Only Business Can End Poverty

Approximately 2.7 billion people around the world live in poverty. Despite the fact that the global economy has grown 17-fold over the past six decades, about three of every eight people in the world exist on $2 per day or less.

The United Nations has not solved the problem of global poverty. Foreign aid from wealthy governments has not solved the problem. Charities have not solved the problem.

Certainly, millions of people have been helped by traditional assistance efforts. However, a new book suggests that traditional methods and institutions, while not completely useless, have achieved only modest results, at best. And, in some cases, those results have not always been positive or sustainable.

Adobe Photoshop PDFMal Warwick, the legendary direct-response fundraising expert and entrepreneur, and Paul Polak, a leading social entrepreneur, have written the new book The Business Solution to Poverty, to be released on September 9, 2013.

The provocative book has been described by Bill Clinton, former US President, as, “One  of the most helpful propositions to come along in a long time … original, ambitious, and practical.”

In their book, the authors define the nature of poverty. They review what has been done, citing what has worked and what has not. When reviewing what has worked, they also point out the huge limitations of the positive results achieved by traditional institutions using traditional methods. Finally, the authors outline their ideas for dramatically reducing global poverty and the suffering of billions of people.

As citizens of the world and as nonprofit professionals, we should all pay particular attention to what Polak and Warwick suggest. If you’re interested in learning more about the book, you can visit the authors’ website. To get a copy of the book and help ensure a successful book launch, you can purchase your copy at The Nonprofit Bookstore, powered by Amazon, on Monday, September 9, the day it is released.

One of the assertions that the authors make in the book is: “Only Business Can End Poverty.” It’s a thought that many, particularly those in the charity sector, will find provocative. After all, the authors are critical of the nonprofit sector.

I’m honored that the authors have allowed me to share some excerpts from their book with you. Let me know what you think of what Polak and Warwick have to say:

 

Poor people themselves tell us that the main reason they are poor is that they don’t have enough money. We agree with them. At first blush, this seems simple and obvious, but conventional approaches seem to focus on everything but helping poor people improve their livelihoods as the most important first step to ending poverty.

TAKEAWAY #3:

The most obvious, direct, and effective way to combat poverty is to enable poor people to earn more money.

However, instead of this obvious approach, efforts to eradicate poverty have tried just about everything else.

 

More than five million citizen-based organizations around the world have joined official and multilateral efforts to combat poverty. The biggest, typically called INGOs (international nongovernmental organizations), work in scores of countries, often have operating budgets upward of $500 million, and sometimes possess widely recognizable brands. Among the most powerful few are World Vision, CARE, Save the Children, and Catholic Relief Services (all based in the United States); Oxfam (UK); Médecins sans Frontiéres (Doctors without Borders, France); and BRAC (Bangladesh). At the other end of the spectrum are organizations at the village or community level typically referred to as community-based organizations, or CBOs. They number in the millions and normally operate without paid staff and with little or no money.

To put the work of these private organizations in perspective, it’s important to note the fundraising problems that plague so many of them. Ask just about any nonprofit organization to identify its biggest challenge, and unless it’s supported by government contracts, chances are you’ll be told that challenge is fundraising. According to the Urban Institute, the total activity of the nonprofit sector in the United States in 2009 was $1.4 trillion, or roughly 10 percent of the country’s GDP. Big numbers, indeed. Reliable estimates for most other countries — especially those in the Global South — are few and far between. Since the citizen sector is far more developed in the United States, and the United States possesses by far the biggest economy in the world, a rough rule of thumb for the citizen sector globally may be to double the number for the United States alone. That would put the total at about $2.8 to $3 trillion. But before getting carried away with this huge number, keep in mind that the overwhelming preponderance of the sector’s programmatic activity worldwide takes place in the Global North, and that only a small percentage of nonprofit funds is put to work in poor countries. (For example, US nonprofit organizations engaged in international aid and development received only about 3 percent of the $299 billion contributed by Americans to “charity” 2011.) In the Global South, the citizen sector is badly underdeveloped and underfunded, and the amount invested there by rich-nation NGOs is tiny by comparison with foreign aid.

Taken together, these organizations, constituting what Ashoka founder Bill Drayton terms “the citizen sector,” have undoubtedly bettered tens of millions of lives and strengthened thousands of communities worldwide. Some collaborate directly with poor people, but the efforts of NGOs tend to be scattershot and are almost always on a small scale. Scale is the overarching issue for the citizen sector.

From time to time, the citizen sector develops an idea that does spread far and wide. For example, CARE International introduced a variant on microfinance called the “village savings and loan” in Niger in 1991. Unlike the many microfinance institutions (MFIs) that offer only loans, the village savings and loan program is based on savings rather than debt and is managed by members of the community rather than professionals. In the two decades since its introduction, the concept has spread across Africa, Asia, and Latin America through the efforts of Plan International, Oxfam US, Catholic Relief Services, the Aga Khan Foundation, and other NGOs, as well as CARE.

As Nicholas Kristof wrote not long ago in the New York Times, “These ‘village savings and loans’ . . . now serve some six million people in 58, countries.” For example, a woman named Biti Rose in Malawi met regularly with 19 other village loan members, each depositing about 10 cents per week. “This money was lent out to members, and CARE coached them on how to start small businesses. . . . With a loan of $2, Biti Rose started making and selling a local version of doughnuts, for 2 cents each. Soon she earned several dollars a day in profit. Alfred [her husband] began growing vegetables and selling them . . . Biti Rose and Alfred then were able to buy seed and fertilizer for their own land” and an additional two acres they leased as well. “These days, they hire up to 10 farm laborers to work for them.”

Unquestionably, village savings and loans provide a valuable service for poor people, but stories such as those of Biti Rose and Alfred are exceptional. In fact, the experience of microfinance institutions such as Grameen Bank and BRAC has shown that loans are largely used for purposes other than business development, such as staving off starvation or paying for religious ceremonies.

Until recent years, most citizen-sector development programs were much less innovative. For example, in many emerging nations, CARE staff would enter a village, dig a well, and leave. For a time, the villagers would enjoy the use of the well — until something broke. Then, since no one locally knew how to fix the machinery or find spare parts, the well would fall into disuse. Similarly, an Indian charity called the Rajiv Gandhi Foundation reports having built and supplied 1,570 small village libraries. Observers have noted that few of the libraries are in use. Most remain under lock and key. Tragically, these experiences are all too typical of the well-meaning work of the citizen-sector around the world. The biggest and best of the INGOs have evolved through the years away from the charity paradigm, as have many NGOs, but enormous numbers of smaller secular groups as well as many faith-based organizations continue to engage in simple giveaways, treating poor people as objects of pity.

 

That’s what Paul Polak, Mal Warwick, and Michael Rosen say… What do you say?

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10 Comments to “Only Business Can End Poverty”

  1. More people seek to immigrate here than the other 200 or so countries in the world – combined. Perhaps the authors, like Adam Smith, are on to something

    • Richard, thank you for your comment. The USA continues to be a great magnet that attracts people from around the world. While we certainly have not created a utopian society, we have created a society of opportunity, hope, and well-being. While poverty does exist in the USA, how many of our citizens exist on $2 or less per day?

  2. I eagerly await the book. It appears to be a clear counterpoint to the prevalent redistributionist model of government and charity. I suspect it will be met with some skepticism by those whose worldview is that private business (free market enterprise and capitalism) is exploitative by definition.

    • Steve, thank you for sharing your thoughts. The Polak/Warwick book does run counter to the increasingly popular, anti-capitalist discourse. However, I need to point out something. While I don’t personally know Polak, I do know Warwick. Mal Warwick, who is based in Berkeley, CA, CANNOT be described as a conservative. So, anti-capitalist liberals will find it difficult to counter the Polak/Warwick material on political, ideological grounds. Instead, the debate will need to focus exclusively on the merits of the argument presented by the authors. How refreshing!

  3. Deuteronomy 15:11

    • Scott, thank you for sharing the Bible reference to Deuteronomy 15:11. For my readers not familiar with the verse, here is the English Standard Version: “For there will never cease to be poor in the land. Therefore I command you, ‘You shall open wide your hand to your brother, to the needy and to the poor, in your land.’”

  4. Friends and fellows,

    The discourse isn’t about 20th century ideologies anymore. Conservative vs Liberal, and so on, has brought us to where we are today.

    If we’re talking about paradigm shift then new cultures arise. Muhammad Yunus, Paul Polak & Co. are integating systems that worked with new solutions (social business/entrepreneurship/…)
    A good read I recommend is: Sustainist Design Guide (http://issuu.com/bis_publishers/docs/sustainist_design_guide) which presents the attitude, values & purpose of new generations.

    Take it from a humble 27 year old social designer.
    Tiago

    • Tiago, thank you for commenting and sharing the link to the Sustainist Design Guide. Old models have taken us just so far. In some cases, old models have actually hurt people. With 2.7 billion people existing on $2 or less per day, we clearly need a new path forward. I applaud Polak and Warwick for promoting a new path forward. Can their ideas affect the massive positive change they seek? Time will tell.

  5. I am less a believer in the capability of business/capital to arrive at solutions to poverty. After all, as Peter Buffett has provocatively suggested, many of even the most philanthropic business leaders have through their business activities been contributing to poverty. I look forward to reading Warwick and Polak. But by way of a counterweight may I also suggest Michael Edward’s “Small Change”. And for some heartening examples of social entrepreneurs making a difference in India, try Rashmi Bansal’s “I Have a Dream”.

    • John, thank you for sharing your thoughts and for the suggestions of the additional reading material. I’d like to recommend another article, “Five Pillars of Fundraising Success from Somalia.” I wrote the piece several years ago after interviewing an NGO official working in Somalia. After the interview, I became a believer in the power of incrementalism. Warwick and Polak, however, are not fans of incrementalism; they want to see dramatic, sweeping change to better the lives of millions. I’m not sure that their proposed solution can solve the entire problem of poverty, but it just might make a significant dent. I’m intrigued.

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