CK Prahalad writes in the Wall Street Journal (subscription link):
There is an inherent paradox in the debate about poverty alleviation that escapes even the most sophisticated observers in the West. Consider the conventional thinking about China and India: They are seen as a threat to the West. The fear is not only about “exporting well paying U.S. jobs” but also about competition for resources such as oil and commodities. Yet India is home to more than 500 million people who live on less than $3 a day. In China, the number may be around 400 million. Just these two countries represent 900 million people in poverty, a larger number than the entire population of Africa. There are about 600 million in Africa who live on less than $3 per day. Why, then, do China and India evoke fear and anger, while Africa elicits pity and guilt?
Despite the magnitude of their respective poverty problems, China and India may have a chance of meeting the Millennium Development Goals established by U.N. Their economies are following the lead of other countries that have raised their populations into a middle-class economic base. For example, between 1975 and 2004, GDP per capita in South Korea increased fourfold. Over the same period, Malaysian incomes rose threefold.
On the other hand, in those decades, per capita incomes in Nigeria declined by a tenth. Why? During the period 1955-2004, the West and multilateral institutions invested more than $1 trillion in aid and subsidies in emerging economies. But poverty persists.
Prahalad questions “the role of aid and subsidies in promoting sustainable economic development,” and says that the quickest route to alleviating poverty is to allow private firms to explore the bottom of the pyramid. (By and by, have you read Prahalad’s book?) One example:
Consider “connectivity.” Between 1998 and 2004, the number of mobile-phone users in Africa grew 41-fold to 81 million — the fastest growth in the world. The spread of mobile phones in Africa illustrates the power of market-based solutions to usher in social and economic transformation. Bottom-of-the-pyramid consumers understand and accept high technology and are willing to pay for it. A focus on access, availability and affordability is needed to create markets at their level.
Entrepreneurs have created this capacity to “consume” connectivity in Africa. The spread of cell phones around the world — estimated to reach two billion by 2006 — will be accomplished by the private sector (likely in the face of stifling state regulation). The private sector has made investments to create a marketing ecosystem for connectivity. So why not in other products and services?
Prahalad concludes, and I couldn’t agree more:
To “make poverty history,” leaders in private, public and civil-society organizations need to embrace entrepreneurship and innovation as antidotes to poverty. Wealth-substitution through aid must give way to wealth-creation through entrepreneurship.
If you have a subscription to the Wall Street Journal, read the full piece here.
(Link via reader Anuj Tiku.)