CSR & Foundations: Passing the 4-Fold Test
For every complex problem, there is a solution that is clear, simple and wrong. -H.L. Mencken
In my last article, I wrote about waves in public administration. Here, I link those waves to companies’ and foundations’ growing interest in areas that used to belong only to the government.
This shift began in the late 1980s with New Public Management (NPM), when governments started adopting methods from the corporate world. A major turning point came with the Companies Act of 2013, which introduced corporate social responsibility (CSR). Instead of just borrowing corporate ideas, companies were now expected to take part directly and implement them.
To get the best results, companies need to learn from real-world practice. They could not understand what was happening if they ignored what practitioners already knew. Consider the “sniff test” developed by economist Lant Pritchett.
The 4-Step Sniff Test
Pritchett recalls working with a World Bank team evaluating a program for women’s self-help groups. After answering their questions, a woman in West Bengal asked how such groups worked in their own (richer) countries. The team had no answer; they did not even know if such groups existed in their countries. Yet they still believed these groups promoted development.
From this experience, Pritchett created a simple four-step test to judge policy ideas. Economist Paul Romer later used it to study the link between urbanization and income.
Test 1: At a given time, do more developed countries have higher urbanization?
Yes - countries with higher income per person tend to be more urbanized.
Test 2: At a given time, do countries with faster urban growth also see faster improvements in living standards?
Yes - higher income and higher urbanization tend to rise together, both across and within countries.
Test 3: Over time, do countries that become more developed also become more urbanized?
Yes - historical evidence shows that today’s developed countries urbanized as they grew.
Test 4: When countries shift from slow to rapid growth, does urbanization also speed up?
China shows this clearly. Before 1980, urbanization grew slowly and income rose by about 2.5% per year. After 1980, urbanization accelerated sharply, and income growth increased to about 6% per year. Both rose together.
Typically, companies/foundations end up solving for parts of the problem but not the system as a whole. In their vocabulary: what they have to strive for is a better product-market fit! At a minimum, an idea should pass Test 2 or Test 3 - ideally all four. One way of accomplishing this is use the 4-Step method to know a-priori if they will make a lasting impact, not short-term results. It also ensures better use of resources and contributes meaningfully to long-term national development.
