Relational economics, and overcoming short-term thinking

Last year, while researching rural connectivity initiatives for the iSchool project, I visited Macha, a rural village in southern Zambia - and was amazed by what I found there.

In addition to the usual dusty jumble of earth huts, stalls and maize fields, Macha is home to an Internet cafe, a large office block, a Western-style restaurant, a craft store, a library, a bank branch, a well-built school that would not be out of place in a California suburb, a biofuel farm, a visitor lodge, a radio station, and even a small airport from which tiny planes carry villagers in business suits to and from Lusaka - all operating in an otherwise non-descript corner of the African countryside.

Sustainable business this is not. Although the official management hierarchy of Macha Works, the community enterprise behind this bizarre outburst of development, is scrupulously local, it was obvious that the whole adventure was heavily reliant on outsiders both for finance and expertise. Indeed, an interruption in the stream of external funding has since forced Macha Works into a period of "pruning for growth" in which the enterprise has been forced to lay off all of its paid staff (see gertjanvanstam.blogspot.com, 26/03/12).

Nevertheless, when it comes to getting things done in a rural African community, the people behind Macha Works clearly know a thing or two. It was therefore with interest that I read a paper published in Economics and Finance Review by two of Macha's visionaries, Kevin Sheneberger and Gertjan van Stam, giving their perspective how the economy works in rural African communities. (The full paper is available at www.businessjournalz.org/articlepdf/EFR-1408.pdf.) The paper highlights the rational basis for many of the seemingly irrational behaviours that perplex and frustrate Westerners involved in African business and development, such as the crippling short-termism that often appears to pervade decision making (as Sheneberger and van Stam put it, "What is made available in the short-run is consumed completely, immediately, and in some cases, without much discrimination"), and holds some important lessons for inclusive business initiatives.

Players in both 'classical' Western economies and rural African societies, Sheneberger and van Stam point out, are concerned with ensuring economic security, but they typically go about it in different ways. In the Western business environment, security is guaranteed through careful short-term planning: "an elaborate sequence of project proposals, financial projections, market analyses, and other attempts to promise secure investment". Having thus ensured short-term security, "what is a few calculated steps down the road cannot present much of a challenge". In other words, take care of the pennies and the pounds will look after themselves.

In rural Africa, by contrast, environmental, political and social instability have often made short-term planning a lost cause. Rational African villagers therefore focus on long-term security, which is guaranteed by investing in one's network of relationships. In economies that traditionally lacked formal banking and insurance, the functions of these institutions were performed by friends, relatives and neighbours willing to help out those in need. In this 'relational economy', one's credit score is one's social standing, and people will invest effort in relationship-building activities (taking time off work to attend the weddings and funerals of distant relatives, for example), even at the cost of short-term prosperity.

The most obvious lesson that follows from this - one already widely understood by development practitioners (particularly those rooted in organisations such as PwC which themselves have strong cultures of relationship-building) - is the importance of community buy-in. As Sheneberger and van Stam put it, "without the active membership in the Bank of Relatio (that is to say, the community at large), the effectiveness of the even sustainable and financially sound projects will be severely limited."

This was vividly demonstrated when the iSchool team and I made visits to two of the primary schools in the villages around Macha. In one government-run school, children huddled around broken fragments of furniture in the corners of half-empty classrooms, chanting "Hello How Are You" in a manner that suggested they considered it a string of foreign syllables rather than a sentence; only two of the school's seven teachers were anywhere to be seen. The buildings had stained walls and gashes in the roofs, teaching materials had been stolen, and the Deputy Head complained of snakes in her office. The toilet buildings were on the verge of collapsing on some unfortunate child, yet despite appeals to the community nobody had seen fit to supply the meagre resources needed to repair them.

In the second school, by contrast, children sat at desks learning, while outside, labourers from the surrounding community assembled blocks for the construction of a new classroom. The existing buildings were rainproof and nicely decorated, and contained books: theft wasn't a problem, we were told, because the neighbours kept an eye on the school. The difference between the schools was not down to their place in the conventional economy - both were government schools run on the same (meagre and unreliable) disbursements - it was all down to relationships. The latter had a personable headmaster with plenty of social capital who had engaged well with the rest of his community.

Yet the business significance of the relational economy goes beyond mere stakeholder management. Whole inclusive business models can be built around it: group lending by microfinance institutions is one example. Aspects of it need to be managed: iSchool, for example, has grappled with the question of whether and how to block access to Facebook in the schools to which it provides Internet access. The reluctance to invest in physical capital needs to be overcome in ways that tie in with the relational economy (perhaps through community ownership of assets), while investments in human capital need to be enabled and encouraged (iSchool again). And the sustainability of a business needs to be judged not just in financial terms, but in terms of the relationships it has built.

Helping to build those relationships is perhaps one of the most important forms of assistance that an inclusive business can receive.