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“We can basically make drought risk in Kenya and Ethiopia an investment that can attract interest in the global capital market,” says Barrett.
Beatrice Jin
Beatrice Jin

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“We have no hope of addressing global poverty and malnutrition without business-based innovation,” Barrett says. “We have no hope of addressing global poverty and malnutrition without business-based innovation,” Barrett says.
Robert Barker (UPHOTO)
Robert Barker (UPHOTO)

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Cornell has the ability to develop impactful innovations for a mostly ignored population with its world-class animal scientists, remote sensing experts, and climate scientists. Cornell has the ability to develop impactful innovations for a mostly ignored population with its world-class animal scientists, remote sensing experts, and climate scientists.
Robert Barker (UPHOTO)
Robert Barker (UPHOTO)

Our Business Is a Better World

by Alexandra Chang

“I commonly get the question: What is somebody whose career is dedicated to the world’s poorest and most malnourished populations doing in—much less running—a business school?” Christopher B. Barrett says as he sits in his office within the Dyson School of Applied Economics and Management, for which he became director in January 2014.

His answer is simple: “We have no hope of addressing global poverty and malnutrition without business-based innovation.” Barrett credits government agencies, nonprofits, and charitable organizations for their important work, but points out that they can’t possibly fill all of the world’s needs. That’s where a place like the Dyson School, and its research, teaching, and outreach, becomes important.

Barrett likes to characterize the school’s orientation as “our business is a better world,” and his work fits in line with this motto.

The Insurance Solution

Since 2010, Barrett and a larger group of researchers collaborating under the leadership of the Nairobi-based International Livestock Research Institute have worked to develop an insurance product for livestock keepers in northern Kenya and southern Ethiopia. These regions suffer from severe drought and have been hit especially hard in the past decade. When droughts come, it’s calamitous to livestock populations, and in turn, to the welfare of the local pastoral communities.

“The fundamental problem was that there was no insurance system,” says Barrett. In the United States, when a natural disaster occurs, private insurance providers, backstopped by government disaster assistance, enable most individuals to recover most or all of what they’ve lost. The financial markets, with important government support, transfer the risk and thereby build the resilience of populations to disasters. In places such as the drylands of East Africa, by contrast, the livestock keeper carries the entirety of the risk.

To create an insurance product, Barrett and his colleagues spent time researching past episodes of drought and its manifestations in pastoralist populations. The researchers found that they could use satellite-based measurements of vegetative cover to predict livestock mortality with high accuracy. By reconstructing the probability distribution of herd mortality, the researchers developed a viable commercial insurance product.

“We can basically make drought risk in Kenya and Ethiopia an investment that can attract interest in the global capital market,” says Barrett. Not only is it an investment for commercial insurance underwriters and the international reinsurance market, which make money from the product, it prevents catastrophic losses for the insured parties and helps remove systemic risk from a rural economy in which most livelihoods collapse when herds die.

The initial commercial pilot program launched in January 2010, and when the 2011 drought hit, the insurance product worked as designed.

“The people who were insured were much less likely to reduce the number of meals they fed their children; they were much less likely to engage in distress sales of any surviving animals,” says Barrett. “In short, they were able to recover from this catastrophic drought much faster than waiting for food aid that would come five or six months later. With the security of insurance, they invested more in their cattle, increasing the animals’ productivity and thereby boosting their incomes. So there was a double dividend.”

Innovative Collaborations

The core foundation of the work, says Barrett, is the importance of leveraging new technologies and global capital and engaging the private sector to help with both. Developing an innovative technology depends on access to expertise in various fields. In predicting livestock mortality, Barrett consulted experts across Cornell’s campus.

“The fact that we have a world-class animal science department, excellent remote sensing people, and climate scientists—this all feeds into our ability to develop something innovative and impactful for a population that most of the world ignores,” he says.

Barrett has mirrored this collaborative research approach in other projects, including one of his latest with his Dyson School colleague Mark Constas. The project has more of a theoretical angle, where the researchers articulated a theory of development resilience and developed corresponding measurement and impact evaluation techniques.

“Humanitarian communities have really latched onto this word ‘resilience’ and that’s become a centerpiece of programming. But it’s more buzzword than something concrete,” says Barrett. He and Constas are working to answer some key questions: What do we mean by resilience? How can we measure it? What evaluations are necessary to determine whether we are building resilience or not? Their article in the October 2014 Proceedings of the National Academy of Sciences has opened up a new dialogue around these questions within both practitioner agencies and research groups.

A Theory of Resilience

Barrett says that the best way to think about resilience is as the probability of remaining, or becoming and then remaining, non-poor. A resilient person or community in the face of any number of unforeseen problems (like drought) can remain reasonably unlikely to suddenly become poor. A non-resilient person may be poor today and indefinitely into the future, or non-poor today but stands a significant chance of collapse into poverty without quick recovery. Barrett points out that the pastoral communities prior to insurance were generally non-resilient.

Coming up with a theory of resilience is not quite as concrete as an insurance product, but it has significant impacts on both policy and private-sector investments. The goal of the work is to figure out what most cost-effectively promotes resilience in various communities, and then to use those findings to influence the type of policies and investments made in those areas.

What do we mean by resilience? How can we measure it? What evaluations are necessary to determine whether we are building resilience or not?

For example, what are the relative benefits of promoting cell phones versus insurance products versus secondary school education? Both governments and private organizations concerned about poverty reduction, such as the Gates Foundation, could use this type of information.

“If they’re trying to not just help people to move out of poverty today but to help people remain non-poor over an extended period of time, what works best?” says Barrett. “That’s where we should put our money.”

As an economist working on issues around poverty and wellbeing, Barrett says there is no place where he would feel more at home than Cornell. Besides a large and talented group of faculty colleagues with related interests, one huge benefit is the quality of students at the university; both undergraduate and graduate students work with Barrett on his research projects.

“For someone like me who works on social justice issues, which is one of the things that attracts a lot of talented people to Cornell, the students are phenomenal,” says Barrett. “They’re very intrinsically motivated and very skilled, and that’s a magical combination.” If anything, it’s evidence of future generations of scholars and leaders for whom “business is a better world.”