Reduce poverty through innovation

Clayton Christensen passed away due to cancer last month, two decades after writing “The Innovator’s Dilemma,” and doing as much as anyone to make “disruption” a management buzzword.

If you haven’t heard it enough, “disruption” means leading businesses can falter because they invest everything in their current business model, and not enough in innovation. They are too comfortable with the current way of doing things and making money. Then an innovator finds a way to deliver a cheaper—usually lower quality—version. It’s so cheap that it disrupts the industry, making the previous leader a minor player, or worse. A hundred years ago, it was Ford cutting the price of a car from more than $2,000 to $800 (eventually $350). In our lifetimes, it is obviously the cell phone and more recently Netflix.

A year before he died, Christensen wrote what would be his last book, “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty.” I got a copy because “innovation” is a mantra in the business world—mostly to do with technology, artificial intelligence, and the Fourth Industrial Revolution—and I was intrigued with the idea of how it could be applied to our other maxim: inclusive growth, i.e., fighting poverty.

Imagine my surprise when he and his coauthors say governments—often funded by aid from the United States and other rich countries—should not try to alleviate poverty.

“True and lasting prosperity is not reliably generated through the flood of resources we are pouring into poor countries to improve poverty indicators such as low-quality education, subpar healthcare, bad governance, nonexistent infrastructure,” they write.

“Enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.”

That’s their paradox: You don’t reduce poverty with programs aimed at reducing poverty, but with business that creates prosperity.

One of Christensen’s examples for this “market-creating innovation” is Tolaram, which in 1988 dared to make noodles in, of all places, Nigeria. But, like the $800 car and the affordable cell phone, it was cheap food, helping create a market where Tolaram now sells 4.5 billion noodle packs a year. Christensen says the noodles’ relatively low quality—almost a given with market-creating innovations—is improved by having it with an egg.

Which leads to the second part of Christensen’s Prosperity Paradox. When you build a business like this in a poor country, you don’t just create affordable goods and, of course, jobs. Tolaram itself built a logistics company, power and water companies, a port, schools, and more. He describes this as the “pull” effect such a business has for infrastructure and services. He says this is better than the government and aid agencies “pushing” these in the hope they will attract business, before there is business to make them viable.

The third part is that governments—and presumably civil society organizations—should not “push” good governance either.

“If a country doesn’t have the capacity to enforce the laws on the books, it will matter very little how many new laws, institutions, or public mandates are created to combat corruption or impose transparency,” they say. These will be “pulled” when jobs give people an alternative to engaging in and condoning corruption. For most people, corruption is not a problem, but a solution to problems. Solve the problem of helplessness and slowly people will push back on corruption, including demanding better rules and tougher enforcement.

I can’t believe these trickle-down theories. There is a big space for government and citizens to “push” both economic growth and good governance. But I believe Christensen’s ideas are a celebration of what business can and has done. The Nigerian noodlemaker is just one of many examples in the book.

I was pleased to read—before the 2019 water shortage, and the concession agreement controversy—that Manila Water is one of the examples cited, to prove the point that government and business can and should be partners.

“The water had always been there, the people had always been there, the technology had always been available,” Christensen said. When governments and business work together, “lives and economies are transformed.”

Coco Alcuaz is executive director of the Makati Business Club (MBC).

Business Matters is a project of the MBC (makatibusinessclub@mbc.com.ph).