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Poverty versus prosperity: focus matters

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Sep 28, 2016

“The answers you get depend on the questions you ask.” – American physicist, historian, and author, Thomas Kuhn.

Many books have been written about the severity of global poverty and the need to alleviate, fight, and ultimately eradicate it. Some of the most influential books on the topic, such as Columbia University Professor, Jeffrey Sach’s The End of Poverty; MIT Professors, Abhijit Banerjee and Esther Duflo’s Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty; and Nobel Peace Prize winner Muhammad Yunus’ Creating a World Without Poverty provide insights on how we can fight poverty and thus, improve the lives of the poor. These books are some of the most inspiring books we have ever read. The authors present the plight of the poor, coupled with a call to action, in ways that are very persuasive.

However, at the Christensen Institute for Disruptive Innovation, we have made a conscious effort to focus on what causes prosperity in poor countries as opposed to how to alleviate or eradicate poverty in poor countries. We do this for the several reasons. First, the eradication of poverty is not the same as the creation of prosperity; second, focusing on poverty typically leads to mediocrity or, what we call, the “anything is better than nothing” phenomenon; and third, many things can alleviate poverty, but only one thing can truly create long-lasting prosperity (more on this in a bit).

The eradication of poverty is not the same as the creation of prosperity

In 2015, the World Bank celebrated a reduction of global poverty to less than ten percent (a majority of whom were in China). However, that same year PEW Research Center, the nonpartisan fact think tank, released an extensive report in which it stated that, “the global middle-class is more promise than reality.” PEW researchers found that approximately 56 percent of the global population are in the low-income bracket, living on less than $10 a day or $3,650 a year. A majority of people in this bracket don’t have access to adequate housing, health care, insurance, security, stable income, and several other things enjoyed by people in prosperous countries. Clearly, it seems, poverty reduction does not result in a comfortable lifestyle.

As it turns out, China was able to catapult many of its citizens from extreme poverty and raise its status to upper middle income (in 1990 its GDP per capita was approximately $316, whereas in 2015 its GDP per capita was $7,920). But China did not invest in trying to eradicate poverty. The country invested in creating prosperity. We are reminded by the famous words of Deng Xiaoping, “Let some people get rich first.”

What we learn from China’s success, as we do from many other countries that are wealthy today, is this: if we focus exclusively on creating prosperity and not simply on alleviating or eradicating poverty, we can do more than simply eradicate poverty, thereby helping hundreds of millions of people live much more comfortable lives. But if we continue to focus on poverty eradication programs, they will limit our thinking and cause us to adopt certain behaviors that do not lead to progress.

Focusing on poverty leads to mediocrity or the “anything is better than nothing” phenomenon

It can be a paralyzing experience trying to fix a problem as complex and multi-causal as poverty. And because of the severity of poverty, the thinking that “anything is better than nothing” can easily become prevalent. Since education seems to be one of the most common examples of this phenomenon, we will use it to illustrate this point.

Imagine you visit a very poor community without access to a school. Conventional wisdom suggests that building a school is the right thing to do. However, you know that access to good teachers and the sustainability of the school are questions for which you do not have good answers. But because of the, “anything is better than nothing” phenomenon, you proceed to build a school and staff it with whomever you can find. As if that were not bad enough, the question of what the students will do upon graduation crosses your mind, but because, “anything is better than nothing,” you do not feel the need to answer it. You are in the development industry focused on “education,” not on job creation. So, instead of thinking holistically about the problem, you determine that a subpar school where students have little to no job prospects upon graduation is better than no school and end up saying, “at least we are doing something.”

If this were an isolated incident, it would not be so troubling. But data suggests that it is a very common phenomenon in the development industry. The World Bank’s Independent Evaluation Group (IEG) assessed all its projects since the 1970s and found that less than two percent of World Bank projects are “highly likely” to be sustainable. Many more are just “likely” to be sustainable, but even when faced with such performance, projects continue to be executed because alas, “anything is better than nothing.”

Many things can alleviate poverty, but only one thing creates long-lasting prosperity

Nobel Prize winning economist, Joseph Stiglitz wrote that, “What we measure informs what we do. And if we’re measuring the wrong thing, we’re going to do the wrong thing.” When we began our research into how countries developed from being poor to prosperous, we did not ask ourselves, “What alleviates poverty?” As it turns out, many things alleviate poverty and we could measure those things and pursue them with relentless effort. But many of those things do not create long-lasting prosperity. For example, if an organization decides to build a free or low-cost clinic in a poor community, village, or country, that clinic is bound to alleviate sickness of the poor, thereby alleviating poverty. But the clinic is not creating long-lasting prosperity.

Instead, our research is guided by one question:“What causes long-term prosperity in poor countries?” This question has led us to think radically differently about the problem of poverty and development, and provided us with a different way of solving the problem. We posit that it is an organization’s ability to develop an innovation targeted at nonconsumption that causes countries to prosper. Nonconsumption addresses an important Job to Be Done which arises in people’s lives when they encounter a problem that they would like to solve. These people then tend to “hire” products in order to solve these problems. Once organizations are able to identify jobs that need doing and figure out solutions that can fulfil those jobs, they in turn create employment for many people and move society forward. This type of innovation that targets nonconsumption of an important Job to Be Done is called market-creating innovation. It is the process of continually executing this type of innovation that is at the core of development. It typically necessitates thinking holistically about the problem and creating an integrated solution.

Consider the Rwandan company, EarthEnable. In Rwanda where the GDP per capita is approximately $740, cement floors are beyond the reach of the average family. For as little as $2 per square meter, and with the average home roughly 20 square meters, EarthEnable allows a family to floor their home with a proprietary solution which comprises of clay, sand, fiber, and plant oils for $40. This represents more than a 70 percent reduction in cost compared to a cement solution. In 2014, EarthEnable installed approximately 10,500 feet of flooring but that number has since skyrocketed to more than 237,000 feet. The company also increased its employee count from just 14 in 2014 to more than 100 in mid-2016. In addition to the economic benefits, EarthEnable floors are likely to reduce a family’s susceptibility to childhood asthma, diarrhea, malnutrition, and parasitic infestations as a result of mud floors.

The reason companies that target nonconsumption, such as EarthEnable, must hire many people is that they must integrate across many interfaces of their business models in order to be successful. In other words, because many poor countries lack the necessary infrastructure and institutions that enable faster and more efficient business practices, these companies must create them themselves. For instance, EarthEnable must train its staff, taking into account the education infrastructure in the country; or the company must build out a sales and distribution channel itself because very few or no such channels exist in the country. Interestingly, as EarthEnable, and companies like it, integrate across these interfaces, they are inadvertently building the country’s infrastructure little by little.

Innovative companies like EarthEnable have unlocked the solution to creating prosperity in poor countries. If more innovators like them are funded and supported, we will actually have a shot at creating prosperity in some of the poorest countries in the world in the not so distant future.

Regardless of the industry you’re in, focusing your intervention on nonconsumption, as defined by people’s Jobs to Be Done, is one of the most important ways of having significant impact. This means that an organization interested in improving education should not simply focus on providing education, but should ask, “What job are students looking to accomplish by going to school?” Likely the answer is not education for the sake of education. If members of the organization cannot answer that question confidently, they should think about creating an integrated education solution that takes that into consideration.

 

Efosa Ojomo

Efosa Ojomo is a research fellow at the Clayton Christensen Institute for Disruptive Innovation. Efosa’s work focuses on using disruptive innovation theory to fundamentally change the discourse in the global development community, thus enabling nations to engender their own path to long-term growth and prosperity.

  • Sunday Negedu

    Disruptively shifting our established paradigms. A solution does not necessarily solve the problem before us; instead of focus on alleviating poverty, we should present the poor with opportunities for prosperity. It is revealing. Like the proverb that suggest it is futile to keep giving a man fish, you need to teach him the act of fishing. It is a call for African leadership to identify “what really has to be done” for the poor to get them onto the road of prosperity. The “attack-poverty” approach is appealing, who would frown out feeding school children? But how about empowering the mothers of these children to identify the non-consumption markets in their community, using available limited resources to create their own wealth?! So much to always learn from your post. Thank you disrupting our established thinking on issue of universal prosperity for the people.