Want To End Poverty? Go Easy On The Aid.
By: Hassan Ghedi Santur
Tags: Development, Ngo, Economics, Poverty, Humanitarian

BRIGHT: The book argues, “Alleviating poverty is not the same as creating prosperity. We need to start thinking differently.” What does it mean to create prosperity? What does that process actually look like?

First, let’s be clear what we mean by prosperity. There are some obvious and commonly used proxies for prosperity, such as access to education, healthcare, good governance, and so on. These things are clearly important, but we believe that an even more important proxy is access to gainful employment and upward social mobility. So the process by which more and more people in a region improve their economic, social, and political well-being is what we are talking about.

Our research demonstrates those things are the result of market-creating innovations that can ignite a local, regional, and then national economy.

BRIGHT: The international community has spent over 4 trillion dollars on development over the decades, with much of that aid money going to “alleviating poverty.” What does the international community not understand about development? Why do we continue trying to alleviate poverty rather than create prosperity?

It’s totally understandable why the international community focuses on alleviating poverty. The signs of poverty are clear for us all to see — poverty almost always reveals itself in the lack of resources: water, sanitation, infrastructure, education, governance, and so on.

The default solution to that would be, naturally, to provide the resources that we see lacking. But we have been doing that for decades and decades — with incredibly good intentions — and there is often frustratingly little to show for it. What’s missing in that thinking is an understanding not of how we alleviate poverty, but rather how we spur prosperity. Prosperity can be enduring and self-sustaining. That’s the difference.

BRIGHT: The word “innovation” comes up a lot in your book. How do you define innovation? For instance, is innovation always linked with technology? Is it always led by the private sector?

We define innovation as a change in the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value. Note that innovation is not the same as invention, which describes the process of creating something entirely new. Innovations are often borrowed, from one country to another, from one firm to another, and then improved upon. Our definition also does not specifically link innovation with technology nor with the private sector. There have been some spectacularly successful innovations in simplifying a product or service — or even in the business model, rather than the product itself. The point is transforming resources into products or services with greater value.

BRIGHT: How would you respond to people — especially those in the business of alleviating human suffering in war torn places like South Sudan and Yemen — who say theories about how to create prosperity are all well and good, but when people are dying of preventable diseases, talking about economic innovation is a luxury they just can’t afford?

Our book is not saying innovation will solve immediate humanitarian crises. Starving children, drought, epidemics, etc., clearly those all merit our intervention, and this book does not suggest that we stop helping people who are suffering. Support is essential and warranted. What we are saying, however, is that for long-term solutions to a country’s situation, ones that really take root, we have to look beyond immediate relief efforts. And history has shown us, time and again, that the path to prosperity is paved with market-creating innovations. Look at South Korea. It’s hard to imagine a more dramatic transformation than South Korea’s “economic miracle” that took it from war-torn poverty to its current platform as economic world leader. South Korea shows us what’s possible.

BRIGHT: You say in the book, “It may sound counterintuitive, but our research suggests that enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This sounds great, but many people have hard time imagining what investing in innovations looks like. Can you give us any examples in the developing world of innovation investing that have actually created prosperity?

Sure. A terrific example is Indomie noodles, which you might not have heard of, but is a household brand name in Nigeria. What the company Tolaram, through Indomie noodles, has done in Nigeria is astonishing. Since its entry into Nigeria in 1988 — when Nigeria was still under military rule — Tolaram has invested more than $350 million to create tens of thousands of jobs, developed a logistics company, and built infrastructure including electricity and sewage and water treatment facilities. In addition, Tolaram has built educational institutions, funded community organization programs, and provided millions of dollars in tax revenue.

Perhaps the most visible evidence of this strategy is that the company has taken a lead role in developing a $1.5 billion public-private partnership to build and operate the new Lekki deep-water port in the state of Lagos, Nigeria’s commercial capital.

Tolaram has shown that out of very little, a market can be created — and with the birth of a market come the attendant benefits that can lead to development.

Indomie noodles are so woven into Nigerian society that it might even surprise Nigerians to recall that noodles are not among their traditional foods. Tolaram (which originated in Indonesia) has only been selling the product in the country for about thirty years. The company’s growth track turns the conventional wisdom about development on its head in that there was little attractive about investing in Nigeria when Tolaram decided to enter the country.

BRIGHT: To your mind, what are some of the greatest barriers to building market-creating innovations in the developing world? How can those barriers be dismantled?

We devote several chapters in our book to the barriers — and we know they are real. Corruption. Infrastructure. Governance. Our point isn’t that they don’t exist, or that they can just be willed away, but rather, history tells us that market-creating innovations jumpstart the process to overcoming those barriers. When infrastructure becomes essential to the survival and growth of a successful market-creating innovation, it will be “pulled” into that economy. Look at what Tolaram has pulled into the Nigerian economy, not out of a worthy sense of civic responsibility, but because it’s essential to Tolaram’s growth.

BRIGHT: In the book you tell the story of Richard Leftley who founded MicroEnsure, a medical insurance company that has registered more than 56 million people for insurance in emerging economies. Can you talk a bit about the significance of Leftley’s innovation and its impact? Are there any elements of his story that could serve as a cautionary tale to others?

When Richard Leftley started telling his insurance colleagues his idea for a new type of business, [they] laughed at him because he was talking about going to Zambia and selling insurance to people who had HIV. He told us people thought he had lost his marbles. But that is what sets market-creating innovators apart — the ability to see opportunity where others see nothing. Or worse, only obstacles. MicroEnsure has been awarded the Financial Times/IFC Transformational Business Award four times in recent years, and is already profitable in 80 percent of the markets it has entered. More than 85 percent of MicroEnsure’s customers had never purchased an insurance product until MicroEnsure came to the scene. Leftley and his colleagues have shown us what’s possible. Market-creating innovations require us to see the world differently.

BRIGHT: And finally, if you could suggest one idea for people working on poverty alleviation to consider, what would that be?

We are hoping people read this book and start to think about problem-solving a bit differently. See with new lenses, both where the opportunity lies, but also why innovation is so powerful and important. If you begin to understand the catalytic potential of market-creating innovation on an economy, you might just begin to see new ways to support that innovation and the entrepreneurs who are brave enough to put up a flag in very difficult circumstances.