What Can Businesses Do to Eradicate Poverty?

Some time ago, economist Robert Shiller, Nobel Laureate in 2013, warned that income inequality is the greatest source of financial risk for the 21st century. In Mexico, such inequality is extreme, with average incomes in some cities reaching first-world levels, while, in others, they resemble the poverty levels of Africa. In general, we relegate responsibility for eradicating poverty to the government and overlook the role that companies should play in this matter. Broadly speaking, companies have the task of growing the economy, irrespective of income distribution.

However, businesses attract more and more criticism for the “obscene” remunerations of senior management and for failing to pay their fair share of taxes. In this context, what can businesses do to help to eradicate poverty? Some of the ways in which businesses can collaborate in ending poverty are as follows:

How businesses view the poor

Over the past fifteen years, some businesses have shown a great interest in the poorest of the poor: the so-called bottom of the pyramid has grown exponentially. This concept was introduced by C. K. Prahalad in his book, The Fortune at the Bottom of the Pyramid, which overturned the idea that large corporations could not make money with the poorest of the poor. Instead, Prahalad effectively argued that the people who live in poverty do actually have resources and businesses can create markets within this income group by developing appropriate goods and services for this segment.

The bottom-of-the-pyramid proposal soon generated significant criticism, since it originally focused on the poor as consumers. The next step of this movement was to view the poor as producers, either through fair-trade coffee or community businesses. The inspiration for this focus on poor producers was that it enabled people with limited resources to generate more income to meet their daily needs.

As these producers’ capital requirements increased, businesses yet again had a role to play. Even though the concept of microfinance was pioneered by Muhammad Yunus with his first microcredit in 1976, this financing option has played a key role in the idea of ​​the poor as producers, enabling them to buy assets to start the production of, for example, apparel or crafts.

Some people have also criticized the approach of the poorest as producers, such as Aneel Karnani, who has written about the “misfortune” at the bottom of the pyramid. He explains that the poor are not innate entrepreneurs and that instead of “wrongly giving” loans to the poor, it would be better to direct them at businesspeople who could use that capital more efficiently to employ the poor.

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This issue is undoubtedly controversial for businesses. The question of how to help the poor is not clear and is very often extremely complex. Although some businesses have successfully penetrated the bottom-of-the-pyramid markets (viewing the poor as consumers or producers), these cases are in the minority.

Although poverty is still a pressing issue that affects businesses, many of them seem to be overwhelmed and unsure of how to respond to the enormous need that surrounds them. The question is still unanswered: What should businesses do?

A partial answer can be found in the work of another winner of the Nobel Prize in Economic Sciences, Douglass North, who maintains that the main issue preventing economic development in emerging economies is the lack of both political and economic competition. For example, many of Mexico’s markets are characterized by monopolies and oligopolies. Throughout the 20th century, the government’s actions have mainly been orientated towards limiting competition, despite efforts to open the country to investment. Large companies have mostly used the government to protect their interests.

According to North, the first step business should take towards ending poverty would be to stay out of politics. Unlike the CEO of General Motors, Charles Wilson, who declared: “What’s good for General Motors is good for the country,” North urges businesses to allow government processes to work so that the rule of law can be applied equally to all.

The next best option for businesses is simply to pay their fair share of taxes. All too often, I hear company representatives complain that corrupt government officials use tax money for their own benefit, and, therefore, businesses do their best to find loopholes and avoid paying their fair share. Corruption is certainly one of the biggest problems faced by Mexico, but tax evasion is not the answer. On the contrary, employers should support officials who fight against corruption and provide equal conditions for everyone.

Finally, an important point is that the burden of poverty is shared unequally between men and women. Research shows that women are paid less than men for the same job at every level of the income scale. However, the impact is particularly great at the lower end. Paying men and women equally for the same job in business is vital. Research has also found that women in low-income households are more likely than men to use their income for the benefit of the whole family. Therefore, equal pay for the same job, as well as opening positions to everyone, regardless of gender, is key to reducing poverty, especially among children.

Ending poverty is a noble challenge and one to which the United Nations is fully committed. If businesses carry out their duty of facilitating a political process that will serve everyone’s interests, paying their fair share of taxes and providing equal payment for women, they will be able to make significant progress in the reduction and eradication of poverty today.