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. To learn more about this author, visit Shell Foundation's Website.

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