Stunt
Diamond Member
The following essay was written by a girl in grade 12 from Mississauga, Ontario. It's an interesting take on the concept of 'poverty' and how business can take an active role in the fight against poverty. It is nice to see such a young person full of independent thought and reason.
Personally I agree with her points and if we all shifted our points of viwe on this topic, the world would be much better off. We need to give the poor tools to work their way up in society, not just give blind hand outs as a crutch to just make it by.
Enjoy
Personally I agree with her points and if we all shifted our points of viwe on this topic, the world would be much better off. We need to give the poor tools to work their way up in society, not just give blind hand outs as a crutch to just make it by.
Enjoy
linkKathleen Guglielmi
Loyola Catholic Secondary School
Grade 12
Business as a Solution to Poverty
For-profit business is a solution to poverty in developing countries because it
empowers the people, is more effective than aid money, and benefits all parties involved
as the company turns a profit while the consumers improve their quality of life. This
paper will prove this by dispelling the myths about poverty, exposing the weaknesses of
foreign aid, and by citing examples of numerous successful businesses that currently
operate based on these principles.
Myths about the poor, held by those in charge of aid and development, often
poison public policy and prevent people from taking practicable action in reducing
poverty. As Muhammad Yunus, the creator of Grameen Bank says: ?The approach to
poverty is thwarted by our fixed convictions. Poor people are helpless, unhealthy,
illiterate and thus stupid, they have nothing, they know nothing, we must take care of
them, we must give them food?.? (Visscher 26) In short, the poor are seen as a liability.
However, this could not be further from the truth. In fact, there are millions upon
millions of small-scale entrepreneurs who live in the developing world and could lead the
charge in the fight against poverty (Kamp 44), but they are simply not given the chance.
This is in part due to the belief that the poor are victims who must be given charity.
As a result, the international community has focused its efforts on foreign aid as a
solution to poverty. The problem with foreign aid as a solution to poverty reduction is
that it is focuses on meeting the needs of the donor country rather than the needs of the
recipient (Clark and Wallace 213). First of all, foreign aid is rarely given purely for
altruistic reasons. In fact, giving foreign aid is now seen as ?politically correct? and
governments in donor countries use foreign aid as a bargaining chip to help further their
own agendas. As a result, foreign aid is often given with conditions imposed by the
donor country requiring recipient countries to dismantle trade barriers, introduce a ?free
market? system, boost production of cash crops, allow foreign competitors into the
country and cut government services (Clark and Wallace 213). This leaves developing
countries crippled and dependent on donor countries and often leaves recipient countries
struggling with debt repayment; the developing world now spends $13 on debt repayment
for every $1 it receives in grants (Shah).
Foreign aid is also detrimental to recipient countries because it maintains the
status quo, preventing the radical changes necessary to reduce poverty in developing
countries (Lodge and Wilson 123). Foreign aid supports bureaucracy and corrupt
governments, who use the money to support their own regimes - as is the case in North
Korea and the UN Oil for Food scandal in Iraq. Aid to many such governments has
actually worsened the plight of the poor by sustaining the political and social systems that
caused their misery in the first place (Lodge and Wilson 123). Much aid money is also
wasted due to the bureaucratic nature of foreign aid and very little of it actually reaches
the poorest of the poor (Clark and Wallace 213). In short, foreign aid is ineffective.
For-profit businesses, on the other hand, cannot afford to waste money and must
be both effective and efficient in order to survive. This forces businesses to arrive at
creative solutions to problems and, as GrameenPhone architect Iqbal Quadir points out,
?this drive to efficiency only exists in business? [and it] makes the economy efficient
and saves resources for the country? (Visscher 26). As a result, for-profit businesses
succeed in reducing poverty where foreign aid fails, as they must meet the needs of their
consumers in order to survive.
Some may wonder how for-profit businesses, often seen as the exploiters of the
poor, can be part of the solution. In order for this to occur, poverty reduction must be ?an
integral part of [a business?] profit-making activities, not a pro bono sideline? (Lodge and
Wilson 125). Businesses must also stop regarding the world?s 4 billion poor people as
victims and start eyeing them as consumers (Prahalad and Hammond 38). For decades,
business has thought of poor people as ?powerless and desperately in need of handouts?
(Prahalad and Hammond 38). But turning the poor into customers and consumers is a far
more effective way of reducing poverty (Prahalad and Hammond 38).
There are barriers that businesses will encounter in servicing the world?s poor.
Infrastructure is often poor or non-existent, creating the need for substantial upfront
investment; illiteracy tends to be high, requiring non-traditional market approaches;
tribal, racial and religious tensions, as well as rampant crime, complicate business
operations; governments ? especially local and provincial authorities ? often to not
function effectively or transparently; and corruption is widespread (Prahalad and
Hammond 38). Yet all of these barriers have actually been overcome by businesses in
servicing the middle class. In fact, the real barriers have less to do with conditions in
countries and more to do with misperceptions and attitudes about the poor.
The poor are viewed by business as having no money and being resistant to new
products and services, and selling to the poor is seen as unprofitable or, even worse,
exploitative. In reality, low-income households collectively possess most of the buying
power in developing countries (Prahalad and Hammond 39). For example, Brazil?s
poorest citizens alone consist of nearly 25 million households with a total annual income
of $73 billion U.S., India has 171 million poor households with a combined $378 billion
U.S. income, and China?s poor residents account for 286 million households with a
combined annual income of $691 billion U.S. (Prahalad and Hammond 39). Being poor
is not only about a lack of money, but also a lack of choice. By targeting the poor as
consumers, businesses can access a vast market while also improving the lives of it
consumers.
One of the first and most successful examples of a for-profit company that caters
exclusively to the poor is Grameen Bank, founded by Muhammad Yunus in Bangladesh,
one of the poorest countries in the world. Grameen Bank lends small sums to poor people
and is built on ?Yunus? conviction that poor people can be both reliable borrowers and
avid entrepreneurs? (Gangemi). It even includes a project called Struggling Members
Program that serves 55, 000 beggars (Gangemi). Since its inception, Grameen Bank has
turned a profit almost every year and now serves 3.7 million families in 46,000 villages
in Bangladesh, earning a profit of $4.4 million U.S. in 2004 (Visscher 30-31). This bank
has given poor entrepreneurs the ability to support themselves and contribute to the local
economy. It has also spawned the growth of microcredit around the world. In fact, the
United Nations designated 2005 the ?Year of Microcredit? as even big banks join in the
battle against poverty (Vesscher 31). Grameen Bank is a perfect example of a company
that is able to turn a profit and satisfy shareholders, while also improving the quality of
life for the poor.
Another example of this is GrameenPhone, a for-profit telecom outfit launched in
1996 by Iqbal Quadir in Bangladesh (Gangemi). Supported by Grameen Bank and
partially owned by Norway?s Telenor, GrameenPhone provides cellular phones to rural
villages. Funded by loans to individual women, these ?village phone ladies? allow
villagers to save time and increase productivity, thus benefiting the entire community.
For example, instead of spending a day travelling to a market only to find out there was a
better price elsewhere, farmers can now call ahead to several markets to find the best
price for their products. By using women as their phone carriers, GrameenPhone has also
improved the status of women in these Muslim communities. Even Muhammad Yunus
admits that, ?Grameen Bank has an impact on the poor, GrameenPhone on the entire
economy? (Visscher 32). GrameenPhone currently has over 2.5 million subscribers
around the country and had a net profit of $75 million U.S. in 2003 (Vesscher 30).
Both of these for-profit enterprises prove that business is a viable solution to
reducing poverty. There are also many other examples including Nirma, an Indian
detergent company (Prahalad 39); Honey Care Africa, a company that trains subsistence
farmers in beekeeping; Ruf and Tuf jeans, a company in India that sells an ?assembly
package? for only $6 U.S. that the buyers then stitch together (Prahalad 39); and
numerous cell phone companies operating with the poor around the world. As a result of
these businesses, the poor benefit from access to new products and technology, expanded
consumer choices and increased purchasing power that improves their quality of life.
New services and information that improve efficiency also help increase productivity and
raise incomes among poor citizens (Prahalad 41). However, the most important benefit of
all is not the higher standard of living, but rather the value found in dignity and choice.
Although foreign aid continues to be touted as the ?solution to poverty,? it is
inefficient and achieves very little actual change in the lives of the poor. For-profit
businesses, on the other hand, are capable of dramatically reducing poverty and
increasing the global quality of life because they are effective and meet the needs of the
consumers: the poor. Currently, many successful businesses, including Grameen Bank
and GrameenPhone in Bangladesh, operate around the world and are achieving true
social change while simultaneously making a decent profit. However, until business
views the poor as profitable consumers rather than victims, this success will remain
limited. It is only by dispelling these myths and by realizing the true potential of the poor
that the global community will finally be able to break the cycle of dependency trapping
developing nations. Poverty reduction can only be sustainable if it is profitable, and
business makes this possible.
