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3.0 The case for putting pro-poor enterprise at the heart of the war on poverty: Enterprise solutions to poverty

Written by: Shell Foundation

Article Overview: 2005 is set to be a big year for poverty. Doubling aid, making trade fair and dropping Third World debt are the headline goals of a campaign being waged and supported by many official and nongovernmental aid and development organisations determined to make ‘Make Poverty History'.

3.0 The case for putting pro-poor enterprise at the heart of the war on poverty: Enterprise solutions to poverty

2005 is set to be a big year for poverty. Doubling
aid, making trade fair and dropping Third World
debt are the headline goals of a campaign being
waged and supported by many official and nongovernmental
aid and development organisations
determined to make ‘Make Poverty History’.

Of course, the international community has long
been trying to banish poverty. But this latest foray
is notable for its scope, scale and populist appeal,
having kicked off with the anti-globalisation
protests and Jubilee Debt Campaign in the late
1990s. Establishment backing was added via the
launch of the UN’s Millennium Development
Goals (MDGs), the Monterrey Accord and the
Doha Trade Round in rapid succession between
2000 and 2004.

Throughout this period, a relentless wave of propoverty
meetings, events and media coverage has
contributed greatly to the momentum and pressure
on the governments of rich countries to finally act
after years of unfulfilled promises about tackling
poverty. And during the same period even MNCs
began to involve themselves directly in actions
against poverty that extended beyond their normal
contribution to development as investors, producers
and employers.

So as we head into the second half of 2005, it looks
as if these efforts will lead to substantive action by
OECD governments on upping aid flows,
expanding debt relief and improving the trade
rules in a pro-poor direction. Of course, there are
many who voice contextual concerns about all this.4
But the gains being achieved in securing more
resources and renewed commitment from the North
to tackle poverty in developing countries are a
significant achievement and should be applauded.

However, the IDC must now address the challenge
of using the new resources and opportunities being
made available to kick-start a process of dynamic,
self-sustaining economic development that will
allow poor people in their billions to escape
poverty – permanently.

This is a complex and difficult undertaking as a
look backwards reveals. Over the last 50 years, at
least a trillion US dollars5 and many times that
amount in effort, exhortation and emotional
engagement has already been spent by the IDC to
relieve human suffering in poor countries and
create the starting conditions for poor people to
escape poverty.

There is ample evidence this assistance has brought
much relief in humanitarian terms, achieved great
breakthroughs against disease and chronic food
shortages and made many other diverse
contributions to the long-term development
prospects of poor countries. Unfortunately, there’s
equally ample evidence showing that even allowing
for difficult operating contexts, much aid has been
inefficiently and ineffectively deployed and has not
contributed nearly as much as had been hoped to
economic progress in poor countries.

So while aid gives much to build upon, the uneven
track record of development assistance and the
uncertainty that remains about how best to
catalyse equitable economic growth means that
what was done to tackle poverty in the past is not
necessarily a reliable guide to what should be done
in the future. So the issue of precisely what the
IDC is now going to do with the new
opportunities it’s been given to untangle the
Gordian knot of poverty in developing countries is
a hugely important question for many reasons.

There’s a great deal of public money at stake and
some pretty bold claims are being made about
using it to ‘Make Poverty History’. The persistence
of extreme poverty in some regions of the world is
seen as a security threat and an economic drain on
rich countries.

Most importantly, there’s the urgent and massive
backdrop provided by the two billion people still
living on less than $2 per day – many of them
poorer than they were just 20 or so years ago.
And yet set against this great need, and the doom
and gloom that still informs the aid debate, there
are positive signs of progress in Africa and elsewhere
that demand to be acknowledged and supported.

So which way now?

Not surprisingly, there’s much advice being offered
as to what should be done now to tackle poverty
by commentators and expert panels such as the
UN Millennium Commission and the UK
Commission for Africa. The ultimate focus of all
of the wisdom on offer today is the same question
the IDC has been struggling with for many years.
And that is: how, when and where should it
intervene to best help developing countries create
the conditions that facilitate sustainable and
equitable economic growth?

This is where the recent experience of Shell
Foundation may be of value. Working with a
major multinational, we’ve been exploring
systematically the question of how donors and
large companies can most effectively catalyse and
scale up pro-poor market-based and pro-poor
enterprise-based solutions to poverty (see annex 1).

There are sound reasons for Shell Foundation (and
other organisations)10 adopting this focus. Most
importantly, theory and past experience
demonstrates a flourishing private sector, fairly
regulated by government and populated by
enterprises of all kinds but especially by what we
referred to earlier as pro-poor enterprises including
small and medium-sized enterprises (SMEs), is key
to delivering the sort of economic growth that we
know pulls poor people out of poverty.

Moreover, looking forward, it is obvious that propoor
enterprise growth, especially in the SME
sector,12 will be critical in meeting the headline
goals of the current campaign to overcome poverty:
Millennium Development Goals.

Pro-poor enterprise-based activity on a massive
scale will be needed to deliver and maintain the
basic goods and services whose provision will
underpin the attainment of many MDGs.
Fairer trade.

Using the Doha Trade Round to secure a more
pro-poor trade regime is an important start. But if
this is to be converted into real benefit for poor
people, then large numbers of internationally
competitive farmers and enterprises will be needed
to capture and retain a fair share of the available
income gains.

Debt relief.

Much is made of how some countries have used the
funds freed up after debt relief for education and
health. This is good news. But countries benefiting
from debt relief must invest some of this boon in
pro-poor enterprise, job and wealth creation to
consolidate and build on these quality-of-life gains
that might otherwise be eroded over time.

Finally and most fundamentally, the growth of
enterprise, and particularly SMEs, offers poor
people a powerful weapon in their fight to escape
poverty – hope. People must believe there’s an
economic ladder out of impoverishment that they
can get onto and climb by dint of honest effort. If
they lose sight of this goal, they lose interest in helping
themselves, they don’t encourage their children
to go to school, they stop looking up and forward
and resign themselves to poverty – permanently.

There are, of course, many qualifications that must
be made about the pro-poor impacts of enterprise
growth in developing countries. These range
from the potential for environmental damage to
acknowledging there are many extreme poverty
contexts where markets and thus enterprise cannot
function in a normal way.

And it’s true that development is about much more
than jobs and income; and that on balance,
healthier, better fed, better educated, less oppressed
people living in a cleaner environment are likely to
be much more productive in what they do. This
means there are, of course, many other poverty
priorities that developing countries and the IDC
must address.

But common sense also suggests it’s a lot easier for
people to secure and retain the gains arising from
interventions focused on health, education, gender
equality and so on if they have a job in the first
place or have prospects of securing one in the near
future – which is why jobs are often at the top of
poor people’s lists of priorities.

So in theory, practice and common sense terms,
most routes out of poverty for poor people start
with enterprise. To be sure, the starting conditions
for addressing pro-poor enterprise development
will be extremely difficult in many countries.
Fortunately, however, there’s plenty of
entrepreneurial drive, traders’ skills, risk awareness,
consumer demand, innate talent, individual desire
to improve and even disposable income in the
poorest countries.

But what there clearly is not enough of yet is
enterprise and the wealth, income and
empowerment that enterprise development offers
poor people. And when there’s not enough
enterprise and not the right enabling environment,
the downward trajectory of poverty is continually
reinforced as shown by Figure 1.

So what the poorest developing countries need
absolutely in order to make poverty history is the
growth of pro-poor enterprise.

Related Articles
  6.0 Propositions and conclusion: Enterprise solutions to poverty
  2.0 Introduction: Enterprise solutions to poverty
  6.3 Come Together: Enterprise solutions to poverty
  1.15 Building an employment agenda: Working Out of Poverty
  1.9 Building local development through cooperatives: Working Out of Poverty

Article Tags: debt relief, development, Doha Trade Round, Jubilee Debt Campaign, poor countries, rich countries, UN s Millennium Development Goals MDGs



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