Work versus Welfare

Stephen DeAngelis

March 11, 2008

Debates about how best to bring people out of poverty are endless. Some people, like Steven Pearlstein, believe that wealth should be redistributed through taxation [see my post Looking for a Globalization Strategy]. Others believe that dole simply establishes a pattern of dependency that traps recipients in poverty’s grasp. I lean towards this latter group. Don’t misunderstand me, there are people who require welfare assistance and great societies should be defined by how they treat those who cannot help themselves. I do believe, however, that people who earn their way are happier, healthier, and have greater self-esteem because they know they are contributing to society. Paul Polak also believes that and he created a company that has demonstrated the verity of his beliefs [“Giving the Poor a Means to Work,” by Jessie Scanlon, BusinessWeek, 22 February 2008]. Polak has written a book about his experiences and Scanlon reviews it.

“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.”

As readers of this blog know, I’m generally an optimistic individual and I am attracted to others who also believe that the future is going to be brighter than the past and try to do something about it. That’s why this story caught my eye.

“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.”

Polak’s philosophy is very close to that of Muhammad Yunus, founder of Grameen Bank and winner of the Nobel Peace Prize. Yunus started his bank because he believed the poorest of the poor remained remained in poverty’s grip because “they didn’t have enough money” — or to be more precise, because they didn’t have access to credit. He made that money available to them in the form of microloans. Polak took a different, but complementary, tack.

“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.”

I would be surprised if many of the people whose products IDE helps did not also use a micro-lender, like Yunus’ Grameen Bank, to finance the purchase of IDE products. The two systems work nicely together.

“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.”

In my discussions about Development-in-a-Box™, I have always tried to stress the importance of taking a holistic view of development. If you don’t take the kind of A-to-Z approach used by Polak, your efforts are likely to be frustrated. In Enterra Solutions’ work in Iraq, we are helping local businesses but also helping develop the supply chains necessary to support those businesses. This kind of approach simply makes good business sense. What I really like about Polak’s approach is how well it demonstrates the power of the entrepreneur for creating jobs. The article doesn’t indicate how many people work in the 75 treadle pump manufacturing plants, but I would venture to guess that it is considerably fewer than the 5,000 people whose work they support. Scanlon continues:

“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.”

Yunus likes to point out that the poor aren’t stupid they are deprived. If they were stupid, he argues, they would never have survived the wrenching poverty in which they live. They have to be resourceful and clever to survive in dire circumstances. Both he and Polak recognized this fact and desired to provide them with the assets they needed to capitalize on their intrinsic abilities.

“[Polak’s] case is bolstered by examples 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.'”

Slowly but surely the development community is learning its lessons. Both Polak and Yunus had to struggle to demonstrate that theirs was a better approach than those used in the past. Scanlon reports that these have been costly lessons that have expended “a staggering $568 billion in development aid in Africa over the past 42 years, and have very little to show for it.” Contrast that to the fact that globalization over the past two decades has managed to bring over 2 billion out of poverty by putting them to work.

“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.”

Polak is not sitting on his laurels; rather, he is turning his considerable talent from rural areas to urban areas. Urbanization is one of the demographic trends that appear to be continuing and Polak wants to help those without land become more prosperous as well.

“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 a more in depth look at why work is better than welfare, read my post about what a number of people involved with development say about Africa [Can Greed Save Africa?]. People always complain that they never read anything but bad news. Scanlon’s story is a refreshing change and it demonstrates many of the points I have tried to make about development. Profit is not a bad motive. Work is an ennobling principle. Success breeds success.