Before COVID-19, the world was replete with anti-poverty programs. And considering the fact that around 100 million people will slide into poverty as a result of the economic impact of the pandemic, more anti-poverty programs are bound to emerge.
From the thousands of makeshift schools and clinics in poor countries, to the countless number of water wells built in struggling communities, billions of dollars will continue to be spent on anti-poverty programs every year. Unfortunately, many of these programs fail to lift people out of poverty. After interviewing more than 60,000 people in 15 countries, the authors of the book, Moving Out of Poverty, note that fewer than 1% of people cite anti-poverty programs as the reason they escaped poverty. In fact, in some countries, anti-poverty programs have made things worse. So, why do many anti-poverty programs fail to do the one thing they’re designed for?
A major contributing factor is that many anti-poverty programs are designed to be deployed in a modular fashion. Modular solutions work when they fit seamlessly and predictably with the other elements in a system; in other words, there are well-defined interfaces between the different elements and the proposed solution. In contrast, a solution must be interdependent when there aren’t well-defined interfaces between it and the other elements in the system. Because the interfaces between them are too unpredictable, it’s better for a single system to integrate and control all the different elements.
For example, in many high-income countries, the interface between reliable electricity and homes is highly predictable, enabling a modular electricity system. All residents need to plug in is a simple connection to the local utility company. By contrast, in most low- and middle-income countries, the connection to the electric grid is highly unreliable and unpredictable—if it’s even available. In order for most homes to access reliable electricity, homeowners have to develop their own customizable, interdependent solutions that ultimately affect how and when every other element in the house operates.
It turns out that most development problems are highly unpredictable in nature, such that they require an interdependent approach. Because the interfaces between education, employment, transportation, water, sanitation, health, and countless other issues are unpredictable and poorly defined, stakeholders must wrap their arms around all of the moving parts. Unfortunately, many development projects do just the opposite.
Development organizations should follow market-creating innovators’ lead
In order to improve a healthcare, education, or agriculture problem in a region, it’s likely that transportation, employment, and tax collection problems must be fixed. Thankfully, a particular type of innovation—market-creating innovation—is designed to be interdependent by its very nature. Market-creating innovations transform complex and expensive products into simple and affordable ones so that many more people in society can access them. When innovators create a new market in a poor country, they often must develop the entire system necessary for them to provide the new products since much of the infrastructure hasn’t yet been developed. It’s why many successful companies in emerging economies “vertically” or “horizontally” integrate their operations. They know for instance that, if they simply did manufacturing without a predictable interface to distribution, their innovation wouldn’t succeed.
For example, Airtel, which made mobile telecommunications affordable for millions in Africa, couldn’t rely on electricity from local utility companies so it provided its own electricity. Similarly, Galanz, which created a new market for inexpensive microwave ovens for China, couldn’t depend on existing sales and distribution networks so it built its own to reach its new customers. If these organizations had developed modular business models and relied on the unpredictable electricity and sales and distribution networks, they would not have been so successful.
If more anti-poverty solutions take a similar interdependent approach to solving poverty, our research suggests they’ll be more successful. For instance, an interdependent, anti-poverty solution to improve healthcare might not only build a clinic, but also consider providing education for healthcare workers, transportation and medication for patients, and all the other elements that ensure a clinic’s sustainability. This pandemic presents an opportunity to build new programs that can truly eradicate poverty and sustainably impact people’s lives. Anything short of an interdependent approach to ending poverty will result in piecemeal solutions that will not last.