This question is really two questions. The first part is "Must a venture/project" earn an adequate return to be sustainable?" The answer is an obvious yes, but leaves open what is meant by an adequate return. An adequate return must generate a revenue flow to sustain operating expenses. It should also provide for the replacement of the initial investment (fixed assets). Whether it needs to return a competitive rate of return on those initial assets depends on the nature of that investment. If it is venture capital (from investors) it needs a rate of return in addition to covering operating expenses. If it is a grant there may only be need for replacement investment.
The second part of the question is "Must the profit motive be a driving force for success". The answer here is more mixed. The profit motive includes maximizing revenue, but it also involves minimizing expenses. The profit motive is as much about good cost management as it is good marketing. Both are possible without an explicit self interested profit motive on the part of those who own the assets and receive the profits, but both are more difficult and require extra dedication and care. There is a further complication here, in that some development projects are undertaken because there is what economists call a "market failure". For such development projects this usually means that the benefits are spread wider than just to those who pay. The market demand for the service or produce will be less than socially optimal unless there is a subsidy to reduce costs and lower prices. Education and health are areas where one frequently finds market failure. There are then three lessons to be drawn here. First, "profitability" as the need to pay attention to keeping costs in line and worrying about pricing/marketing is essential whether the operation is a private "for profit" operation or a social "for community" project. Capitalists ignore this at the risk of their capital. NGOs ignore this at the risk of their projects. Second, If the profit motive of owners is not the driver for efficiency and effectiveness in the provision of goods and services, some other explicit benchmark measures need to be in place to assess and discipline the projects. For community projects this needs to be more than "bookkeeping", it needs to be strategic financial planning. Third, If projects involve addressing externalities an explicit strategy of dealing with externalities needs to be part of the strategic planning. Are private sector projects subsidized to better align wider benefits with project costs? Are NGO project subsidies assessed in terms of their ability to align wider benefits with costs? The sustainability of good projects requires "profitability" as a performance indicator and performance tool. If the "profit motive" is not the driving force for decision makers, something else must operate as the driving force for cost and marketing decisions. If there are externalities these must be explicitly addressed in strategic planning and in how projects are costed, funded, and how their goods and services are priced. Lastly, all of these require a level of management, administration and accountability that is seldom found in development projects. Sam Lanfranco Distributed Knowledge Project York University ------------ This DOT-COM Discussion is funded by USAID's dot-ORG Cooperative Agreement with AED, in partnership with World Resources Institute's Digital Dividend Project, and hosted by GKD. http://www.dot-com-alliance.org and http://www.digitaldividend.org provide more information. To post a message, send it to: <[EMAIL PROTECTED]> To subscribe or unsubscribe, send a message to: <[EMAIL PROTECTED]>. In the 1st line of the message type: subscribe gkd OR type: unsubscribe gkd Archives of previous GKD messages can be found at: <http://www.dot-com-alliance.org/archive.html>
