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Defining Poverty, Designing Solutions

Posted By Vanderbilt Magazine On November 23, 2009 @ 9:59 pm In Fall 2009, SPOV | No Comments

Aguascalientes [1]What is poverty? And what is the best way to treat it? While the second question seems to be the more important, a poor fundamental understanding of the first obscures poverty’s underlying mechanism, often resulting in an ineffective and insensitive treatment. Unlike medicine, which often relies on discovery to treat illness before a full understanding of the disease is acquired, the cure for poverty cannot be discovered.

Instead, poverty is better approached with the perspective of an engineer—one that designs a solution based on a more complete understanding of poverty.

My interest in the design of novel techniques for poverty alleviation began after reading the book Creating a World without Poverty by Nobel laureate and Vanderbilt alumnus Muhammad Yunus, PhD’71. His definition of social business redefined my understanding of current techniques used to treat poverty and encouraged me to learn more about his advocacy of microfinance. As I learned more, I realized that many contemporaries of Yunus were concurrently promoting and developing the notion of microfinance.

Why then did Yunus win the Nobel Peace Prize? And even if he had begun the microfinance revolution himself, did he really win the Nobel Peace Prize because he started lending poor people money at lower interest rates? Or was it his ability to get poor people to pay back their loans more than 99 percent of the time despite having no collateral?

In fact, neither of these possibilities is necessarily unique to Muhammad Yunus, nor are they independently worthy of a Nobel Peace Prize. Yunus’ contribution is much more profound. He redefined poverty.

Ask most economists what poverty is, and they will tell you it is best defined as some form of a measure of income. Ask a theologian, and you will hear about spiritual poverty. Ask a physician, and you will learn about disease. Ask Muhammad Yunus, and he will tell you poverty is isolation.

The isolation Yunus describes is not necessarily geographic isolation; it is societal isolation, or isolation from the mainstream. As Yunus explains, an individual borrows money because she or he does not have any, and yet the reality is that one cannot borrow money unless that person has already achieved a threshold of net worth. Through microfinance, however, billions of people without access to financial institutions can have the opportunity to be incorporated into the mainstream economy. The barrier of isolation is effectively removed.

An understanding of poverty as isolation extends well beyond microfinance, a concept I more fully grasped after conducting a market assessment this summer for The HealthStore Foundation and the Vanderbilt Institute for Global Health. While evaluating Mozambique as a potential candidate for the expansion of The HealthStore Foundation’s network of hybrid nonprofit/for-profit franchise pharmacies, I had the opportunity to get acquainted with the country director of TechnoServe. A nongovernmental organization (NGO) consulting firm, TechnoServe focuses on cultivating local entrepreneurial spirit and developing primarily the agriculture and tourism industries within Mozambique as a means of treating rural poverty.

My experience with TechnoServe revealed that the best method of poverty alleviation is often wealth creation. The notion of wealth creation is uncomfortable for some, but it is evident that if wealth creation is propagated responsibly, it can achieve unmatched sustainability. TechnoServe began restructuring Mozambique’s dying $80,000 cashew industry in 2002, and by 2007, Mozambique had become the world’s fourth-largest cashew producer, achieving sales of more than $20 million. TechnoServe’s leadership accomplished these results by expanding the industry from purely harvesting cashews to also processing them, by aligning the techniques of processing cashews with consumer demand, by selling cashews under a collective name to increase selling power, and by training and mentoring native Mozambican entrepreneurs to operate the cashew processing plants.

TechnoServe has achieved similarly astonishing results in the domestic poultry industry and is looking to generate regular use of the Port of Nacala through development of the mango and banana industries, which will open a much-needed supply chain into northern Mozambique—a region that has been shackled to poverty in large part because of high transportation costs.

Thomas Davis as a boy in Mexico, pictured with family friend Esperanza and her son Tavo. While living in Mexico for 16 years, Davis’ mother assisted many families like Esperanza’s by hiring them to work at her company, giving them home and business loans, and helping to pay for their educations.

Thomas Davis as a boy in Mexico, pictured with family friend Esperanza and her son Tavo. While living in Mexico for 16 years, Davis’ mother assisted many families like Esperanza’s by hiring them to work at her company, giving them home and business loans, and helping to pay for their educations.

Analyzing TechnoServe’s successes reveals some important insight into the value of wealth creation. While great emphasis traditionally has been placed on macroeconomic policies such as curbing hyperinflation, debt relief and increasing investment, significant opportunities remain for microeconomic development. What good is foreign investment in a country where nearly all citizens lack an even basic understanding of business management? Without the development of management skills among the poor, the upper economic echelon—characterized exclusively by ex-pats and a few wealthy Mozambicans—isolates the underlying economic foundation by creating an interface that is impermeable to any effective knowledge transfer.

A national education system that doesn’t cultivate management skills merely creates a more educated workforce for those who already know how to manage. In addition to creating a more favorable business climate at the macro level, it is essential that we see more management schools and organizations such as TechnoServe that develop indigenous entrepreneurial spirit beyond the informal sector—a phenomenon pervasive throughout the developing world.

A focus on wealth creation changes the mentality one uses to treat poverty. Instead of giving someone a dollar and consequently labeling that person as poor, investing that dollar allows that person to be just like you and me. No longer is that individual isolated as a poor person. Although poverty alleviation and wealth creation outline the same end goal, the nomenclature results in two very different approaches.

For wealth creation to be effective, it cannot create isolation, an idea best explained in a May 26 New York Times op-ed piece by Deepa Narayan, director of the World Bank’s Moving Out of Poverty project:

“In the recession-battered West, governments are moving to insulate citizens from excessive exposure to markets. But for the poor, being cut off from markets is the problem. In fishing communities in Cambodia, fishermen get lower prices for their fish and are forbidden from fishing where large trawlers go; in the coffee-growing region of Tanzania, cheating in the weighing of coffee beans is so institutionalized that it has a name, Masomba; in West Bengal, traders without political connections have no hope.”

Methodologies resulting from the defining of poverty as isolation have been an effective means for alleviating poverty. Nevertheless, it is essential to recognize that poverty cannot be measured in purely monetary terms. While traveling in Bangladesh with Bart Victor, the Cal Turner Professor of Moral Leadership at Vanderbilt’s Owen Graduate School of Management, I asked him to describe the worst poverty he had ever seen. He explained that he would rather live in rural Bangladesh than in many inner cities of the United States because of the fear of being violently injured. In this case, it is a lack of freedom of safety that defines poverty.

More generally, it is Nobel laureate Amartya Sen’s notion of “unfreedom” that not only more fully defines poverty but also dramatically reshapes the world’s priorities. For example, many in the world are quick to forget about the need in countries like Brazil and Mexico because those nations have successfully grabbed hold of the economic ladder, consequently focusing more attention on the ills facing the African nations.

While Mexico may appear to have broken free from economic captivity, never before has Mexico experienced such a dramatic loss of freedom since the arrival of the conquistadors in the early 16th century. With more killings in Mexico than in Iraq in 2008, no longer can Mexican immigrants in the United States return home to their once-small, once-tranquil colonial towns.

I lived in Mexico as a child, and when I go home during the summer to visit old family friends, I see a country afraid for its safety. These days the towns are overrun with the Zetas and other drug cartels. Criminals carry machine guns openly in public, kidnap civilians, and take money from local bakeries, shoe-repair stores and other small businesses.

The next time you hear someone claim that America has the wealthiest poor people, remember that poverty and wealth are not necessarily antonyms. It all depends on how you define it.


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