Finding a path that can eradicate poverty is possible, but first of all you need to understand what creates poverty and start thinking differently.
Charity actions aimed at reducing the most obvious signs of poverty (these are called push strategies), such as the construction of wells due to lack of water or roads to improve transport, do not create long-term prosperity because very often they are infrastructure still unwanted and unsustainable by the current market.
Prosperity is a relatively recent phenomenon for many countries (see China or South Korea), prosperity means the process by which more and more people in a region reach a higher level of social, economic and political well-being.
Some countries can be considered rich, because for example they have many primary resources, but are not prosperous, since prosperity is generated by the increase in social, political and economic freedom and does not depend individually on the resources present in the country.
And this is the paradox of prosperity: research in most countries shows that long-term prosperity is not achieved by reducing poverty, but by investing in innovations that create new markets (destructive innovations).
These act as catalysts for initiating sustainable economic development.
Important innovations in creating prosperity and how to use them to solve the prosperity paradox
The elements to solve the prosperity paradox are:
- find opportunities in the markets of countries that are in a difficult economic situation, where apparently there are no consumers;
- investing in innovations that have the ability to create new markets (which in turn produce jobs and increase the country’s economy);
- perform Pull development strategies (attraction), this means that new infrastructures and institutions are created in a country when the market requires it and not before;
When we talk about innovation we mean “a process by which an organization transforms work, capital, materials and information into products and services of great value”. Therefore, the innovations that create new markets make complex and expensive products and services cheaper and more accessible to a new segment of people, in a society defined as “non-consumers”.
Non-consumers are people who have difficulty making progress because the solution has always been out of their reach, they are the segment of the population that cannot afford the product / service due to the lack of means, the innovations that create markets are targeted precisely to them.
The good innovations that create markets have three distinct results:
- create jobs (critical factor in establishing a country’s prosperity);
- they create profits which are then invested to finance public services;
- have the ability to change the culture of a company.
Once the markets that serve non-consumers are created, these same markets attract other necessary resources (infrastructure, institutions, education, etc.) to ensure their survival.
Practical example: in 1990 Mo Ibrahim, a former technical director of British Telecom, was the first to think of founding a mobile phone company in Africa, going against the general idea that the country was a desperate case. Ibrahim founded Celtel with the idea of creating a pan-African telecommunications network.
Of course, he was faced with several obstacles, first of all the creation of an infrastructure network from scratch, but in six years Celtel extended to thirteen African countries, spreading the use of mobile phones. Mo Ibrahim had created a new market in Africa and a domino effect that managed to unlock the potential of other sectors, such as financial technology (telephone solvency could now be used as collateral to provide credit).
Classify the different types of innovation and their different types of impact on the market
Research shows that there are three types of innovations:
- sustainability innovations are improvements to existing solutions on the market and are aimed at consumers who require better performance from a product or service, do not attract new consumers and their impact on development is limited;
- the innovations in terms of efficiency allow companies to produce more using less resources, generally they are innovations that influence the processes of creating products / services and rarely create new jobs;
- the innovations that create markets do it literally, but they do not create any market, the created markets serve individuals for whom there was no product or for which the existing product was inaccessible, in a sense democratizing a previously exclusive product / service.
While sustainability and efficiency innovations keep markets competitive, they don’t play an important role in creating new markets or jobs like innovations that create markets, the latter are capable of creating local jobs (difficult to transfer to others countries) and global (easily transferable to other countries to take advantage of low labor costs). In addition, the profits from the innovations that create markets produce a domino effect and can finance future local innovations. Understanding which innovation causes certain results is the first step to achieve one’s goals, secondly one must understand why non-consumers decide not to use a certain product and create the right solution for them.
The five elements that an entrepreneur must look for in creating a new market are: