Por: Diego Leyton Martínez - SEVEN Fund

As the founder of the On The
Frontier Group (OTF), what do you
think is so innovative about OTF’s
vision and business strategy?
What type of projects do you help
develop?
I am conflicted, caught between
bragging and not wanting to give
away trade secrets: We try to innovate
at every point in our value
proposition. For example: We are
the only consultants I know of that
give a full money-back guarantee
to our clients. If we don’t achieve
what we say we will, they get their
money back, all of it. That has many
implications: we are expensive, pay
the highest salaries, and attract -we
think- the best people. We don’t
use a roll of outside consultants,
everyone we hire is permanent. We
turn down projects where the client
is not competent or serious, and we
spend up to 20% of our revenues on
training, writing, and new IP. We are
venture capital-backed, which forces
us to have a lot more discipline than
most others in our space. Less than
ten percent of our revenues have
ever come from donors; mostly
we work for presidents and prime
ministers. We work in the toughest
places, post-conflict countries: El
Salvador after 14 years of civil war,
Afghanistan, and Rwanda, the last
ten years since the genocide. We
did the first competitiveness projects
in the developing world, we
did the biggest ones, and we did
the most. Periodically, we put our
insights in major books. “Plowing
the Sea” was the first Enterprise
Solution to Poverty book, and was
peer-reviewed before publication by
six Harvard economists, and Culture
Matters is a global best-seller, published
in a dozen languages.
The mission of OTF states that you
are “passionate about inspiring
competitiveness, which ultimately
leads to enhance prosperity”. How
do you define prosperity and why
should it be considered as the ultimate
goal?
Prosperity is both a flow and
a stock. The flow is income, best
measured by purchasing power.
That’s pretty standard. The stock
view though, is more controversial.
Nobel laureates like Arrow, Solow,
and Sen do not agree on this one.
But we believe that there are seven
forms of capital, in ascending order.
The first three are: raw materials,
financial, and man-made capital. The
others are institutional, knowledge,
human and cultural. Countries that
innovate and create prosperity for
more people possess an abundance
of the last four. Sen says that a stock
view is useful, because it anticipates
wealth for people, it is the collection
of assets that a nation uses to improve
standards of living.
We could deduce from your articles
and publications that you
consider competitiveness as a
key element to building prosperity.
How should countries develop
competitiveness?
Focus on rule of law that protects
tangible and intangible property
rights, help build great companies
with unique products, and invest in
the only thing with the potential for
infinite returns: children.
In your book, “Plowing the Sea”
you state that the advantages developing
nations have in natural
resources, inexpensive labor, and
fertile soil have actually kept those
nations poor. Can you explain why
you think these assets are preventing
countries from having competitive
economies and industries?
When you have an overabundance
of basic factors (sub-soil assets,
location, and sunshine), you
compete on price. When you compete
on price you must lower your
costs, one of which is labor cost.
That means the only competition
you are in, is to see which nation can
stay the poorest the longest before
its society disintegrates. Economists
rarely understand that the function
of trade should be to raise wages
to improve lives, not lower them to
serve some theoretical equilibrium.
I do not advocate government protection
or picking winners and losers.
I do advocate that firms make
informed choices and take timely
action to develop great products. At
the same time these should serve
demanding consumers who are willing
to pay high price points for the
unique value they perceive to obtain.
Economists can’t model what I just
said, so they pretend it doesn’t matter.
Due to the insight you have by
working with people from different
regions, would you consider culture
as a factor of poverty?
Culture is the most important factor,
and the reason donors spend
hundreds of billions and have not
made a dent in poverty -and are
losing relevance- is because the
political leadership in their countries
won’t let them take the real causes
head on. Listen, culture is not race or
genetically encoded, and culture is
not monolithic. Culture can change.
Culture is simply, how one group of
people self identify, and how others
identify them by how they attach
meaning to life. I would never seek to
tell people how to attach meaning to
life, but when asked -and I am asked
by chiefs of government often- how
do you create prosperity, I tell them
lots of things. For example, raw
materials don’t matter. Interpersonal
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