Baku Dialogues: INNOVATION AND ENTREPRENEURSHIP THE KEYS TO 21ST CENTURY DEVELOPMENT


Thank you, for having me here. It is great to be in extraordinary, beautiful Baku in this region which is the cradle of civilization. Let me start by thanking Fariz Ismailzade for inviting me; Ambassador Pashayev, and Dr. Maresca for their kindness. It is great to be here. I hope that this will be an informal conversation. I want to present my thoughts on Azerbaijan and its tremendous potential, its history, location, strategic position and other factors.

However, let me start with where I am coming from. Currently, I am living in Massachusetts. It is a small state in the United States with a population of 6.5 million; the US has about 320 million people. But there is something interesting about Massachusetts. Again, my view is based on where I am coming from and what kind of insights this may generate for Azerbaijan. There is something interesting about Massachusetts. Its per capita income is 90 percent higher than California and 27 percent higher than the rest of the United States of America. Why is that, one may wonder - especially if you compare Massachusetts to California, because California has Silicon Valley;2 it is a big state with big powerful companies and it has very famous universities like Stanford. Still Massachusetts has a higher per capita income. So one theory I have is that the mystery can be resolved with the fact that although California is six times bigger than Massachusetts in terms of population, Massachusetts actually offers 2.5 times more bachelors, masters and PhDs. Because after all those educated people come, pick up degrees in Massachusetts, then they go wherever they need to go. They go back to their countries or their states. They are not all absorbed by Massachusetts.

The provision of education in Massachusetts leaves an impact on the state. This is what I want to focus on. It is like when you open a restaurant. People come, they eat and go home. But there is a lot of cooking in the restaurant, and that cooking teaches the chefs how to cook better, and maybe they become better cooks simply because people come to their restaurants. It creates a hub. Students go away, but they leave a positive impact because those professors become maybe consultants, or scientists, producing other things. So even if you see education as a process whereby someone comes, picks up a degree and then leaves, the process of education benefits from that cycle. This is an important point I want to make. In other words, there are profound advantages in being a hub of ideas, and that is my first message to Azerbaijan. Simply because I live in Massachusetts, I thought this was an important point to make.

Now, Azerbaijan has already been a hub of ideas for thousands of years, but the point is that it has potential to be a greater hub than it is today. Of course, its leadership can consider which direction to follow in terms of being a hub of ideas. If we look at its history, we can see that it has tremendous depth. It has a history and a future and we are in between; we are also in the middle of Western Asia and Europe. And this place can become a hub for a transportation network that already exists, and is being developed; an education hub, trade and commerce, communication facilities, and etc. All these things can contribute to becoming a great hub of ideas. Among other things, what is key to note is the importance of creative people and ideas. The more creative people and ideas you have, the more you will attract other ideas and people. It reinforces itself. The
fact that you are in a strategically located place with so many educational opportunities, facilities and educated population - that creates potential for development. All the potential is there, and if the government throws in more resources, it can achieve what many other countries cannot pursue because of the lack of resources. They do not have sufficient educational capital, but Azerbaijan is well positioned to absorb, invite and reinforce itself.

Let me point out that I grew up in Bangladesh. I have learned a few things from Massachusetts, but my real education comes from Bangladesh. Let me make few points in relation to what I learned from Bangladesh. Bangladesh is known to be a very low-income country. It has twice the landmass of Azerbaijan, 15 times more people, 1/8 of its GDP per capita, and 1/5 of its purchasing power. In addition, people know that Bangladesh is very low-income country, so often they do not study it. I will read a paragraph from an American book. It says, “Bangladeshis must never forget that by 1757 they were producing more than 1/3 of all cotton textiles used in Europe, and had developed almost all the cotton and textiles known today.” Indeed, 16th century Bengal, which was the previous name of Bangladesh, was called the paradise of nations, the land of wealth, known for its agricultural surplus and manufacturing wealth. And Dacca, not Manchester, was the home of cotton, silk textiles, and Dacca was able to dictate the terms of trade when the Dutch, Portuguese, British, and French came. As Bengalis had little need for European goods, but Europeans wanted products from Bengal, the foreigners had to pay in cash. The reason I want to note this is not because of national pride, but because it is a fact that many of us do not know. What I wish to say is that Bangladesh has taught me that countries can go up or down. Nothing is static. You can be up one time and down another time; I know that Bangladesh is poor now, but that was not always the case. Frankly, belonging to an empire, one or another, in the case of Bangladesh was kind of challenging. We have been in the Moghul Empire, we have been in the British Empire, and belonging to an empire is costly.

Let me also make the point that low income actually stimulates innovation. Low income means poverty, so people think that charity is required. Actually, it is a stimulant for innovation. Let me clarify that. I read history whenever I can and what I get from that is that we can correct for circumstances that arise, but when the average person is diminished in some way, then a country usually declines. When the average person does well then the society as a whole picks up in all possible ways, in art, in culture, in many other ways. This is my overall reading of history.

So let me show you how low-income is a stimulant for innovation. As a child, I saw that there was a lot of poverty in Bangladesh. Many people did not have enough purchasing power. Indeed, as I am saying, we generally think that this kind of situation requires aid, charity and volunteer work. One of the key points I want to make is that actually those circumstances are stimulants for innovation. So now, I will take you to that
point. For example Johannes Guttenberg. He slashed the cost of book production by 100. Books were there before him, but he found a way to produce the books at a very low cost - so many more people could afford to buy books. Let us take Benjamin Henry Day;3 when he started in the 1830s in America, newspapers used to be sold for 6 cents, but he found a way to make a newspaper available for one penny. He innovated. This is what gave rise to mass media; Benjamin Day producing newspapers at a very low cost. Alternatively, before Henry Ford founded the Ford Motor Company, cars were there, but people saw them as a luxury good for the rich. But Ford tried to improve access for the average person, and he slashed the cost of car production to a tenth of what it had been. The same applies to Ray Kroc, founder of McDonald's. He not only did not invent hamburgers, he did not even invent the McDonald's store. He took it over from another group of people who did it. Here, too, he slashed the cost of the hamburger production.

So what did all these people do? They did not invent books, cars or hamburgers; they were serious about cost reductions. That was the major innovation which we may discuss at length. It boosted the economy, because many people could buy these things. Not only were their lives improved, but also more resources were released for other things in society, which gave rise to other dimensions of production. So these people did not make money from the poor, they made money with the poor. Another example is Isaac Singer, who invented the first practical, commercially successful sewing machine, and the first multinational company. He made sewing machines available for people.

Therefore, a normal, so-called “poor person” could sew clothes and sell them at a high price. The combination of a person and a sewing machine became far more productive, and therefore they could pay for the sewing machine. In fact, Singer invented an additional thing called consumer finance. People could buy a sewing machine and pay over time. You might call it micro credit today. That was a major innovation at that time.

These people innovated, created innovations, improved, leading to accountable businesses, price reduction, and many other effects.

Even today, there are many examples. For example, Bridge International provides excellent education for kids in Kenya, for which the parents are paying 3 to 5 dollars per month. Through IT and many other platforms entrepreneurs have radically reduced costs. Another
example is Bkash, a full-scale mobile phone-based payment system in Bangladesh. 4 People are sending money over hundreds of miles for a few pennies - another huge cost reduction. There is an Indian hospital performing heart surgery for a thousand dollars, much cheaper than other hospitals and at very high quality.

So what I wish to say is that we are living in a new era. We have many technologies; these technologies are giving rise to completely new possibilities in many ways, which can inspire entrepreneurial minds, like those in attendance today. Let me give an example. Let us take cell phones; I know this industry a bit. Cell phones are spread all over the world. Not just in poor or rich countries. Actually, there is more or less parity. If you go to a rich country, there are beautiful nice roads that poor countries may not have. In rich countries they have good electricity; in poor countries not so much. But in the cell phone industry there is a rough parity between rich and poor countries. Why is that? This was a cover story in the Economist magazine. Indeed, it is like a miracle; it is just a tool like a sewing machine that somebody can use to earn more and can pay for the phone service. Because somebody is paid for it, another person can create a company and provide a service. Therefore, a tool that makes people more productive unleashes also forces through which it can spread. New technology can give rise to it, creating a win-win-win model. The consumer wins because he becomes more productive, the entrepreneur wins because he has a viable business, and a country wins because its economy grows. In addition, foreign countries win because they export those tools and help those entrepreneurs.

There is another interesting phenomenon in relation to new technologies. If you see the future and a new wave coming, then you as a potential entrepreneur can plan how you will surf that wave - because an entrepreneur cannot create a wave by himself. If you understand new technologies, these new possibilities allow you to see the wave coming and prepare your surfing strategy.

In developing countries, there are also many first mover advantages. The landscape is not exhausted; all sorts of businesses have not yet taken form, and a new entrepreneur has the pioneer's advantage. Twenty years ago fax machines suddenly spread. Now hardly anybody uses fax machines. Now you can skip over and send pdf attachments as opposed to fax. There is also an advantage of youth in low-income countries. The population is young, and young people are better at new technologies. That is another interesting advantage.

Now I want to move to another point. We often think in great universities that we have much to teach to low income countries. I disagree with that. If we are engaged in this kind of innovation hub, we have to incorporate that. At least, this is my view, because when I went to the United States to study when I was 18 years old, I learned one big thing. The developed country has money, they have resources, and knowledge, and all of these should be spread to developing countries. We do not see that poor people can actually help the world, including the developed countries. The point I was trying to make through the innovations led by Ford or Guttenberg was that we missed the motivating factor of the poor people, who compelled inventors to think about reducing cost to improve access. If these people were all rich, honestly these innovations would not happen. Society would not enjoy the release of the resources enabled by creating goods more cheaply by reducing production costs. So low income people actually are a crucial stimulant for innovation, because unless they push us towards that development trajectory, we will be consuming greater amounts of resources to gain the same benefit. Thus, low-income people are actually teachers. And that is the point I want to make now. One of the lessons I learned having come from Bangladesh to New York was seeing Bangladeshis coming to New York and driving taxis. I had been taught that America needed to help Bangladesh because it does not have any resources. What I saw was that Bangladeshis are crossing the oceans, coming to US and taking a job. In other words, the drive to improve one's conditions is always there; if we are trying to provide a tool, then that tool will be seized as a means of advancing one's lot. That was the major observation. So, far from seeking aid, people are seeking to advance their lives, like the taxi driver. I was always told that poor countries need better food, medicine, shelter, etc. But I saw that immigrants coming from Bangladesh to Dubai or some other place need access to communication, because they are leaving their families behind. I could see that on the plane because I was sitting next to all those people who were going to work. They need communication. That is another fundamental mechanism whereby they could go to drive a taxi, earn money, and send remittances home. What I am trying to say is that the experts were sometimes passing on the wrong message. The experts told me that when poor countries need a service, they need it at very low cost or at zero cost. A poor person told me that it is not true. I will tell you a quick story. I settled down to create a mobile telephone company in Bangladesh. One time we had a cleaner at home, and she asked me to mail a letter for her. I said please give me the letter and I will put a stamp on it and send it. She said, “Please don't put any stamp on it.” I asked why. She replied, “if you put a stamp then it might not to get to my mother because the mail carrier can throw it away somewhere, but if you do not put a stamp, then it gets registered and then the mailman will collect twice as much from the recipient, and that's why he will definitely deliver the letter.” I realized that, far from seeking free services, poor people actually want to pay twice as much. Again, this cleaner taught me that the mail carrier has to be made to go to the right place, and she would rather pay twice as much for getting the service than getting it free. Every little thing that I learned from the actual person living in the problem was contradictory to what I had been told. People told me that I should determine how many phones a village needs by looking to the gross national product per capita of that village. Actually, that is not true because a poor person showed me that he was able to pay. So existing income did not really matter; it is rather providing a tool that enhances that person's ability to earn, enabling them to pay. Now I just want to read a paragraph from Henry Ford. He says, 'I do not recall any one who thought that the internal combustion engine could ever have more than a limited use. All the wise people demonstrated conclusively that the engines could not compete with steam. They never thought that it might carve out a career for itself. That is the way with wise people-they are so wise and practical that they always know to a dot just why something cannot be done; they always know the limitations. That is why I never employ an expert in full bloom. If ever I wanted to kill opposition by unfair means I would endow the opposition with experts. They would have so much good advice that I could be sure they would do little work.”

This is another important reason why we need to engage with the actual problems. We cannot just be “experts” and tell people what to do. How do we need to do that? I want to say that we make our models and then the models drive us. How do we free ourselves? Low-income people do not know our models. We know our models, and they push us to break our models. An entrepreneur's job is to break all models, to think about it, and this is why low-income countries, which constitute much of the world, can be a good teacher in solving the future problems of the world. Now the entrepreneur must listen to the sufferings of those people and then create a solution. The sufferers provide a key to innovation. In order to creatively solve the problem you need to get involved.

At least for ADA University - and this is what I did in MIT - you take students from different countries, help them to see what the problem is, and they find practical mechanisms for successfully designing and implementing a business plan. It could not be done in isolation. The problems themselves can teach the professors and students how to create a solution. To conclude, I want to say that you participate to innovate and to innovate you elevate. Let us take the Bangladesh telephone company that I initiated. I solved the problem by asking a Norwegian telephone company to get involved, which took me years. But the Norwegian telephone company now owns a company in Bangladesh and indeed hundreds of millions of dollars in profit go back to Norway. Even though Norway is a rich country and indeed, it deserves to earn those dividends, I believe Norway now receives a lot more help from Bangladesh than the other way around. People may not want to hear this, but it is a fact. It is true that Norway helps Bangladesh, but I believe Bangladesh helped Norway. That kind of relationship is what the world needs. It should not be one-way but rather two-way. That creates a more stable and healthy world, a give and take world.