Klaus Schwab, founder of the World Economic Forum and more recently of his own Schwab Foundation for Social Entrepreneurship, is the moving force behind the current Global Exchange for Social Investment (GEXSI) initiative. Clearly what he would really like is to link investors direct with entrepreneurs on the ground. In the real world, he accepts the need for intermediary organizations. Caroline Hartnell talked to him about the scheme.
Klaus Schwab starts by making absolutely clear what can be expected from the interview. ‘I have a vision,’ he says, ‘but I’m not an expert, so don’t expect from me expert answers to specific questions.’ Interestingly, the crucial importance of not being an expert is something Grameen founder Muhammad Yunus insists on. Asked recently about the secret of his success, Yunus said, ‘You can’t change something you’re an expert about. I had no idea what banking was – only of opening an account to pay in my salary cheque. You need to go to zero level in order to change something.’ So central is this to his thinking that the Grameen Bank appoints no staff with any prior experience of banking.
Schwab’s current vision is the Global Exchange for Social Investment (GEXSI); he agrees he is ‘a moving force behind this initiative’. One of the key assumptions behind the GEXSI is that there are a lot of people out there with money they want to invest but they don’t know what to invest in. Is he convinced there really are all these people just waiting?
Yes, he says, ‘I know of many people who feel that the old concept of philanthropy is no longer appropriate to their own needs. They want to give money, but they want to be involved. They want to know what the social productivity of their investment will be. They want to know how the effectiveness of their investment will be measured.’ These are mainly individual philanthropists, but there are also companies that would prefer to finance projects in the field ‘who really do something’ directly rather than give ‘a million dollars or whatever’ to an anti-AIDS fund.
In an ideal world, these donors should form a direct relationship with the on-the-ground entrepreneurs, but Schwab admits this isn’t realistic – hence the need for intermediaries. ‘It’s very difficult for donors to form an independent, qualified opinion about these relatively small projects. Intermediaries have their own reputation and track record and can give a certain guarantee … so its less an intermediary function, it’s a certifying function that is needed.’ In fact, Schwab doesn’t like the word intermediaries – ‘bad connotations’. We agreed that developer is a much nicer word.
What would these intermediaries/developers look like?
The intermediaries could clearly take many forms. You could have a fund oriented towards a specific area like health or education, or a special fund to support social entrepreneurship in South Africa. The object is to ‘find the optimum way to create an interface between a possible interested investor and an interested social entrepreneur’.
And might the intermediary play a supporting role to the enterprise, as venture capitalists often do? Yes, says Schwab, they will provide management, supervision, contacts and so on – ‘as a developer, who holds the hand of the social entrepreneur’.
And how would they be funded?
Might the social investors actually put some money into these intermediaries? Yes, this is one possibility. But very often the intermediaries are financed by traditional foundations, such as the Aga Khan Foundation or Avina. They may also create a kind of cooperative. ‘I was thinking today about the approach Professor Yunus took with the Grameen Bank. A group of entrepreneurs could form a cooperative, and each could guarantee individually the credits given to other members. So you could have a cooperative of Peruvian social entrepreneurs. You have to do with entrepreneurs what Grameen has done with village communities.’ What he is talking about is actually forming new bottom-up intermediaries, involving the grassroots organizations themselves.
‘I think we have to take new approaches,’ says Schwab. ‘It’s a new world. It reminds me a little bit of the venture capital world in the mid eighties, when it started. Traditional banks weren’t flexible enough, so we had completely new intermediaries. Once again we need to establish a completely new intermediary system. We are not talking about normal investors and normal venture entrepreneurs, we are talking about a new intermediary mechanism between social investors and social entrepreneurs. We cannot just take the rules of the financial field and apply them to this area.’
How to get started?
Asked whether there will need to be a big marketing push to explain to people what the GEXSI is and what the opportunities are, Schwab becomes very cautious. He mentions the Chinese proverb ‘Let one thousand flowers grow’. ‘Let’s try out several mechanisms and find out what works.’ He is wary about announcing a big new scheme that may not really work.
His approach is not to try to find the ideal mechanism but to take 10 or 20 initial projects, be very imaginative in how they are packaged, and see how they work. This ‘packaging’ is a matter of looking at specific projects and asking: does it have to be subsidized? Is the support more or less a donation then? Is it a project that will preserve the capital in the long run but doesn’t produce any interest? Will it even bring in a modest return? Once the right packaging is found, ‘let’s try to find investors. Some will fail, some will succeed. Those that succeed we should take as models.’
Is the plan to launch something at the World Economic Forum this year – at Davos in New York, as they are now calling it? Schwab would like to see a large-scale meeting in New York, to include some of the top banks and some of the stock markets, ‘just to see how the new ideas can be developed into a concept which we can carry further’.
Finally, does he think the 11 September attacks and their aftermath make this initiative more possible now than it might have been? ‘More possible and more difficult,’ he says. ‘That may sound contradictory. More possible because many more people recognize the need to combat poverty, and to do something to bridge the enormous gaps which exist in the world in terms of wealth, education, health and so on. More difficult because we are now entering a period with a great risk of recession and people are scaling back expenditure for everything that is not absolutely necessary. So the willingness to invest in such projects has never been as great as it is now, but the readiness to do so is limited by pure economic factors.’
Klaus Schwab and the World Economic Forum
In 1971 Klaus Schwab, a Professor of Business Administration, took the initiative to gather together a group of chief executives of European companies to discuss a strategy for European business to advance key issues on the global agenda. Held in the Swiss mountain town of Davos, this initial meeting developed into what is now known as the World Economic Forum. With over 1,000 members, comprising the world’s most powerful corporations from over 50 countries, the Forum’s annual meeting is now a major gathering of world leaders. A number of NGOs have been participating at Davos since the 1970s. The Forum’s main achievements include helping to accelerate German reunification by bringing together the German Chancellor and East German Prime Minister in Davos in 1989 and holding the first private meeting of all political constituencies of South Africa in 1990.
Schwab has served in a number of other high positions. These include sitting on the UN High-Level Advisory Board for Sustainable Development and serving as Vice-Chairman of the UN Committee for Development Planning.
For more information about the GEXSI or about the Schwab Foundation for Social Entrepreneurship, contact Foundation Manager Pamela Hartigan at Pamela.Hartigan@schwabfound.org or visit the website at http://www.schwabfound.org