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Innovation Happens When Traditional Markets Fail

Aleem Walji's picture

Conversations after "Innovations in Development" PanelInnovations in development happen where traditional markets fail.  The open discussion that followed the presentation I made on Monday to nearly 100 colleagues inside and outside the World Bank Group spurred the first of what I hope are many conversations on the role the World Bank Group and others can play in supporting social entrepreneurs in the developing world. 

I argued in the panel, as I did in the summer issue of Development Outreach, that private actors are stepping up to provide goods when there is market or public failure. That there is a role for social investors, whether they are impact-first or finance-first investors, to provide early stage and mezzanine finance and technical assistance for growth ready social enterprises. The World Bank Group is particularly well positioned to help those social enterprises that are focused on providing public goods and scaling models that may not be commercially viable in the near-term. That is where Development Marketplace was a pioneer more than 10 years ago and today we need to find ways to leverage the Development Marketplace brand to encourage financial, impact, and philanthropic investors to enter this space and support the replication or expansion of those business models that are able to meet the needs of the poor at scale.

I was joined by two great panelists. Sujata Lamba talked about how the IFC has invested $3.9B in the Bottom of the Pyramid projects over several years, and Steve Rasmussen discussed how CGAP has continuously reinvented itself in order to stay relevant and leverage innovations such as mobile banking to expand financial access for the poor. 

I hope that events like this are the beginning of a consultative process where we can get feedback, comments and thoughts from a variety of social enterprise stakeholders as we move ahead with the Next Generation Development Marketplace.  After all, innovation is an iterative process and cannot happen in a vacuum.  You'll be hearing more from us about this, but we welcome your thoughts, questions, and comments.

Click here to view view video of the presentation and here to access the presentation slides.

Comments

Submitted by Arvind Gupta on
Innovations that spur development,growth and consumer choice also happen more often, when competitive markets flourish. Competitive and smoothly functioning markets lower exit and entry costs thus encouraging a much larger volume and variety of experiments. Competition is the best way to drive down prices and thus increase affordability and access. Thus an emphasis on enabling market mechanisms is crucial. The World Bank is well positioned to work more vigorously with governments to ensure that social entrepreneurs do not have to deal with a costly and complex regulatory and approval regime. Financial viability and sustainability of private delivery of public goods depends, to a considerable extent, on existence of a large and predictable demand. Governments can ensure this. Where private solutions or private suppliers exist, governments could use their social sector budgets to procure on a large scale and through competitive tenders public goods and services from private suppliers. Knowing that there is an assured multi-year demand could increase the willingness of funders to support social entrepreneurs. The World Bank loans could be used to assist governments in this objective. For example in many countries social entrepreneurs have developed low cost ways to supply safe drinking water. The government could consider inviting tenders for supply and distribution of low cost safe drinking water kits.

Aleem, I applaud your efforts and blog. Innovation where traditional markets fail touches upon a seminal issue not only for the Bank’s work, but for the institution itself. Let me expand upon this with some relevant examples. As DEC researchers starting in the mid-1990s (boy, are we old!), we understood that knowledge can be gained, but it can also be lost. Our research focused on informal activities that environmental regulators could employ to reduce industrial pollution in the absence of resources to do M&E. What we learned is that in the absence of “traditional markets” because of resources, “innovative” regulators used informal agents to negotiate dramatic reductions at low cost by polluters on behalf of the state and community. Our research was not universally embraced within the Bank’s mainstream at the time. This leads me to reflect on a couple of your previous blog postings. The first, Why Talking about Failure Matters, reminds of when Hernando de Soto came to speak at the unveiling of the Bank’s new archive policy in 2004. He said he was denied permission to access the archives in the early 1980s when he was conducting research on property rights and the rule of law. He wanted access because “the Bank has more knowledge about failure than anyone else.” This was good for a hearty laugh, but his point was serious. Knowledge about failure contains the seeds to knowledge about success. The Bank needs to embrace this notion within its perfectionist culture (a leap for sure). Finally, a thought on the Dot.Gov as a Listening Devise blog, which I think is critical for the thoughts above. Two-way interactive Internet communications is not the wave of the future, it’s here. In fact, we were doing this type of information technology driven collaborative governance 15 years ago. Again, another example of knowledge can be lost. Our DEC research team launched a website, New Ideas in Pollution Regulation that disseminated our research and data, but also allowed external actors to share theirs on the site. The result was within four year, NIPR captured 2% of the Bank’s Internet traffic. In 2000, we launched the B-SPAN webcasting station with the same concept: providing a platform for internal and external sources to host content. At the time, WBI’s management rejected such a notion but this reflected an old guard approach to knowledge sharing. The trend lines were obvious then, and I am heartened to see that they are starting to take hold within the mainstream of the institution as we move. Aleem, obviously there are a lot of threads going on here simultaneously and they would occupy too much space in forum like this, but I really appreciate your work in prodding these notions forward.

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