Business’ role in poverty reduction

These are excerpts of a speech I delivered at the 36th general assembly and annual meeting of the Bishops-Businessmen’s Conference for Human Development (BBC) held last July 9:

Poverty, with all its faces and forms, is our country’s biggest problem, not because of its drag on the economy, its effects on the environment, or the unsightly slums, but because this is simply not the way people are meant to live. Therefore, all our causes—education reform, transparency, infrastructure development, environmental protection, etc.—must ultimately lead to the uplift of the human situation of the Filipino poor. I am one with you in saying that we can never consider our country as truly developed or applaud our rate of growth while large numbers of Filipinos live in subhuman conditions.

Going through the BBC meeting’s sectoral dialogue presentations, I must admit, did lead to some trepidation. While I agree with much that was considered and presented, I could not help but feel that the discussions were still mostly guided by the belief that the interests of business and the basic sectors essentially diverged and were in conflict with one another.

Let me unequivocally state that poverty is NOT in business’ interest. Poverty threatens the political, economic, and social stability we so desperately seek and need in order to do business. Poverty takes government’s attention and resources away from infrastructure and efficient regulation. Poverty does not allow our people to buy our goods or our services. Poverty creates tension among the segments of our society. Poverty due to hunger and malnutrition weakens business’ primary resource—our people. Thus, quite the opposite, it is very much in our interest to eliminate poverty.

How exactly does business address poverty? Let me present three kinds of intervention: corporate social responsibility (CSR), bottom of the pyramid (BOP) businesses, and business simply being business.

In the Philippines, CSR has a long tradition. However, it has gone beyond just setting up foundations, giving scholarships, or planting trees. Most of the problems we seek to address will persist unless the structural roots of these problems are attacked. Realizing this, moving beyond projects and programs, business now uses its position and clout to influence and shape the country’s macro environment.

For example, in 2006, a number of very concerned CEOs organized Philippine Business for Education (PBEd) to advocate policy and institutional reforms needed to make the Philippine education system effective and efficient, universal and inclusive. PBEd is one of business’ attempts to go beyond doles and become actively involved in governance and policy.

The second form of business intervention is discussed by CK Pralahad in his book “Fortunes at the Bottom of the Pyramid.” According to Pralahad, servicing the poor, not as a cause or an act of charity, is an often-successful business strategy—AND is an effective solution to poverty. It is about profit driving the provision of services to the poor, and it is about these services being provided sustainably because their provision is profitable.

Our country is not devoid of BOP models. My own company, Phinma, pursued the BOP strategy with our entry in the business of education. The market the Phinma Education Network is committed to serving is the marginal in Philippine society; ours are the children of our farmers, policemen, public school teachers and other government workers, tricycle drivers, vendors, and manual laborers.

Since this is our market, access and affordability are key. As a result, we have pared education down to its most important, essential elements, the right facilities and learning material, a proper classroom, and a great teacher. We provide what is necessary for our students to learn the most that they can in order to make their lives better, nothing more, nothing less. It is Phinma’s belief that making high-quality education profitable and affordable AND servicing the poor are not separate objectives.

This discussion on profit brings us to the third business intervention. How should business mainly contribute to reducing poverty? By simply being business. According to Milton Friedman, the business of business is business: The business sector fulfills its role in society when it establishes enterprises, creates jobs, makes available good products, and generally provides goods and services that respond to market demand, all in the pursuit of profit and the enhancement of shareholder value.

Beyond job creation, profit and business competition also stimulate innovation and accessibility. Increased competition in the telecommunications, banking, and airline industries reduced prices, improved quality and service, and increased access. Privatization led to expanded access to clean water, more reliable sources of electricity, and better toll roads.

Finally, as revenues and profits improve and employment grows, the tax base of the economy broadens and government revenues increase. A more liquid government can then spend more on socialized housing, build better public schools and government hospitals, subsidize the small enterprises of our indigenous people, and so on.

Do not get me wrong, business is nowhere near perfect. However, dwelling on flaws and failures will get us nowhere. On the other hand, focusing on what is best for our people and country, what is right in each of our sectors, and the roles we need to play will help us find solutions and maximize opportunities.

We face today a unique moment in our country’s history. Many good things are finally coming our people’s way. We must together exploit this rare and great opportunity to move our country forward and upward. If we spend our time pointing out each other’s wrongs, arguing about what we do not agree on, this opportunity will pass us by. Let us set our differences aside and focus on what we have in common. We are but one people, have but one country and one future, and no more time to waste.

Ramon R. del Rosario Jr. chairs the Makati Business Club. E-mail comments to [email protected]. Read full version of the speech in MBC website.