is very difficult. Perhaps Libya was a good example? As I’ve argued in the past, I think the US should have acted in the cases of genocide in the 20th century, but it did not. If the norms changed such that acting on behalf of others became both normal and accepted, maybe the US (and other major powers) could actually become an undisputed force for good in the world. And maybe this video is a small step in that direction. Maybe.
Filed under: International Affairs, Politics and Current Events Tagged: awareness, Invisible Children, Kony 2012, LRA, norms, Teju Cole, US Foreign Policy
In Neal Stephenson’s Anathem (which is a fantastic book, but I won’t even attempt to summarize it – you can check out its Wikipedia page if you are interested), there are a variety of secular monastic orders, and one group, called the Lorites, believes that every possible idea has already been thought. Thus, they dedicate themselves to knowing history and constantly revealing as “old” any “new” idea that others propose. This is an issue that is surprisingly close to reality. In a recent post I discussed the importance of “knowing the literature” as a means to establishing our arguments (especially critiques) in a developed stream of thought. This helps us avoid the pitfalls that commonly occur when we try to base arguments on experience alone, ignoring the vast troves of wisdom already available which have tackled similar issues in a systematic way. However, a recognition of the wisdom that has come before also reveals that very few ideas today are truly “new.” That is not to say that we are not generating new information. Particularly in the sciences, new information is discovered all the time. But questions that get at the most basic elements of existence—Why are we here? What is the fundamental nature of reality? What is truth?—all seem to have been answered and re-answered in the same ways down through the ages. In many ways, there is nothing new under the sun, which, of course, was known in the 3rd or 4th century BC – how much more so today.
I recently stumbled upon a great example of this phenomenon. Postmodernism is assumed by most to be one of the most current philosophies, given its name (though there is also now Post-postmodernism). Postmodern thought (and offshoots like constructivism) centers around a rejection of objectivity, instead suggesting that reality is socially constructed, and thus, subjective. Reality is dependent on context, and no one “reality” can ever be said to be truly real. In fact, the most radical postmodernists would say we cannot be sure anything exists, and no scientific enquiry will ever fix that. Coming as a refutation of positivism (which has also dictated the entire educational process in the West for centuries), postmodernism does indeed seem radically new. But its ideas have actually been proposed by philosophers since at least the 4th century BC.
Let’s work our way backwards.
David Hume (1711-1776), a Scottish philosopher, is the first step back into history. In his An Enquiry Concerning Human Understanding (section XII), Hume thinks through whether or not we can actually be sure that, for instance, the table in front of us is real or if we only perceive it to be real:
It is a question of fact, whether the perceptions of the senses be produced by external objects, resembling them: how shall this question be determined? By experience surely; as all other questions of a like nature. But here experience is, and must be entirely silent. The mind has never anything present to it but the perceptions, and cannot possibly reach any experience of their connexion with objects. The supposition of such a connexion is, therefore, without any foundation in reasoning.
In other words, we cannot be sure that what we perceive is at all connected to reality. We assume that an object we perceive with our senses does in fact have some physical reality, apart from our sensation (would the table still exist if no one was there to see it?), but there is no way to really know.
But Hume built upon ideas already propounded by George Berkeley (1685-1753) thirty years earlier in Three Dialogues between Hylas and Philonous. In this case, a summary of Berkeley’s thoughts captures what we are after:
If, says Berkeley, our knowledge of the material world consists in the ideas of it we have in our heads, what reason is there for supposing that anything other than the ideas exist?…Berkeley abolishes matter and declares the world to be a creation of the mind. Everything is ‘really’ mind.
- From the Introduction to Schopenhauer: Essays and Aphorisms, p. 16
Berkeley, like the most radical of postmodernists today, didn’t think matter was really there.
Now let’s jump way back to ancient Greece. Pyrrho (c. 360-270 BC), whose views were recorded by his student Timon (c. 320-230 BC), was the source of the ideas later leading to Skepticism (the general philosophy we are discussing here). Eusebius (c. 263-339 AD) explains Pyrrho’s main thesis:
…[Pyrrho] reveals that things are equally indifferent and unstable and indeterminate…for this reason, neither our perceptions nor our beliefs tell the truth or lie….For this reason, then, we should not trust them, but should be without opinions and without inclinations and without wavering, saying about each single thing that it no more is than is not, or both is and is not, or neither is nor is not.
There is no truth, just perception. Nothing can be said to be in existence any more than it can be said to not exist.
In some ways, these ideas all go back to Plato and his theory of forms, which suggested that true reality existed outside of the world we perceive (as shadows in a cave, illuminated by the light from the “true” reality). What we see is not as “real” as what we do not see on the higher plane. The same ideas are also present outside of the Western tradition. In India, Jainism also promotes the stance that all truth/reality is subjective, depending on the point of view, and no viewpoint can be said to be completely true. In Islam, al-Ghazali (1058-1111 AD) embraced a form of skepticism which led him to conclude that nothing in this world is causal, and all causation comes from God instead (i.e., even though we perceive that fire is burning something, in reality that is not happening – God is burning it, and thus reality is disconnected from perception). This thought is not all that different from the Christian view explained by the Apostle Paul in Colossians that in Christ “all things hold together,” which suggests that what we understand as cause and effect is illusory – without God, no cause or effect would occur. And of course Platonic dualism (mind/body, good/evil, this lower world/pure forms) had a huge influence on the Christian understanding of the current world we inhabit versus the higher world to come. While many Christians would like to disconnect Christian theology from Platonism, still most Christians conceptualize this world as something to be escaped, at least in part because it is less real than the world to come (though I do not think Jesus actually taught this form of escapism whatsoever).
So there you have it. Postmodernism, so modern that it is beyond modern, is actually anything but. It is merely a restatement of questions that philosophers have been asking for millennia. But there is nothing wrong with bringing up the same questions over and over again. Every generation needs its own thinkers to frame a debate in modern terms, to re-expose good ideas to contemporary society so that the ideas are not forgotten (or expose “new” arguments as old ones that were refuted long ago). There is no shame in repetition. There is nothing new under the sun, but many things are not directly exposed to the light because of the impeding detritus that builds up over time. Removing these impediments is one duty of thinkers and readers in every generation.
Filed under: Philosophy/Religion Tagged: Anathem, Berkeley, Hume, Neal Stephenson, new ideas, Plato, postmodernism, Pyrrho
A little over a year ago Gabrielle Giffords was shot by a deranged man in Tucson, Arizona, kicking off a firestorm of debate about political rhetoric and, that perennial favorite, guns. At the time, I wrote a blog about how the right to bear arms, which was intended as a check against tyranny, can actually promote tyranny at a personal level (as exercised by gunman Jared Loughner over Giffords and the other victims last year). But I wrote that article before the Arab Spring, and I think with that history as a lesson, revisiting the topic is worthwhile.
Let me rehash my main point from the other blog:
When passed, the 2nd Amendment was intended to guarantee the freedom of each state through the maintenance of a militia, and…to protect the ability of a citizenry to rise up and overthrow a tyrannical government….But gun rights advocates tend to ignore one very important difference between then and now. War is no longer fought the way our Revolution was fought. In the late 18th Century, wars were still predominantly fought by men on foot, the primary weapon being the rifle. Without men and rifles, wars simply could not be won. And when rebellions were squashed, the government required men and rifles too. So as long as you could overwhelm an armory here or there and get some cannons, a group of citizens trying to overthrow a tyrannical government would be fairly evenly matched with the government in terms of weaponry.
Today, the same is not true. The primary weapons of war are no longer guns – they are missiles, jets, bombs, tanks, helicopters, etc. Sure, guns are still important, but when it comes to overthrowing tyranny, guns are not going to do much against nuclear weapons. Military technology has come so far since the Revolution that the 2nd Amendment provides much less protection from tyranny today than it once did. And since we are not about to let people start buying jets, nukes, and other weapons of war, we need to recognize that the argument that more guns help protect against tyranny may not be tenable today.
I would like to first point out that the comparison with nuclear weapons was probably unnecessary, since there is no precedent (or expectation) of a government using a nuclear weapon to put down internal rebellion. However, my main point still stands, and I believe it has been strongly reinforced by the events in the Arab world over the last year.
Evidence from the Arab Spring:
1) Overthrowing tyrants today often depends on undermining the tyrant’s legitimacy.
- The forces that toppled autocratic regimes in Tunisia and Egypt came down to protest by the masses undermining the rulers’ legitimacy, forcing them to make concessions and eventually step down. In both of these cases, weapons were of practically no value in comparison to the force of public pressure. In fact, the largely peaceful protests probably helped the movements bring about change as quickly as they did because the government was unable to justify military crackdowns in the face of overtly non-military threats.
- Rebellion has always been about political grievances, but today, ideas and information have an amplified power thanks to modern technology which can spread the grievances far and wide, infecting huge numbers of people internally and around the world. A government cannot rule effectively, even through force of arms, when such grievances infiltrate their own militaries (as happened in Egypt). The ability of regimes to contain information and control discourse is waning rapidly, and it has changed the way rebellion occurs in much of the world.
2) Small arms cannot topple a murderous regime on their own.
- In Libya, military pressure was necessary to overthrow Col. Qaddafi. However, even in this case, the force of arms needed to end Qaddafi’s rule went well beyond small arms. A no-fly zone and NATO attacks involving thousands of bombs were essential to ending the Qaddafi regime. Even if every rebel soldier had an AK-47, Qaddafi would have retained power without the intervention from an outside force bringing substantial firepower to the conflict. And why exactly did NATO get involved? Again it comes back to public pressure and Qaddafi’s eroded legitimacy. Outside intervention is only possible (because, again, of legitimacy issues on the world stage) when a local majority calls for it. But today, outside intervention is probably the only way by which governments willing to kill thousands of their own citizens can be overthrown – a right to bear arms will have little impact.
- In Syria, we are seeing exactly the same situation. Assad and his army have too much firepower for the local rebels to effectively challenge him. This is why some are now calling for outside intervention. Of course, world politics and other factors (like the size of Syria and the distribution of population within it, as well as the lack of unity among the rebels) call into question how effective even outside intervention would be in this case. But the point is, small arms are not good enough for overthrowing tyranny. In Syria, the presence of small arms will only have the desired effect if they allow the rebels to hold out long enough to either turn the military against Assad or bring outside military intervention. In both of these scenarios, however, small arms only act as a means to achieve the more important goal of undermining Assad’s legitimacy and bringing international pressure to bear on the regime.
Living in the country with the most powerful military ever known, Americans should not deceive themselves into thinking that if everyone owns a pistol or shotgun that we could stand against a murderous regime. So I don’t buy this argument, which I hear so frequently. There are other reasons to think the guns may be beneficial. Many claim that guns in the home provide protection against thieves, and at the very least, the evidence I have seen suggests that increases in gun ownership in the US does not increase violence. However, there is reason to question US gun policy because of the flow of weapons abroad, particularly automatic weapons which end up in the hands of drug cartels and other violent groups. Actions taken in the US inevitably have an impact abroad, and we ought to consider these effects more than we do currently (as a nation). But this issue is too lengthy to get into right now. So in summary, I believe the evidence shows that the right to bear arms is of little importance today when it comes to protection against tyranny. This was a valid concern when our country was founded, but technology has changed the face of rebellion. Small arms cannot defeat a military, but public opinion can.
Filed under: International Affairs, Politics and Current Events Tagged: 2nd Amendment, Arab Spring, Assad, Egypt, guns, legitimacy, Libya, Qaddafi, right to bear arms, small arms, Syria, Tunisia