This post is part of a year-end series by MBA students at California College of the Arts’ Design MBA Program. Read more about our annual partnership here.
By Eric Persha
Close your eyes and say it again… Capitalism. What images does the word evoke in your mind?
For most of the developed world there is a common public perception that providing aid to less fortunate countries is the most straightforward solution to alleviating global poverty. It seems logical that countries ranking high on multiple economic factors could simply redistribute their wealth and solve every issue that developing countries are faced with. Unfortunately, the public is incredibly misinformed.
That is not to say that donation-based development programs should be placed to the wayside, but most economists will agree that monetary aid falls victim to diminishing returns. Some would argue that in certain situations, aid contributions actually go beyond diminishing returns and enter an area of negative returns.
While most “rich” nations fall short of their 1970’s promise to donate .7% of their gross national income (GNI) to official development assistance, data from the Organisation for Economic Co-Operation and Development (OECD) clearly states that actual contributions have wavered in amount, but overall increased in net between 1990 and 2009. Additionally, economist Paul Collier points out in The Bottom Billion that the fifty most impoverished nations in the world are actually “dropping further and further behind the majority of the world’s people, often falling into an absolute decline in living standards.” Increasing aid and diminishing returns – aid is not the only answer.
The concept of profiting from the bottom of the pyramid tends to be tied to that dirty word at the top of this page (capitalism…), however in many situations it elicits natural human behaviors that lead to growth potential for developing nations. The more socially acceptable term for using the principles of capitalism to produce social change, social entrepreneurship, was the focus of research I conducted this summer while on sabbatical in Africa.
During my research in Tanzania and Kenya I observed several organizations that use a for profit social entrepreneurship model. I identified two that exemplified this model: Save our Environment Tanzania (SOET) and EGG Energy.
SOET is a local Tanzanian NGO that manages many local issues out of their offices in Charambe, a village on the outskirts of Dar es Salaam. SOET’s Youth Empowerment Project rehabilitates community youth that were previously involved in drugs, alcohol, and petty theft by creating a monetary incentive system and teaching entrepreneurial behaviors to provide meaningful change in their lives.
The Youth Empowerment Project has built up capital from the sale of common household goods and shares the profits amongst the participating youth. All of the youth participate in a sales training program that teaches them the principles of being positive and looking forward. The organization also tracks individual and team sales performance and provides rewards to members that out-perform sales goals and encourages the team to do the same.
On a larger scale, EGG Energy is a multidisciplinary team from MIT and Harvard that has created a solution to bring affordable power to communities in developing nations. According to the EGG team, “80 percent of the population in Tanzania lives within 5 kilometers of an electrical transmission line but only 10 percent has access to electricity.” The solution saves Tanzanians money over alternatives and eliminates hazardous kerosene lanterns from their homes.
The system combines the battery-sharing concept of Better Place with a distribution model similar to Netflix. EGG charges members 40 cents to swap batteries after they have paid $27 for the first year’s subscription. They use locally trained community members to wire the customer’s home for lighting, mobile phone charging and radio use. Additionally, they manage local employees to run the charging stations and a commission-based sales team that has helped expand their customer base considerably.
Both examples keep one element at the core of their programs, capitalism. Maybe not the form or scale of capitalism that we typically identify with, but they are motivating people through the process of pursuing profit. Their guiding principles may not rocket them to the heights of the bourgeois class, but they have used entrepreneurial rigor and a profitable model to motivate local Tanzanians and create an environment for positive social change.
I would like to reexamine capitalism within the context of the information above and how I believe the concept is misinterpreted. The common definition states – it is the private ownership of capital goods that result in a profit distributed to the owner and wages paid to workers. I believe this is an over simplification of what capitalism really is – a blend of naturally occurring motivational human behaviors that combine the demands of consumers with the demands of the entrepreneur (capitalist) to catalyze the creation of meaningful products, jobs and, of course, capital profits.
I am not so narrow minded to believe that capitalism in the developing world will only create positive outcomes. Wage laborers, especially in the developing world, will be taken advantage of and alienated in ways that most Marxists would point to as one of the many downfalls of capitalist systems. Additionally, products will be produced that cause more harm than good, but this is only realized by looking at the landscape of products produced in our capitalist western societies.
This should not stop us from investing in an environment that supports entrepreneurial spirit and funds efforts to change people’s lives in a meaningful and dignified way. This pursuit of dignity can take the form of an entrepreneurial opportunity or the creation of family supporting wage labor jobs. Either way, creating a format to enable self-respect is essential. As Thomas Friedman stated in an April, 2007 New York Time op-ed piece about patient capital… “many people don’t want the pressure of being an entrepreneur. They want the stability and prosperity of a job created by capitalist risk takers and innovators.” This is not only a truthful statement, but also one that is mirrored by the wide range of middle class workers in western societies.
I would like to leave you with a quote by the founder and CEO of the Acumen Fund, Jacqueline Novogratz. This quote embodies the very heart of what I believe embracing the positive notions of capitalism, not just the monetary, can do for developing societies.
“When we think about solutions to poverty, we cannot deny individuals their dignity, because at the end of the day, dignity is more important to the human spirit than wealth.”
“… what people want is freedom and choice and opportunity, because that is where dignity starts.”