February 26th, 2013
12:00 PM ET

Make the poor a solution not a problem

By Neil Ghosh, Special to CNN

Editor’s note: Neil Ghosh is the Executive Director of SNV USA, a non-profit international development organization. The views expressed are his own.

Insanity is doing the same thing over and over again, and expecting different results, Einstein is often quoted as having said. By this definition, U.S. economic policy over the past three decades has been a paragon of madness. Government, business and individuals alike lurch from bear to bull, all the while preaching the virtues of economic stability.

Congress may have managed to stall the most recent crisis over our debt ceiling, but the lives of American citizens remain hostage to the same old ideological wrangle over tax rates and spending levels, a reality epitomized by the ongoing debate (and apparent lack of movement) over the deadline for enforced budget cuts, otherwise known as sequestration. One side tells us that government is the key to economic recovery, and prioritizes expensive but popular social entitlements. The other side implies that “free enterprise” is the cure-all.

To believe that either way will produce anything but the same old results is to bolster Einstein and, increasingly, to miss the point.

As Fareed Zakaria noted so succinctly on GPS recently, the problem is not taxation or spending, but growth. Indeed, Zakaria charted a 30-year long failure to invest in human capital, the engine of growth. “Without a strategy to revive long-term growth,” he wrote, “all of our problems get worse.”

So, to escape the cycle of insanity, growth strategies must offer something new and different. And new ideas are not nearly as hard to find as the gridlock in Washington would suggest. Indeed, pragmatic thinkers and policymakers around the world are developing new ways to drive growth without sacrificing social well-being.

Whether it’s Bill Gates talking about “creative capitalism,” billionaires and rock stars putting their heads together at the Clinton Global Initiative, or governments teaming up with corporations to expand markets and fight poverty, the core idea is the same: inclusive growth.

So what does this mean in practice? Inclusive growth describes strategies under which national and multinational companies bring more local producers and providers – i.e. the poor – into their value chains.

By increasing cooperation, the private sector, NGOs, and governments can create greater financial, environmental and social value. While historically, these interests may not often have overlapped, each brings insights into alleviating systemic poverty.

But, even better, each “side” stands to benefit as well: Companies gain distribution channels as well as new markets for their goods, leading to increased profit. Governments and NGOs benefit from increased international prestige that facilitates borrowing for other important investments. Perhaps most importantly, locals gain opportunities to learn new skill sets and earn higher wages via sustainable employment.

The size of this potential market is staggering. According to figures provided by the World Bank, World Resources Institute and Economist Intelligence Unit, some 3.7 billion individuals at the so-called “base of the pyramid” live on less than $8 per day. Yet taken together, they represent $2.3 trillion in spending power.

Traditionally, we have viewed the “base” as simply poor or aid recipients. But a better model would see them as potential producers, consumers and partners. If we choose to view those living in poverty as a potential part of growth, rather than as a legion of problems requiring a solution, we have a better chance of ensuring prosperity.

A recent World Economic Forum report highlights how all this can work in practice, whether it be local producers in Brazil providing goods for Wal-Mart’s own labels, Coca-Cola building a decentralized network of distribution centers owned by local independent distributors in Africa and Asia, or Intel and the Vietnamese government collaborating to introduce a low-priced personal computer, initially available through rural community centers.

These examples have one important feature in common: investment in human capital as an engine of growth. As traditional sources of aid and investment dwindle, governments around the world are becoming more innovative. And, as they grow willing to embrace opportunities for collaboration with the private, nonprofit and philanthropic sectors, governments improve their chances of breaking the kinds of deadlock seen in the tunnel vision of Washington.

Zakaria ended his editorial with a cautionary tale about Japan. Once hailed as the world’s brightest economic star, Japan’s economic bubble burst in the 1990s, and it endured its lost decades not because of economic incapacity, but because the political system “froze up,” in Zakaria’s words. He sees the same danger in the Congressional fixation on taxes and spending.

Here, as in Japan, what is needed is not merely a “reform” of the mechanics of economic policy, but a new spirit in economic thinking, and a rededication to the fundamental human components of growth. The potential is there, the question is whether lawmakers in the U.S. will open their eyes to see it.

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Topics: Economy

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soundoff (8 Responses)
  1. JAL

    I believe that many Fortune 500 CEO's have colluded to halt hiring and slow growth for illegitimate reasons. They cower behind "a lack of confidence" as their reason, but they continue to live life liquid while millions live in despair. What will give them confidence? Guns on the border? Bringing back the Mcrib? Whatever their reason for holding back the trillions that could grow our economy is wrong and criminal at this juncture. Many of these CEO's belong in Gitmo.

    February 26, 2013 at 2:06 pm | Reply
    • JAL

      All oft this, while the focus should be on bringing economic growth to aid the Arab Spring. Too bad many fortune 500 CEO's are thugs and crooks with too much confidence in themselves and not enough in humanity.

      February 26, 2013 at 2:09 pm | Reply
    • Conor McCartney

      It isn't a grand conspiracy, no free masons needed.

      February 26, 2013 at 3:03 pm | Reply
      • JAL

        Then what are they waiting for?

        February 26, 2013 at 5:52 pm |
  2. Leftcoastrocky

    Yes, we need to invest in human capital, primarily by investing in education, not only K-12 and college, but also technical/trade schools. We keep hearing that there are hundreds of thousands of jobs in the US which are going unfilled because the employers cannot find people with the needed skills. We have to figure out a public-private solution to training people so that they have those skills. And preferably anticipating the needed skills and training people so that they will be "tanned, rested and ready."

    February 26, 2013 at 3:00 pm | Reply
  3. GOPisGreedOverPeople

    The GOP Solution: Turn all the Old, Sick, Poor, Non-white, Non-christian, Female, and Gay people into slaves. Then whip them until they are Young, Healthy, Rich, White, Christian, Male, and Straight. Or until they are dead. Then turn them into Soylent Green to feed the Military.

    February 26, 2013 at 4:12 pm | Reply
  4. j. von hettlingen

    The poor are not a problem, as long as there are jobs around and they want to work. Lifting the poor out of poverty is not only a good solution to socio-economic problems, also a political ones. These people pay tax and cast their ballots. This process guarantees peace and stability.

    February 27, 2013 at 9:07 am | Reply
  5. bt

    Fematoriums

    March 3, 2013 at 6:44 pm | Reply

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