A New Epistemology of Solving Complex Problems

I’m in India, spending the week with the Acumen team and with the Acumen India Fellows for their fourth seminar. Last night, at the end of the first day of seminar, we were joined by Vijay Mahajan, one of the most esteemed social sector leaders in India. Vijay is the founder of Pradan, which he ran from 1983 to 1993, and was then the founder of BASIX which grew to be one of the largest microfinance organizations in India prior to the microfinance crash in 2010.

Vijay is a truth-teller, who speaks plainly and without adornment about his experiences. Our conversation was an intimate one – just us (20 India Fellows, me, Jacqui Papineau and Bavidra Mohan, together with Vijay and his colleague, documentary film-maker Girish Godbole), with Bavidra interviewing Vijay before an open Q&A.

Upon hearing Bavidra’s first question, around lessons about leadership, Vijay paused and thought hard for what must have been 20 seconds before responding. Just watching such an esteemed individual, who must have been asked a similar question hundreds of times, really stop and think before giving an honest answer was a display of humility and respect for our group that itself spoke volumes.

From that moment on, everyone in the room was silently hanging on Vijay’s every word, with most scribbling furious notes of Vijay’s pithy insights. My single biggest takeaway stemmed from a comment Vijay made early on in the discussion, when he said:

Anything that could be solved with single variable maximization was solved in the 20^th century…we need to create a new epistemology of complex problems for the 21^st century.

I’ve always felt that impact investing and social enterprise are something brand new. If this work is going to realize its true potential, we are going to need to think about two-variable approaches – or, better stated, leadership that embraces opposable mind thinking and sees potential where others see only contradiction.

I must admit, until last night I had not aspired to creating a “new epistemology” but I think Vijay is on to something. Ultimately we need a strong theoretical and analytical grounding to explain what it would mean to take truly new approaches to solving centuries-old problems, problems that are based as much on caste, social exclusion, geographic marginalization, and politics as they are on simple microeconomics. And, as Vijay reminded us, such a theoretical underpinning is not entirely new. Indeed, in 1956 economist Herbert Simon developed the notion of “satisficing” rather than “maximizing” behavior as being a more accurate description of how individuals and firm managers behave. Perhaps we need more satisficing firms of we are to solve this new batch of problems.

Indeed, the more I think about it, the more it strikes me that Vijay’s statement summarizes the core fault line within impact investing and social enterprise: is impact investing just about extending the market, a chance to extent single-variable (profit) maximization to areas where it hasn’t yet reached? Or is single-minded profit maximization (versus profit achievement), as a binding constraint, anathema to the real task of tackling social issues?

There’s no doubt that there is work to be done on both sides of this fault line. It is an overstatement to say that all single variable maximization problems were solved in the 20^th century, and there are huge emerging swaths of the population – hundreds of millions of people – who are optimally situated to benefit from the extension of 20^th century approaches to them. However, I believe that impact investing will fall far short of its potential if it limits itself to this approach (indeed, isn’t it just “investing” to find businesses that fit age-old criteria and invest to help them grow)? What I am seeing after nearly eight years doing this work is that that, outside of narrow verticals (e.g. financial services on mobile platforms), the social sector leaders who are working to reach marginalized populations do not act as if single-variable maximization is enough.

By the way, it bears mention (lest anyone jump to conclusions) that just because one agrees that a narrow profit-maximization mindset is not enough does not predetermine anything about what business models need to look like, what form an organization should take (for-profit, non-profit, or some other form), or even about financial returns. Rather, this is a conversation around what sort of problem one believes one is working on, and an assessment up-front of whether the tools that we created in the 20^th century are up to the task of tackling the problems of the 21^st century.

Vijay’s closing thought, with which I heartily agree, was that “we cannot build great theory if we keep on reporting practice wrong.” Our challenge, from the outset, is to have the audacity to imagine the world as it could be, and the humility to share the real lessons of what it takes to create large-scale social change. Vijay certainly shared his real lessons with us, and I know that I and the Acumen India Fellows will follow his lead in continuing to take problems head-on, and honestly share what we are learning with other practitioners, so we can all build a better future.

(And maybe, just maybe, we will eventually find a way to develop a PhD 21^st in the Epistemology of Solving Complex Social Problems…)