Clayton Christensen, Efosa Ojomo, and Karen Dillon published The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty, over five years ago; yet, the lessons distilled in this book are relevant now more than ever. With the future of foreign aid funds uncertain during this year of elections, we must be smarter with our global development investments if we truly intend to create global prosperity.
At the Christensen Institute, prosperity is defined as the process by which more and more people in a region improve their economic, social, and political wellbeing. Prosperity isn’t created through the flood of resources designed to remedy things like low-quality education, subpar healthcare, bad governance, or nonexistent infrastructure. Instead, for many countries, prosperity flourishes when investments are targeted at improving people’s wellbeing through a particular type of innovation called market-creating innovations.
A shift from poverty…
Let’s break that down. Because poverty usually presents as a lack of resources, most development initiatives in the past have focused on alleviating these “symptoms.” Schools are built when there’s a lack of access to education. Wells are constructed when there’s no access to clean water. Sometimes, cash is provided when people lack money. While there is nothing wrong with providing resources to communities in need, simply providing resources won’t create a sustainable solution to these struggles—these are only temporary fixes. Schools need teachers, wells break, and cash runs out.
A focus on alleviating the symptoms of poverty may have temporary benefits, but an investment in creating markets will not only eradicate poverty, but also create long-lasting prosperity.
…to prosperity
Market-creating innovations (MCIs) are innovations that create these new markets by transforming complicated and expensive products into simple and affordable ones; thus, making them accessible to many people who previously didn’t have access: nonconsumers. In targeting nonconsumers, MCIs aren’t limited to an existing customer base and can, therefore, build companies and countries. And there is proof.
For example, if we look back at the history of the US, the early 1900s resembled some of today’s growth economies: low life expectancy, no roads or infrastructure, and little access to electricity.
So, how did the US get to where it is today? Through markets, which fueled the country’s development. Henry Ford’s Model T innovation spurred significant investment in American infrastructure by providing a tax base to support construction of roads. Samuel Insull’s establishment of Chicago Edison enabled the widespread adoption of electricity through its carefully constructed distribution system and innovative business model. Both of these innovations created jobs, increased wealth, and generated taxes—anchoring the sustainable development of the US in market demands.
MCIs (e.g., like those created by Ford and Insull) pull in necessary resources, such as infrastructure, as needed. In doing so, they further the growth of their surrounding environments. Their power comes from their system solution design. Now, not all MCIs will have the same impact as an affordable car or an electricity plant, but enough MCIs can change culture and inspire further innovation.
For a more recent example, let’s look at Mexico, a country that the World Bank considers to be upper-middle income, but that we might not necessarily see as a prosperous country…at least not yet. Mexico has had some market-creating innovations, but it’s also had an efficiency problem. In the past, the country has focused more on efficiency innovations, which, although are part of a healthy economy, don’t actually help an economy grow. Efficiency innovations tend to reduce jobs rather than create them. But if the country shifted their investment focus towards market-creating innovations, such as Mexican giant Grupo Bimbo, then the country could generate more jobs and sustainable economic growth, inspiring further market creation.
The Prosperity Paradox teaches us that the path to prosperity through market creation is proven and inspiring…but it isn’t easy. The key is to focus on targeting nonconsumption, or struggle. Fall in love with people’s problems, study them, find out what they are, what the Job is, and innovate solutions (not just resources) to those struggles. From there, the path to market creation becomes predictable, and the road to prosperity has begun.
