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Innovation and Foreign Aid

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The ideas that power our next generation of growth are just as likely to originate in a coffee shop as in the laboratory of a big corporation.

That is Eric Schmidt in today's Washington Post.  Though he is talking about the U.S. economy in general, the points are perhaps even more compelling for the global development sector, where innovation is exceptionally slow.  Schmidt goes on to say:

[I]nnovation is disruptive and messy. It can't be controlled or predicted. The only way to ensure it can flourish is to create the best possible environment -- and then get out of the way.

Top-down, expert-driven approaches that predominate in much of the aid world cannot tolerate such messiness, and experts find it very hard to "get out of the way."  What are some of the other critical ingredients in innovation?

First, start-ups and smaller businesses must be able to compete on equal terms with their larger rivals.

This is key, too, for international aid, where large contractors and nonprofits receive the vast majority of funding. During the 1990s, for example, seven out of the top 10 nonprofits not only stayed in the top 10 but increased their share of the market during the decade.  And the top 6 percent of nonprofits account for four-fifths of the revenue.  But that's not all:

Second, encouraging risk-taking means tolerating failure -- provided we learn from it.

Failure is something that most international aid organizations cannot tolerate.  When I left the World Bank in 2000, pressure from the board of directors led my unit to shoot for an 85 percent success rate for projects. This target was unrealistic, given the challenges of doing good aid projects.  Consequently, many units spent a lot of energy and resources hiding failures or massaging them to make them look like reasonable successes.  Worse, such targets discouraged everyone from being innovative, since the likelihood of failure was much higher.

The goal of aid marketplaces such as GlobalGiving and others is to provide access to those in the "coffee shops" as well as the big aid agencies. And we try to provide an environment where success is rewarded but where people who learn from failures are encouraged by donors to keep working at it.

You can read Schmidt's full article at the Washington Post.