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Ending Poverty
Alex Steffen, 4 Jan 05

What if we could end global poverty?

What if we could do it on a comparative shoestring?

The idea of ending poverty as a planetary goal of primary importance is gaining real traction. No one believes that we will ever end all inequality -- in that sense, the poor are always with us. But an increasing number of people believe that we can eradicate absolute poverty: that we can raise every person on the planet above the basic thresholds of the Millennium Development Goals, that we can ensure than every man, woman and child on this planet has enough to eat and clean water to drink, some shelter, access to medical care, access to basic education and the basics of sustainable livelihood.

What would ending poverty do for us? Many things.

Ending poverty would provide rich soil in which development, even leapfrogging could take root. It would reduce global tensions, helping to fight terrorism and minimize conflict. It would take pressure off the environment, helping us respond better to biodiversity loss and climate change. In every imaginable way, progress will be made easier if more than a billion of us are not struggling for survival.

There are signs that the popular will is there: Make Poverty History, for instance, has launched a mass-movement complete with celebrities to advocate for fair trade, debt reductions and more aid; Sarah McLachlan's World on Fire video, Bono's efforts, projects like The Rough Guide to a Better World, even the outpouring of concern around last week's tragic tsunamis... all seem to point to a larger trend.

But can we actually do it? More and more people seem to think the answer is yes.

Jeffrey Sachs thinks we can do it with "one big push," spending $150 billion a year, which is, bluntly, not very much money at all. Others think we could do it more cheaply by focusing more carefully: The Earth Policy Institute, working from World Bank, U.N. and U.S. government figures, penciled up a budget for meeting seven basic and pressing needs throughout the developing world (getting every kid to school and feeding them lunch, teaching every adult to read, offering family planning to every couple and making sure condoms were available to any who wanted them, providing universal basic health care, and guaranteeing food for all pregnant women and preschool children). Their price tag? $62 billion per year.

Philanthropist Pierre Omidyar thinks it can be done for a fraction of that.

Embracing the work of microfinance outfits like the Grameen Bank, Omidyar points out that these models have managed to use small chunks of capital to achieve radical results. How much, then, would it take to extend microcapital to all the world's poor? "$60 billion, once and for all."

(more...)

Omidyar goes on to explain:

"[M]y model focuses directly on the Grameen Bank model of lending to the poorest of the poor. Admittedly, there are almost an infinite number of "ifs" that go into this number, but here is the logic:

Grameen Bank has pioneered a banking model for the poor. Their borrowers are predominantly the "absolute" poor: heads of families (women) that don't have enough income to provide the basic necessities of food, shelter, and clothing for themselves or their families.

Without going into all the aspects that I believe make the Grameen model successful, they have found that 50% of their borrowers have lifted themselves out of poverty after five years. They are working hard to get this number to 100%, obviously.

Assuming this model is scalable -- and all indications are that it is -- I believe this is a great strategy to help people lift themselves out of poverty. Getting that 50% number up to 100% is the big challenge, but over the next 10 years, I'm sure they'll make serious progress.

Now, the economics. It turns out that at their current scale, it takes an estimated $200 to add capacity to Grameen to add an incremental borrower, and to get to the level of self-sustainability. Grameen uses traditional banking economics; the bulk of loans are funded from deposits of other borrowers. An incremental borrower becomes a profitable customer relationship after about two years. Yes, profitable. That means: no more capital needs for that borrower; no need for aid or grants.

If we assume the very big "if" [that] Grameen (and similar models) can continue to scale to add borrowers at that incremental cost, we figure it will take $60 billion to reach 300 million new borrowers. (And that doesn't allow for even greater economies of scale possibly driving that $200 number down over time.)

In Grameen's model, the borrowers are women, and the benefits of financially empowering a woman tends to be felt first by her children and family. Reaching the 300 million poorest women borrowers will effectively reach the poorest 1.2 billion people.

So the numbers that stick in my mind is this: $200 one-time, all-in, non-recurring puts a family on the path to lift themselves out of poverty, once and for all. $60 billion will be needed over the next 10-20 years to reach the 300 million poorest borrowers. These numbers are fantastically exciting to me, because they are absolutely within reach. This isn't about finding $150 billion every single year. This is about finding $60 billion over the next decade, and then you're done."

Now, Pierre himself would admit all sorts of caveats, what-ifs and other hurdles -- realistically so. But there are some countervailing forces here as well:

The spread of socially entrepreneurial approaches like those championed by Ashoka and our ability to transform lives with less money;

The redistribution of the future through the creation of access to a wider variety of technologies appropriate to the world's poorest people and the much more rapid diffusion of innovation throughout the developing world, including the spread of ICT tools;

The "bottom of the pyramid" business movement, which, done right, could turn into an engine of development;

South-South science, especially the potential for breakthroughs in science and medicine in the developing world;

Our increasing ability to respond to calamities as an opportunity, not just a humanitarian crisis by changing the ways we deliver aid, how we work with refugees, and how we rebuild shattered communities for sustainability.

Now, all of this together is far from a road map: but all these developments together are cause for real hope. It may be that 2005 is the year we realize that extreme poverty is not a human constant, but a problem we can solve. Better yet, it may be the year we really start to embrace solutions.

(thanks to John, Aaron and Peter for link suggestions, and to Pierre for letting me reprint his comment here)

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Comments

Thanks Alex, great article. IIRC, Grameen never lets borrowers pay more than twice the principal in interest. Several African nations have paid interst of more than SEVEN times their original principal. Maybe time to persuade Western banks to play by similar rules to Grameen?

-- John


Posted by: John Norris on 4 Jan 05

There is a HUGE gap in your analysis. You neglect to ask the question: if so little money is needed, why haven't the poorest of nations done this for themselves. The West lifted itself out of absolute poverty without aid from anyone. Why haven't the poorer nations replicated this feat? Why haven't the billions already given produced this effect?

I'm sorry, but most "Mass movements complete with celebrities" never ask these questions. They never wonder what exactly are these poor coutries doing wrong, and will they change their behaviors?

Capitalism is what makes people not-poor. The specialization of labor, exchange of money (a stand-in for labor and time), and accumulation of capital makes wealth. These poor countries do not have the legal infrastructure to recognize the rights and property of their own poor. They do not have Courts which will enforce the laws.

Until folks recognize, and address, these basic constraints, all the micro-finance in the world won't help. A poor, female, head-of-household who borrows some funds, starts a little business, and makes a little money is just a fatter target for the local junta. Just ask the farmers in Zimbabwe.

You can give people wealth, but only within a society that respects and protects wealth transfers. Once you send money outside that system, it's gone.

And that's the whole idea about "Trade, not Aid." The way to end poverty is NOT to give them money; "the way" is to bring them in "the system" of wealthy nations, through organizations like the WTO.


Posted by: Brock on 4 Jan 05

Brock makes a lot of good points but let us not forget that the west's rise of capitalism took centuries.

It took the rise of a new class of entrepreneurs putting pressure on the powers that be to let them get on with business and to enact better business environments, to let Europe break out of its feudal funk and get its invisible hand out of its ass. It is one thing for third world leaders to be preached at by those at the finish line but when the pressure is coming from local people struggling to set up a shop or a local manufacturing business it is harder to brush aside.

After all, local people are close by and have either the vote or uncomfortably large numbers, NGO's don't.

The fact is that all free enterprise endeavors need start up cash and in these poor counties it can be surprisingly little. It is called investment and it is one of the main things lacking in developing regions. Look at the largest industry in most towns and ask if it would exist today if some bank or rich guy had not provided the seed money decades or centuries ago.


Posted by: Sean on 4 Jan 05

Allow me to be contrary to both the last comment and to the post as a whole.

There is little real (i.e. non-ideological) evidence that capitalism brings riches to the people of the world. Look at the case of Mobutu and the people of Zaire/Congo. Or Suharto and Indonesia. Or many other cases. Analysis that seems to come straight from an econ textbook likely written by supply-siders does not provide useful ideas for solving the problems of the world's poor. The real lesson of capitalism and developing nations may be that we in wealthy countries gather and maintain our wealth on the backs of workers of poor countries.

On the other hand, I agree with Brock in that it's not as easy to solve poverty as the post claims. These poor countries are doing things wrong--namely engaging in corruption with the tacit approval of western countries and companies. Shell is happy to get the oil out of Nigeria and have little concern how the Nigerians spend the money. Corruption is fine with Shell and the Nigerian goverment. So long as order is in place in the oil fields, it's all good. Aid money is not going to go straight to the people in many countries. Like the millions or even billions in aid sent to Africa, most of it will get skimmed off by corrupt officials. Without a government accountable to its people, poverty is not going to end in any one country.

Beyond this, let me ask a couple of questions:

1. Is there a set standard for getting out of poverty? Is there local input on this? Because for a lot of people, being able to eat at McDonald's is going to be a standard of living issue--certainly more so than limiting the number of children they have. How do you work around this?

2. Given that this is largely an environmental blog, how would ending poverty affect the environment? If a local standard of escaping poverty is having a pollution-spewing motorbike, what does that mean for the world? No easy answers here I think--just questions worth discussing.


Posted by: Erik Loomis on 4 Jan 05

Is poverty really just a lack of resources? I dont believe so. Poverty is a lack of perspective. It is the lack of ability to define one's own fate. It is dependence. A fight against poverty is a fight for independence.

But then, isn't ending poverty a Utopia? As the slum and suburbia make part of the same city, also poverty is part of a system: it is the counterpart of exploitation. The slum is the habitat of the human capital that fuels the factories and the sweatshops of low-cost production.

As a consequence, fighting poverty means levelling the difference between rich and poor, in which a setback for the rich is inevidable. In a world where the rich start wars to boost their economies, fighting poverty is a Utopia.


Posted by: Maurits Ruis on 5 Jan 05

It is funny how people want to try and fix a problem with the tools that created it in the first place. These people in poverty and hunger are there because their culture and land was stolen from them by the societies that we live in to support those societies. In order for all of us to live our lives of comfort this has come about, because there is no other way to main the wealth of the few without having poor working slaves. I don't have a solution and most likely I am apart of the problem as anyone born into this system that is destroying the world. There are solutions but it is going to take more than tools and money, it is going to take something outside of our present thinking.


Posted by: Chris Brainard on 5 Jan 05

Babble thats odd I could have sworn I posted something on this and that there was a rather good post after chrises from someone else... Is something gobbling up posts?


Anyhoo to the point... The main reason for poverty around the world is the very alien nature of differing peoples. In short america cant help everyone because some people are soo alien in thinking and culture that to help them infests thier culture with lethal bits of our own that are totaly incompatable.

To bring them up we need to seach for a compatable society that can help them and give that group the money and resources needed to help the impoverished we cant directly help.

Its my hope china and japan may as they expand thier effects on the world around them be bridges to prosperity for those america wasnt compatable with. But even with both of them I think we will be needing someone else compatable with more social structures in africa and the middle east to get a sizable improvement world wide.


Posted by: wintermane on 6 Jan 05

I wonder if one of the reasons behind the Grameen Bank's success is that it's cherry-picking opportunities, investing in only the best options it can find. If this is the case, 50% is about as good as can be expected, and any more money thrown at the problem may (probably will) drop the percentage of 'success'.

Additionally, is poverty a lack of resources? A lack of choices? A lack of opportunities? Some very interesting comments in the prior posters' material on this, yet no one seems to be trying to tie it all together. I wonder quite frankly if there CAN be a single summation of the problem.

Finally, I'd like to applaud this site for trying to address this issue. It is a big one, and what's IMO even more laudable, it's not being dumbed-down. Poverty isn't a single-issue problem - it's a spectrum of interconnected problems almost as diverse as the human condition.

Thanks!
-John


Posted by: John B on 7 Jan 05

Great article as well as comments... here's my two cents.

I personally don't think that we will ever see the end of poverty. Why? Because poverty is a relative term.

What is the definition of poverty? How do you define a person who is impoverished? Is it the often used less than $1 day of income or is it the sometimes used less than $2/day? Is there a certain level of health care? should lifespan be at least 60 years? should there be housing? indoor plumbing? what about school and literacy? what level should be set for a minimum number of calories? etc....

In order to end poverty we would have to come up with a set of minimum standards. Once everyone had passed these minimums we could say that poverty had ended. I don't think there will ever be such a set of standards.

For instance, supposedly there are still people in the US living in poverty.(12-12.5% of Americans) Many of these impoverished people own houses, VCR's, multiple cars etc.. Are they really living in poverty? Yes, if its a "relative term". No, by almost any world definition.


Posted by: Joseph Deely on 10 Jan 05



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