Alleviating Poverty Through Profitable Partnerships

Globalization, Markets, and Economic Well-Being

Patricia H. Werhane, Lisa Newton, Regina Wolfe

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000766011
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Poverty is an unnecessary form of human degradation and badly conceived economics. Our thesis is that poverty can be reduced, if not eradicated, both locally and globally. But this will occur only if we change our shared narratives about global free enterprise, remind ourselves that poverty is a system, and conceive of poverty alleviation as a "bottom-up" project. There is no "one size fits all" for poverty reduction. Rather, poverty is a system and must be addressed locally. It is our aim, as it is the aim of the United Nations, the World Bank, and many other organizations, to erase it from our vocabulary and from this planet.

With a series of case studies that accompany each chapter, this book should assist readers in thinking about poverty alleviation from a number of perspectives, from bottom-up entrepreneurial projects, local-corporate ventures, with public–private partnerships, from focused philanthropy, with education and health care initiatives, and agriculture reforms in rural communities, all with the aim of creating a win-win result for local and partnership individuals, organizations, and communities.

The book should be useful in various undergraduate and graduate courses on ethics, applied ethics, developing economic systems, and poverty.

1 Poverty is a system

According to Klaus Leisinger, retired CEO of the Novartis Foundation, “Poverty is a system” (Leisinger, 2015).

Poverty is complex and multidimensional, therefore, it calls for a comprehensive approach to eradication, addressing all aspects of a family’s life including meeting their basic needs, educating the children, having access to affordable healthcare and, most importantly, helping them to develop a skill and/or trade to generate income. It is equally important to provide them with support and encouragement throughout their journey to self-sufficiency as living in poverty is not just an economic state but also an emotional one.

(PSDI, 2019a)

The good news is that since 1990, the number of individuals deemed to be living in extreme poverty has decreased by 1.1 billion. Despite this good news, however, having 800 million people living in extreme poverty is unacceptable. The number of individuals at the base, or “the bottom billion” as Collier has called them (Collier, 2007), must continue to be reduced. How that is to be achieved is the subject of this book.

Let us begin with a story.

Barsha is from a small village in a remote area of Bangladesh. She is 13 years old and has had to drop out of school in order to help her family who is extremely poor. They live on one meal a day, if they are lucky, and call a small shack with a leaking roof home. They are so poor that they cannot even imagine sending their children to public school. Barsha is afraid that her family will make arrangements for her to marry because they cannot afford to feed her as well as her three siblings.

(PSDI, 2019b)

Barsha is one among the more than 700 million people who still live on less than USD$2 per day (World Bank Group, 2018b) and constitute what is sometimes referred to as the base of the economic pyramid or “BoP” (Prahalad, 2005; Prahalad & Hart, 2002).

In this chapter we will argue that Barsha’s plight is significantly interconnected with the experiences of those living in the developed industrial world, sometimes depicted as those at the top of the pyramid. We will provide a broad, cursory outline of three morally imaginative approaches to this global challenge that goes beyond the mistaken assumptions, half measures, and failed policies of the past and that accounts for the global decline of poverty.

Pyramid to diamond

An accurate visual and emotional image of the global economy is essential to understanding the paradox of profound economic growth amidst a human population still plagued by poverty, conflict, corruption, hunger, illness, and illiteracy. Since images and symbols have a profound impact on how we think through complex problems, it is fitting to start with a clearer visual image of the global economy. While no image of the global economy can capture all the challenges that Barsha and her family face on a daily basis, it is important to reflect on the strange paradox that there is a growing disparity between the very poor and the very rich amidst profound economic growth in the aggregate.

The pyramid, developed originally by C. K Prahalad and Stuart Hart (2002), was a popular image of wealth distribution across the global economy. The top tier included the 75 to 100 million people who made up 1% of the world’s population and whose wealth represented 40% of the world’s net worth. The middle tiers represented 36% of the population whose wealth was 59% of the world’s net worth.

Figure 1.1 The Economic Pyramid^a (source: adapted from Prahalad and Hart (2002)).

Note: ^aNumbers are subject to contention, though no one really contests the relative figures.

The base included the more than 60 percent of the population who in 2002 had incomes of less than $2 per day. However, those in the bottom billion do not form a single monolithic group. They can be further divided into sub-categories: those living in “extreme or abject poverty,” which the World Bank designates as living on less than $1.90 per day, and those living in moderate poverty, which refers to those living on between $3.20 and $5.50 per day depending on the country (World Bank Group, 2019e). Barsha and her family are in the first group. Eking out not even 50¢ per day from begging, her family barely has enough to subsist, even in Bangladesh.

Above the bottom billion the distribution of incomes has changed in ways that challenge the simple pyramid depiction. In part this is because of the economic growth in what O’Neill called the BRICs—Brazil, Russia, India, and China—countries that at the time were economically near the base of the pyramid but were growing rapidly though not always consistently (O’Neill, 2001). There was also evidence to suggest that population growth in developing economies was causing the pyramid to spread from its center into a diamond (Sachs, 2005a; T. Friedman, 2006; The Economist, 2004). The World Bank reconfigured its image, favoring a diamond over the pyramid. This continues today; the number of those at the very top is shrinking and the disparity between rich and poor is widening. In 2018, according to Oxfam, “26 people owned the same as the 3.8 billion people who make up the poorest half of humanity, down from 43 people the year before” (Oxfam, 2019).

Though interdependent, life for the very poor is drastically different from life in the middle or top income brackets. The differences bring the extent of global economic inequality into sharp relief. The top 1% of the world’s population represents 27% of the world’s total economic growth (down from 40% in 2009) while the entire bottom half of the world only represents 12% of the world’s economic growth. (World Inequality Report, 2018). Less than 1% of the world’s population participates in the financial markets as shareholders. Wealth created by multinational enterprises (MNEs) accrues almost exclusively to an elite group of executives, employees, and shareholders (Hart, 2007). Barsha is highly unlikely to ever participate as a shareholder in the great engine of the global economy, so she is likely to fall further and further behind those who are able to participate.

Figure 1.2 Population growth in the middle tiers

Spreading occurs in the middle largely because of the recent economic growth in countries such as India and China where development, job opportunities, and a growing middle class of educated people now live well above the poverty level measured by those countries’ standards. Growth in these two countries in particular mirrors the spread of higher living standards that were unimaginable two centuries ago. Despite this significant growth in the middle, there is stagnation in the numbers who live in abject poverty in Sub-Saharan Africa, which is home to at least half of the 800 million people living in extreme poverty. Although some have moved up above the poverty line, others have found themselves further away from anything approaching a comfortable life. Today’s global economy, while beneficial in the aggregate, has winners and losers. Worse, the rich are, indeed, getting richer while the poor are getting poorer. As Oxfam (2019) reports: “The wealth of the world’s billionaires increased by $900bn in the last year alone, or $2.5bn a day. Meanwhile the wealth of the poorest half of humanity, 3.8 billion people fell by 11%.”

Future projections reinforce this sober portrait and underline the challenges faced by those who want to do something about global poverty. The unprecedented growth in population during the last century is projected to plateau at 9 billion around 2050. Most of this growth will occur in the slums of mega-cities in developing countries (United Nations Department of Economic and Social Affairs, 2013).

Although the horizontal spread of the economic diamond symbolizes a positive economic trend in many respects, at least when compared to the economic pyramid of the past, it is of no comfort to Barsha or many like her. Barsha’s type of poverty has persisted in certain regions of the world, frustrating decades of attempted solutions. Aid, philanthropy, and grand economic theory have, in many countries, failed to help Barsha participate in the kinds of freedoms many in the world have taken for granted. In his 2006 book, White Man’s Burden, William Easterly notes that despite the developed world providing more than 13 trillion dollars in aid since the end of the Second World War, there was little to show for it. Nevertheless, as the United Nations has demonstrated through its Millennium Development Goals, extreme poverty has been reduced by half since 1990 (United Nations, 2017). However, given the 11% decrease in wealth among the poorest of the poor noted above, it seems unlikely that the current wave of economic growth in neighboring India is likely to help Barsha in any meaningful time frame. The burning question that naturally emerges is what can be done to facilitate a wave of development that enables all those mired in poverty, like Barsha, to move out of their present situation.

Poverty: Definition or description?

How one defines or describes Barsha’s situation has significant consequences for any potential solution. There remains strong disagreement among scholars as to whether daily income measured in dollars accurately depicts poverty (Thurman, 2008b). Since relative living standards mean that $2 of daily income in India is not truly the same as a daily income of $2 in the United States, the World Bank uses the “purchasing power parity (PPP) exchange rate” to standardize the poverty rate in different currencies. Typically, the PPP is based on surveys of the costs of a given group of goods, often called the market basket approach. While this adjustment is helpful for a broad overview of the world economy, it was never designed to measure poverty per se (World Bank Group, n.d.). One response is to adapt the focus of the World Bank to what it terms the “multidimensional view – wherein other aspects such as education, access to basic utilities, health care, and security are included – [such a view] reveals a world in which poverty is a much broader, more entrenched problem” (World Bank Group, 2019e).

For those who live in extreme poverty, it is true that a greater portion of income is spent on meeting basic needs; however, standardized income by itself does not always paint a clear portrait of the multitude of stressors that ignite a daily struggle. In some communities, barter may be the primary means through which individuals and villages survive and even flourish. Standardized income tells us very little about why Barsha has resorted to begging or whether subsistence farming or fishing are a viable option for her, as they are in other BoP regions. The stress of poverty in Oceania is quite different from the experience in Bangladesh or in Darfur.

PPP is attractive because it draws the attention of affluent communities to those in dire need using terms and a vocabulary they can translate into their own lifestyles. Used by some international organizations and first-world NGOs, it does help establish a common language for those institutions interested in this issue. However, PPP often reveals more about an organization’s ideological commitment to or against globalization than it does more specifically about those who live in poverty. Those in favor of globalization tend to use national income averages to argue that poverty is declining, while those opposed to globalization, particularly economic expansion by MNEs, use income gaps between the richest and the poorest to argue that this gap is getting larger. How international organizations and first-world NGOs measure poverty significantly impacts their ability to secure resources. (See Chapter 2.) Unfortunately, statistical poverty reduction is much easier to effect than actual poverty reduction. While PPP may be useful when examining the global economy, it is not an accurate depiction of poverty in its particular manifestations.

That is not to argue, however, that poverty reduction efforts should not be subjected to measurement, definition, or description. We simply argue that poverty measurements, definitions, and descriptions are also normative; the way in which one describes the problem and frames the data shapes how one envisions the solution and allocates resources. The more generalized the definition, the more blunt the instrument. We shall explore this connection more thoroughly in Chapter 3 when we discuss the power of mental models and the use of moral imagination to expand models when exploring possible options for solutions.

Local nongovernmental organizations often have a practical and field-oriented grasp of how definitions shape the allocation of resources. Partners for Sustainable Development International (PSDI), for example, is an NGO operating in remote villages in Bangladesh. It defines poverty in an interesting way:

• “The poorest of the poor”: An individual or a family living in extreme poverty, who has at most one meal a day, inadequate shelter, as defined by local standards, no clean water or latrines, and the inability to send their children to school. In Bangladesh, “adequate shelter” translates into a one-room four-sided hut with roofing adequate to protect against the rainy season and heat.
• The “very poor”: Those who may have adequate shelter and eat at most twice a day, but who often cannot afford adequate nourishment, again defined locally according to customary eating habits.
• The “poor”: By PSDI’s standards, individuals or families who have adequate shelter, eat two or three meals a day, and usually send their small children to the local government primary schools. Note that, again, eating habits vary so, in some communities, small meals or snacks eaten five times a day may be the norm for those not in abject poverty while, in others, two larger meals may be the norm.

(PSDINTL, 2019a)

PSDI employs this working definition so that practitioners in the field can make quick assessments of who is eligible for their services. In this regard, it matters little whether Barsha has crossed the dollar amount set as the threshold of the PPP, since she will be lucky to scrape together one meal a day. The PPP, therefore, is not particularly useful for effectively allocating resources to reduce poverty in specific situations or for understanding the various factors that exacerbate it.

Systems thinking

We began this chapter by declaring that poverty is a system. Barsha is part of a community, a rural remote community with little in the way of good food sources, no or distant educational and healthcare facilities, no public transportation, few job opportunities for her parents, and in an overpopulated very poor country, part of which floods every year from the rising Bay of Bengal and the rivers that feed it. In addition, because of its lack of natural resources, large numbers of unskilled laborers, poor transportation system, and weak governmental infrastructures, Bangladesh is not attractive to foreign investment. Barsha is part of a system that abets long-term extreme poverty.

What do we mean by a systems approach and systems thinking?

• A system is a complex environment of interacting components, together with the networks of relationships among them, that identifies an entity or a set of processes (Laszlo & Krippner, 1998, p. 51).
• Systems thinking is the habit of mind that considers any social entity as a complex interaction of individual and institutional actors, each with conflicting interests and goals and with several feedback loops (Wolf, 1999).

A systems approach presupposes that most of our thinking, experiencing, practices, and institutions are interrelated and interconnected. Almost everything we can experience or think about is in a network of relationships such that each element of a particular set of relationships affects some other components of that set and the system itself. Almost no phenomenon can be studied meaningfully in isolation from other relationships with at least some other phenomena. The interdependence thesis illustrates that interconnectedness.

One example of a system approach to the alleviation of poverty is the Siongiroi Dairy in Kenya. With the help of NGOs, the Siongiroi Dairy buys 11,000 liters of milk per day from 2,000 local dairy farmers. Prior to the collective dairy, individual dairy farmers did not have the market power or presence necessary to command fair—or even subsistence—pricing for their product. It is from this examination of the Dairy that we see the underlying system that the Dairy built in order to survive (Siongiori Dairy, 2018).

Without a systems analysis, we would not have learned that over 100 new businesses resulted from the activities of the Dairy; they rely on each other for such things as transportation services, veterinary supply stores, clothing shops, new restaurants, food stalls, butcher shops, hardware stores, and mechanic shops—all as a result of the single identified need of the farmers. We would not have learned that those who lived in the Siongiroi village used to travel many miles to get to the market; however, once the dairy was creat...