Global Poverty Needs a Global Answer

HBS professor emeritus George C. Lodge’s idea of a World Development Corporation has been percolating for years—he wrote a seminal article on the proposal in Foreign Affairs in 2002 (reprinted on HBS Working Knowledge).
The WDC would be a for-profit organization that would create sustainable improvements in impoverished countries. Lodge advanced the ideas in a January 2006 two-part piece in YaleGlobal coauthored with economist Craig Wilson. The authors also have a book due in May, A Corporate Solution to Global Poverty: How Multinationals Can Help the Poor and Invigorate Their Own Legitimacy, to be published by Princeton University Press.
In this recent interview conducted by e-mail, Lodge is hopeful that the World Development Corporation will be formed. He explains why nonprofits aren’t the answer to ending poverty and asks that executives look beyond philanthropy to make lasting positive change.
Cynthia Churchwell: In your Foreign Affairs article, you shared ideas on first steps to forming a World Development Corporation. What obstacles do you think have prevented this organization from coming into existence? What hope do you have that it will be created in the foreseeable future?
George C. Lodge: Bureaucratic inertia is strong. Big organizations do not like change. There is considerable mutual suspicion among MNCs, NGOs, and multilateral organizations. They are all busy doing what they are doing.
There are ideological problems as I mentioned: Business and government are supposed to be kept separate and preferably distant. And many agree with Milton Friedman who famously said that the purpose of business is to maximize returns to shareholders and compete to satisfy consumer desires in the marketplace. Government—not business—is supposed to define and insure the fulfillment of community needs. (Of course, Friedman's formulation leaves the manager with two problems: the sum of consumer desires does not necessarily equal community need, and many—perhaps most—governments to not define or fulfill community needs in a fashion that is acceptable to many. Thus business is left with no choice but to do so.)
Nevertheless, there is slow and I believe inexorable movement in the direction of a WDC, because it makes sense for all concerned. It will take time but it will happen. Just the other day the CEO of a major MNC decided to take time to get it started.
Q: Your YaleGlobal piece mentions Growing Sustainable Business and the Investment Climate Facility for Africa as positive collaborations between business, government, and nongovernmental organizations. Are there other examples that provide hope of continued partnerships such as these for reducing global poverty?
A: Yes, there are many. Here are two: DaimlerChrysler some years ago, under pressure from the Green Party in Germany, decided it had to increase the amount of renewable resources it used in the manufacture of its cars. The manager of the company's Brazilian subsidiary decided to make use of locally grown coca fibers for the manufacture of head rests and seats. With the help of Brazilian NGOs and the U.S. government's Inter-American Foundation, he found a community organization called POEMA in the impoverished northern part of the country near Belem where coca grows abundantly. With public sector financial help a joint venture was set up with POEMA, a modern high-tech factory built, and coca plantations developed. Some 5,000 people were employed. Literacy levels soared. Political participation increased. Change had been introduced.
The U.S. Agency for International Development has funded initiatives by Land O' Lakes in some twenty-three poor countries. In Albania, for example, Land O' Lakes has organized 8,000 women into cooperatives for the production of dairy products, providing technical support, veterinary services, and the like. While requiring public sector funding at first, these operations eventually become profitable.
Q: In what ways could the World Development Corporation be better than other partnerships to improve quality of life and investment climates?
A: First, it would provide for a collective approach to poverty reduction. The WDC board of directors would include about twelve of the world's most admired MNCs. In addition, associated companies could be called on to participate in particular projects as necessary. For example, let us imagine a Nestlé dairy operation in a rural area. It might be augmented and complimented by companies engaged in electric generation, telecommunications, housing, and water purification. Poverty, as we have noted, is systemic. Its alleviation requires a systemic approach by companies that are profit oriented. They must be profitable to be sustainable.
Second, the WDC would take the initiative to target projects in countries that have a good chance of success, where the government is hospitable, the local business community eager for partners, and where public funds or low-cost financing can be obtained for the project's early stages. It would organize the interface with supporting institutions such as the World Bank and the UNDP, and with local business partners. And since the WDC would have NGO representation on its board, it would assure NGO cooperation.
Third, the WDC would be a center of research and learning about the impact of business on poverty reduction, something about which we know surprisingly little today.
Q: How much progress do you think has been made towards reducing global poverty? Are there other key components to poverty reduction in addition to multinational corporations?
A: Many Asian countries have made spectacular advances. These include post-WWII Japan and more recently Singapore, China, India, South Korea, and Taiwan. Nevertheless most Africans were better off forty years ago than they are today. Average per capita incomes in the Moslem world from Morocco to Bangladesh and beyond to Indonesia and the Philippines are one half the global average. Poverty in Central Asia is increasing as it is in many countries of Latin America, even those that are relatively prosperous like Mexico and Brazil.
The key to poverty reduction, as the Asian examples show, is business, especially small- and medium-sized domestic companies. They provide the jobs, the income, and the motivation for individuals to become educated and move up in the world. For local business to flourish, however, it often needs access to world markets, technology, credit, and managerial know-how. This is the reality of globalization. And MNCs provide that access.
It is also important that governments provide a hospitable climate within which business can invest and grow. Infrastructure also is important—ports, roads, electric power, etc.