Monday, January 05, 2009

Poor do not need charity but the opportunity of enterpreneurship

The excerpts from an article written by C.K.Prahlad( He is the writer of “The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits”) I recently read.
Societies have always searched for an ideology and an institutional framework to balance collective and private interests. In the last century, this struggle played out as a confrontation between two clearly defined ideologies—communism and capitalism.
Capitalism may have won, but capitalists themselves have started re-examining how to adapt themselves to the 21st Century. The question of how to create prosperity and social justice is at the heart of this debate.
This time, the debate is not across the aisle but within the party. Capitalism is re-examining its focus towards creating solutions for larger social problems.
Capitalism is built on a few key principles:
Entrepreneurship, innovation, investment and organisation are at the heart of capitalism.
Investors, who finance the ideas of entrepreneurs to create businesses, deserve to benefit with returns commensurate with risks.
Private property and the rule of law are paramount in such a system.
Private enterprise, in a system of transparent transactions, can benefit consumers and provide incentives for business.
Capitalism is usually associated with participative democracy.
No one really questions these basic premises any longer. The practice of capitalism, however, has not been without problems, and must adapt itself to address these issues. Does capitalism shortchange consumers, employees, suppliers, and communities?
Does it care about the poor and the disadvantaged? These are legitimate questions.
Recently, Bill Gates suggested that we should focus on creative capitalism that explicitly recognises the four billion poor and develops market-based solutions to help them.
This has led to attacks from two sides—those who believe that this is not the private sector’s job and those who believe that this is one more attempt on the part of capitalists to impose their will on the poor.
The debate must focus on solutions, not ideology.
If we stop thinking of the poor as victims and start recognising them as resilient and creative entrepreneurs and value-conscious consumers, a whole world of opportunities will open up. This is a call for the private sector to use its creativity and resources to deal with rampant social inequities.
The focus should be on dealing with social inequities as a business and not through charity. Profitable businesses usually grow and sustain themselves. On the contrary, many governmental initiatives are subject to change with changes in government.
We know that the alternatives have not worked very well. Worldwide, aid and subsidies have proven to be mostly ineffective. Most importantly, subsidies create dependence and rob people of dignity. The direction of philanthropy changes often and results are not documented and measured.
Without a long-term, self-sustaining solution that reduces poverty, we are likely to create higher levels of inequality. If neglected, these concerns will undermine the very social legitimacy of the corporation.
In India, it is a call for inclusive growth(As Sanjay Subrahmanyam writes in another article” The protagonists of liberalisation in India need to remember that the market cannot exist in a social vacuum.”). The demand on the private sector, the institutional embodiment of the principles of capitalism, to recognise and respond to these concerns is urgent.
India represents aunique opportunity for developing the practice of capitalism for the 21st century.It has a vibrant private sector and a participatory democracy. It also has inequalities, not just in incomes but also in terms of opportunities.
If the country can find a way to make capitalism work by addressing problems of poverty, illiteracy and subsistence agriculture while creating new opportunities for the poor and vibrant businesses at the same time, the consequences are tremendous. There is no better place to develop the “next practice of capitalism” than India.
The growth of self-help groups (SHG) and the role of civil society in microfinance is well-documented. Several large firms now recognize that they have to seek partnerships with village entrepreneurs. STD phones started the trend towards creating micro-entrepreneurs.

Private sector must participate in confronting social ills like illiteracy, malnutrition, poor healthcare in an efficient business-oriented manner.
Public sector must recognise that flexible and adaptive systems are needed to cope with these problems. Both must recognise the critical role of the civil society. The new social compact will enlarge the scope of private sector.
It must focus on innovations that dramatically alter the economics of products and services so that markets become inclusive. But that cannot be done without the active support of the public sector and the civil society.
For these sectors to collaborate, they must all agree on their common interests—reducing inequalities and building a just society. The systems will work only if we focus on transparent transactions, the application of advanced technologies, innovative solutions and a deep belief that what is at stake is the very social legitimacy of private and the public sectors as institutions.