Tuesday, June 23, 2009
Fighting Poverty with Donkey Carts
Social Innovation: a Donkey Cart
or IDE-A Winner?
International Development Enterprizes (IDE) is premised on the belief that market forces are a critical weapon against poverty, a belief that amounts to heresy through much of the development world. In 1981 in Somalia, for instance, the International Labor Organization and the U.N. High Commission for Refugees funded a program to help refugee women produce sleeping mats, which the U.N. then bought for $4 each and distributed. When the relief organizations left, so did the market. At the same time, IDE was helping blacksmiths in the refugee camps build 500 donkey carts, which were sold on credit. On average, a donkey cart owner could net $200 a month hauling water and other goods, enough to pay back the loan in two and a half months. When Polak proposed expanding the program in partnership with the UNHCR, he was met with outrage—the organization wanted to stick to the old system of giving things away. Eventually, Polak prevailed.
Giving the Poor a Means to Work
Paul Polak and his company, International Development Enterprises, have helped 17 million people lift themselves out of poverty
by Jessie Scanlon
Most books about poverty are downright depressing. The figures—1 billion people live on less than $1 a day, according to the U.N. Development Program—are depressing. The complexity of the problem—poverty is connected to poor health is connected to lack of clean drinking water is connected to lack of education—is daunting. And spend any time at, say, the Web site of the World Bank, the organization that's "Working for a World Free of Poverty," according to its tagline, and you start to sense a disconnect between the experts' fancy "comprehensive development frameworks" and poverty-mapping techniques, and the daily needs of the poorest poor.
But one new book on the subject, Out of Poverty: What Works When Traditional Approaches Fail by Paul Polak, offers optimism. Optimism not just for those fighting poverty and those fighting to get out of it, but for any company interested in a basically untapped 1 billion-person market. That optimism is based on the author's real-world experience as the founder of International Development Enterprises (IDE), a nonprofit organization that develops and/or markets products such as treadle pumps and drip irrigation systems that have already helped 17 million people lift themselves out of poverty.
Founded by Polak in 1981, IDE is based on the belief that there are simple solutions to the seemingly complex problem of poverty, and that those solutions are based on enabling the entrepreneurial spirit of the poor. The logic of IDE's approach is so simple it seems ridiculously obvious: Poor people are poor because they don't have enough money; 800 million of the world's poorest earn their living from one-acre farms; those people could earn more if they knew how to grow high-value crops; to do that, the poor need access to very cheap tools—seeds, fertilizer, irrigation—and to markets where they can sell their goods.
Only Products That Pay for Themselves
Given this, IDE's focused mission has been to develop radically low-cost tools that will help subsistence farmers become small-scale commercial farmers. For instance, IDE's $25 treadle pump (a foot-powered suction pump) enables a family working two to six hours a day to irrigate a half-acre of vegetables during the dry season and earn an average of at least $100 a year after expenses. Other products include a $40 water storage tank and a drip irrigation system that costs roughly $200 an acre, four-fifths the cost of a conventional system.
Borrowing from the famous football coach Vince Lombardi, Polak writes, "Affordability isn't everything. It's the only thing." And so IDE only develops products that will pay for themselves in the first year through the buyer's increased productivity.
But IDE does more than design cheap products. It nurtures the private-sector supply chains essential for economic development. When IDE began promoting treadle pumps in Bangladesh in the 1980s, for instance, the organization recruited four manufacturers to produce the pumps by offering them marketing assistance. IDE also offered programs to train well-drillers to install the pumps and to educate farmers interested in using irrigation to grow high-value crops. There are now 75 small-scale manufacturers, 2,000 village dealers, and 3,000 well-diggers earning a living making, selling, and installing treadle pumps, according to Out of Poverty.
Taking the Focus Off Charity
If this focus on the market seems obvious, it hasn't been. As Polak writes, "Development leaders were outraged by my notion that you can and should sell things to poor people at a fair market price instead of giving things to them for nothing." But the case that Polak has made over the years, and that he makes in this book, is persuasive: The only sustainable, scalable approach to fighting poverty is to give poor people a way of increasing their income; to treat the poor as potential entrepreneurs, rather than as recipients of charity.
Giving the Poor a Means to Work
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of traditional poverty initiatives gone awry: a program to help Somali refugee women make and sell soap that was so expensive the business had little hope of surviving once the subsidizing organization had moved on; a promised giveaway of 20,000 treadle pumps that never materialized but nonetheless put existing pump manufacturers, dealers and well-drillers out of business; the donation of village hand pumps that, when they broke, were never fixed because "nobody had assumed ownership."
For every failed initiative Polak mentions, leaders of the World Bank and the United Nations Development Program could no doubt point to a program that did make a measurable impact on poverty. But at what cost? "We have invested a staggering $568 billion in development aid in Africa over the past 42 years, and have very little to show for it," says a World Bank economist quoted in Out of Poverty.
From Maverick to Expert
Ultimately, the strength of IDE's approach is its return on investment. "Total investments by IDE and its donors…over the past 25 years were $78 million," writes Polak. "During the same period, dollar-a-day farmers invested a total of $139 million in income-generating tools promoted by IDE. Their investments generated $288 million per year in permanent new net income." It's hard to argue with numbers like that.
IDE's successful track record has transformed Polak from a maverick to a sought-after keynote speaker. IDE's measurable results have earned it two grants from the Bill and Melinda Gates Foundation. The most recent, announced at the 2008 meeting of the World Economic Forum in Davos, brought IDE $27 million over four years to expand its micro-irrigation program in India.
A Broader Range of Solutions
While many development organizations still follow traditional approaches, IDE's success has inspired some imitators, and Out of Poverty seems to have been written to attract more. Polak tells the stories of individual farmers like Krishna Bahadur Thapa, a Nepali who increased his family's annual income from an average of $100 to more than $500. Such anecdotes are woven together with charts of hard data showing IDE's impact, and practical, straightforward advice for organizations, businesses, and governments wishing to follow IDE's approach. The book is part policy rant, part case-study, part how-to, and it is anything but depressing.
Polak, meanwhile, is moving on. In 2007 he founded D-Rev: Design for the Other Ninety Percent, a hybrid nonprofit organization and for-profit company that will focus on the 300 million dollar-a-day people living in urban areas. One D-Rev project, for instance, is a solar-powered water purification technology capable of delivering 1,000 gallons of marketable drinking water a day at an investment cost for an entrepreneur of less than $300. Projects like these will provide opportunities for those living in urban slums as well as rural areas. "At IDE, our focus was on increasing the income of small-acreage farmers," he says by phone. "I want to take what I've learned at IDE and apply it to a broader range of problems."
For more, see BusinessWeek.com's slide show.
Jessie Scanlon is the senior writer for Innovation & Design on BusinessWeek.com.