The Prosperity Paradox
I started my career working in the humanitarian sector it was one of the most fulfilling parts of my career to date. I set up skills training centres for refugees, provided work and income opportunities. Working on micro income generation schemes allowing families to buy chickens or micro-irrigation farming in deserts to sell the produce and earn a living.
I remember the main challenge was getting the right permission from the right authority. I learned a lot about diplomacy, patience, and having a clear sense of right and wrong. Sometimes it was simply not possible to do the project, but through building relationships and being tenacious it was often possible to get permission and move forward with the help of a local team. When I heard this TedTalk it really resonated with me on two levels. Firstly from my humanitarian days in dealing with getting project permissions in sensitive border areas to work with refugees. Secondly in my current role of implementing technology in emerging markets.
The author, Efosa Ojomo, presents a very thoughtful and convincing analysis of how poor economies with corrupt officials can be transformed into thriving entrepreneurial economies with less corruption. I think the author has seized on some timeless issues that we should unpack.
1. You don’t fix poverty by fixing the visible signs of poverty.
It would seem logical to approach abject poverty by just addressing the broken infrastructure or lack of healthcare and education. But to really address poverty we need to stimulate prosperity by understanding the cause of poverty and what is going on in that community.
The human spirit is creative and resourceful and people given the right opportunity can fend for themselves and become prosperous. So the core goal of a successful intervention is to cultivate innovation that will end poverty.
2. Scarcity makes corruption attractive.
In many developing countries corruption becomes an attractive way to gain wealth. Poorly paid civil servants supplement their pay by taking bribes. Corruption is a good way to make a living. Politicians embezzling money, Police officers taking bribes.
Of course, this happens in rich countries, rich parents bribe educational institutions to gain access for their children. Corruption is not hindering development but it is holding many countries back.
Old thinking: Create good laws, enforce them well and this will increase prosperity. But many of the programmes fail because of corruption.
Countries don’t develop because they’ve reduced corruption, they are able to reduce corruption because they developed, this is the prosperity paradox. A big part of development is leveraging technology that creates a market where everyone can participate.
3. Why invest in a society where politicians are corrupt and consumers are poor?
On the surface, it feels counterintuitive. However, there are opportunities that can create mass benefits.
Sub-saharan Africa Telecommunications.
In 1998 one business leader saw a gap in the market, Mo Ibrahim set up CelTel, which provided affordable mobile phones to ordinary people. At that time Sub-saharan Africa telecommunications did not exist and there was no extensive landline network. Phones were only available to those who could pay the bribe. In all of the Democratic Republic of Congo (DRC), for instance, which had a population of roughly 55 million, there were only 3,000 phones in 1998. The possibilities were enormous.
So a simple but effective strategy emerged through innovation:
- Many African consumers couldn’t afford monthly contracts, so CelTel created prepaid cards that offered cellular service for just a few dollars.
- Celtel focused on a handful of countries that inexpensive or free network licenses available including Uganda, Malawi, the two Congos, Gabon and Sierra Leone.
- Once the demand was demonstrated it became easier to gain investment and for more countries to be included. Eventually covering 13 African countries and gaining 5.2 million customers in six years.
4. Market creating innovation reduces scarcity.
This was a market-creating innovation, transform a complicated and expensive product into products that are simple and affordable. In this case very expensive fixed phone lines were replaced by mobile phones.
Creating a successful mobile phone company on the continent has led to growth in the county. One billion phone connections and generating millions of dollars in taxes every year. Now ordinary people don’t need to bribe officials to get a phone reducing corruption. Plus the government has increased taxes from which to improve the country reducing corruption.
Corruption for most people in poor countries is a workaround to help them survive. Investing in innovations that make products much more affordable for many, attacks this scarcity but lets government invest in their economies.
5. Identifying market-creating innovations.
It’s not often obvious what a market-creating innovation is until after the fact. Hindsight is a wonderful thing, so the key to any innovation is to focus on the pain points and develop from there.
- Focusing on the struggle i.e contacting aging relatives in a different region solution the mobile phone!
- Making things affordable for the ordinary person i.e. Pre-paid card.
- Look for inefficiencies and that have created scarcity i.e. Officials requiring bribes to get a phone line.
- Start with the mindset that something is possible and embrace the struggle i.e. Mo Ibrahim had the vision that this was a solvable problem.
- Looking at what governments have done in that area in other countries.