Capital: Resource or Crutch?

When I was in the Peace Corps in Costa Rica, the program office gave nominal support of community-led, community-funded projects, but the de facto operations of my Peace Corps program often told a different story.

Volunteers were given access to $2,500 through CR-USA, a development partnership between the governments of the US and Costa Rica, to go toward community projects. While a great opportunity, the money appeared to be offered without condition, and our community counterparts (typically leaders of a semi-formal local government organizations called Development Associations) were well aware of this. Instead of thinking of the best projects for the community without prior knowledge of virtually guaranteed funds, the community leaders thought of ways to spend $2,500. In fact, the center director of our program said directly to the counterparts that the volunteers bring with them access to these funds.

Rather than being a useful resource for volunteers and their communities, to be called upon when needed, the CR-USA funding (or at least the idea of it) ended up being a crutch for many. I often felt lonely (and even angry) in my fight against our image as vessels whose sole purpose is to transfer $2,500. It seemed like a waste of young, talented people to put them in an environment that stifled hard work and creativity--not to mention a waste of roughly $40,000 (anonymous source, 2007) in federal funds per year to support a Peace Corps volunteer.

Many volunteers used CR-USA as a crutch. They held onto the idea of that funding, assuming it would be available when it came time to execute their big project. In my opinion, many projects were shaped solely around the CR-USA opportunity, with both the volunteers and the community limiting their possibilities to whatever they could get done with $2,500 (plus a smaller amount of matching funds from the community). The tragedy here is that even the projects that are successful may have the unintended consequence of complacency. Maybe the community could have done something much more profound, and with greater long-term sustainability, had the people banded together to do something without regard for seemingly guaranteed funds.

So, that's my take on the successes. The second part of the problem was demonstrated when the CR-USA organization started tightening up funds. It became harder to get funding, as money was set aside for a far smaller number of projects and funding came with stricter guidelines. Many people rightly panicked because they had put off applying for funding, assuming the silver bullet for their community projects would be there. Many of those same people were already too far along in their service to come up with a contingency plan for a project that appeared to be set in stone. Consequently, many of the projects didn't go through.

This example from the Peace Corps shows us how capital--or at least the idea of it--can be a crutch. In this case, the crutch often made people think too small, limiting themselves to a narrow set of opportunities. It was sad to see smart, capable people underachieve in this way, because I knew they could accomplish so much more if they opened themselves up to real local solutions to problems, powered by the locals themselves.

Not all examples of "crutch capitalism" demonstrate an underestimation of opportunities. Often when large amounts of capital are available to entrepreneurial start-ups, the companies become spend-thrifts out of the gate and burn money too quickly. In this case the "let's see how we can spend $X" attitude overestimates the business opportunity. A company might spend $100,000 marketing a product that's worth $50,000. (Just like capital, marketing should not be a crutch.)

So, whether you end up underestimating or overestimating your opportunity, available capital can (perhaps ironically) be a bad thing. I know this can be tough to stomach if you're a resident of the capital-starved developing world--or an entrepreneur looking at the devastated capital markets--but a dose of skepticism with regard to capital can be healthy.