Fighting Poverty with Profits and Donations

Earlier this month, a round-table discussion held in Paris provided an opportunity for specialists from diverse disciplines to share their views on the fight against poverty. Specifically, the panel addressed what role philanthropy and business can each play, and how the two can interact. The most promising solution seems to be a hybrid system, somewhere between the two.

Earlier this month, a round-table discussion held in Paris provided an opportunity for specialists from diverse disciplines to share their views on the fight against poverty. Specifically, the panel addressed what role philanthropy and business can each play, and how the two can interact. The most promising solution seems to be a hybrid system, somewhere between the two.

 

Displaced Darfuris Receive Water Rollers a device for easily and efficiently carrying water. (c) UN Photo/Albert Gonzalez Farran
Poverty

In 2006, immunologist Philippe Kourilsky participated in a campaign against infectious disease that shocked him, less on the medical front than on the organizational front. There was no structure to the actions carried out in the field, and no system for knowledge gained from the experience to be transmitted. What was missing for field actions was a way for information to be organized, validated, and shared, in a manner that allowed successful actions to be repeated.

The following year, with the support of the Institute Veolia Environnement, Dr. Kourilsky spearheaded the creation of FACTS Reports, a peer-reviewed journal that would allow field actions to be reported as in the sciences.  “The scientific method is very important.  The research world is, in fact, the most admirable effort at democracy. Scientists must discuss amongst themselves and come to an agreement; you can’t just decide to believe whatever you want.”

The recent publication of a special issue of FACTS, “The Fight against Poverty: Donations and the Marketplace”, provided the occasion to gather a diverse panel for a discussion, hosted by the Cité de l’Architecture et du Patrimoine of Paris, to share their experience with the roles that philanthropy and business can have in this effort.

Several concrete examples illustrated the plight of the poor, living in very different circumstances.  Laurence Fontaine, a historian at the French National Center for Scientific Research (CNRS), explained that in the face of poverty, not everyone is on even ground. Social structure, for instance, often means that women have to depend more on their husbands.  This was true in the past and now, Fontaine explained, giving the example of dairy production.  Historically, this activity was principally a woman’s job. However, with the rise of hygiene controls in the 19th century, women could not pay to make the investment needed to bring their product up to health standards.  Consequently, men ended up taking over the job, and their source of income was lost.

Frédéric Dalsace, associate professor at the international business school HEC Paris, and holder of the Social Business Chair, referred to the “double penalty” imposed on the poor in our societies today.  This additional level of penalty refers to the fact that someone who earns very little will have to pay more for certain services.  If you can’t afford an all-inclusive internet/television/cell phone package, for example, you will wind up paying more per minute for your calls.  This extra cost for low-income consumers can amount to 500 euros per year, Dalsace says.  “That can be more than a month’s earnings, paid by the poor, because they are poor.” In his work to encourage social business, he explains to companies how their policies contribute to a “poverty penalty”, and encourages them to ensure that poor people pay the same price per unit of consumption as anyone else.  Otherwise, they find themselves excluded from the market – not completely, but, even for equivalent products, they are not participating in the same market as the rich.

Luc Rigouzzo, who, as Associate Manager of Amethis Finance, works to encourage private investments in developing countries, further developed the idea of the right to access markets and services.  The lack of access, he says, constitutes the biggest cost for those in a state of poverty, because it aggravates all of the risks already associated with being poor. Ensuring access sometimes involves a moral judgment.  Is it preferable, Rigouzzo asked, for residents on the outskirts of a large African city to have to pay three times as much for water services, or to have no access at all? The reality is that water may be a common property resource, but the pipes to carry it are not.  Developing these services will require investors, which means the system must be profitable.  “Let’s be pragmatic”, he insisted. “We need to strike a balance.”

Indeed, hopeful idealism was not the theme of this March evening, but rather concrete pragmatism.  Jean-Claude Berthélemy, of the Economics Department at the University of Paris 1 Panthéon Sorbonne, brought his economist’s voice to the discussion, identifying two categories of people struggling with poverty: the very poor, and those on the edge.  According to his analysis, it is more effective to use one’s budget for those on the edge, to assist them in escaping from poverty.  Using funds that are already short to help the poorest of the poor will not yield significant results, he feels. Berthélemy acknowledged that this view is provocative, but argued that with a limited budget – as budgets always are – you need to think about the order in which you attack things.  Furthermore, he cautioned that reducing poverty does not automatically provide greater equality in a society.  Since 1980, he said, China has achieved the greatest reduction of poverty in the world, yet inequality keeps rising.

Participants agreed that poverty is too complex a phenomenon even to define easily; to fight it will take more than one simple strategy. The solution will surely be a hybrid system, between philanthropy and business. Mr. Berthélemy observed that “NGOs compete to obtain funding, but the process is not as efficient in the this world as in the marketplace. Bad projects are not necessarily driven off by good projects, as happens in the market. We need a system for this to happen with NGOs, too.” He cautions, also, that their goals are not always purely philanthropic.  Hezbollah, for example, carries out a great deal of charity work, but helping people is not their only aim.  “It’s not as simple as the ‘good philanthropists’ and the ‘bad capitalists’.  The world is much more complex than that.”

Business principles, therefore, have something to offer philanthropic organizations.  Conversely, the ability to help people can also enrich the business world.  Luc Rigouzzo lamented the short-term focus and lack of vision in certain big multinationals, citing a large dairy company whose policy was to minimize its impact on the poor.  “But what greater impact could there be than to bring clean water to millions of people? You can’t motivate employees to get up every day just to make profits.  Fortunately, human beings are more complicated than that.”  Rigouzzo the pragmatist plays to both sides of human nature – the yearning to do good, and the desire to benefit personally. When seeking sources of private capital, he motivates investors first by selling them on the potential of a new market that’s still wide open.  “You’ll make profits,” he tells them, “while being useful at the same time.”

Frédéric Dalsace defines himself as an “incorrigible optimist” because, as the saying goes, “the pessimist confines himself to the role of a spectator.” For taking an active role in reducing poverty, Dalsace sees the utility of two different business models: bottom of the pyramid (BoP) and social business. The BoP concept refers to the poorest socioeconomic class, which forms the broad base of the economic structure. Targeting the blossoming market of this demographic is one way in which companies can inject money into the class that needs it most.  This could be in the form of microcredit, or products specifically designed for this market, such as a shampoo that is most effective in cold water and sold in small quantities to reduce upfront costs.

Social business is a term that was originally used by Muhammad Yunus, the 2006 winner of the Nobel Peace Prize, to refer to a company designed to address a social objective.  In his definition, the business should try to make a modest profit, which will be reinvested in the company’s social mission.  Today, social business can refer to any company whose goal is social rather than financial.  For Dalsace, this model acts as a real driver of innovation.

These efforts put power into the hands of entrepreneurs, and even of the populations most affected by poverty, showing that it is not necessary to depend only on the donations of a rare wealthy benefactor.  The historian Laurence Fontaine pointed out that to talk about donations is to talk about power.  In the past, aristocrats effectively provided access to the market with their gifts to the poor.  Today, ideally, we do not have to wait for such philanthropy to occur.  Still, participants acknowledged the importance and the success of large foundations. Philippe Kourilsky summarized the mood, saying, “If Bill Gates had been interested in painting, millions of children would have died. Bravo, Bill Gates!  Still, we need a better system.”

In the end, the theme of the discussion was complexity—of the poverty problem, of the interaction between business and philanthropy, of human nature.  It is part of the problem, clearly, but also represents an opportunity. Giving and profit-making do not need to be binary opposites, and the complex nature of their overlap is something we could exploit to design innovative solutions.  Participants expressed cautious optimism, coupled with concerns for the immediate future.  Luc Rigouzzo worries for the next two generations, fearing that we do not yet know how to live in a multipolar world.  Philippe Kourilsky stressed the point that there will be two billion more humans on the planet by the year 2050.  “We need to think seriously about this, in a theoretical and in an economic context. If we could feel the results before three generations, that wouldn’t be bad!”

 

To find out more: Philippe Kourilsky at TEDxConcorde – Une action collective contre la pauvreté avec FACTS http://tedxconcorde.com/2012/01/28/philippe-kourilsky-une-action-collective-contre-la-pauvrete-avec-facts/ The Grameen Creative Lab http://www.grameencreativelab.com/a-concept-to-eradicate-poverty/the-concept.html Business Fights Poverty http://www.businessfightspoverty.org/about BOP Source - The first social network for the base of the pyramid http://www.bopsource.com/ The Yunus Centre, dedicated to work towards creating a poverty free world http://www.muhammadyunus.org/Homepage/about-yunus-centre/ Social Business, a place to find ideas, businesses and people who are creating positive social change http://www.socialbusiness.org/