Profits from the poor make scale possibleBy Paul Polak and Mal Warwick

Some people assert that companies engaged in doing business with poor people should set prices as low as possible and accept little or no profit, because they regard it as immoral to make money from poor customers. The legendary Muhammad Yunus argues this point. However, he — and they — are ignoring the central premise of the approach we articulated in The Business Solution to Poverty: that the poor need to be viewed as customers, not as objects of pity and recipients of charity, and that earning attractive profits is an essential ingredient of achieving scale.

The issue is that lack of economic sustainability dooms most well intentioned attempts to help the poor. Our experience has revealed that all up and down the economic pyramid, people know how to make decisions of exchange for benefit. Whether buying $0.40 worth of seeds or buying a steel factory, the discipline and the considerations are much the same. What is the investment? What is the payoff? What is the risk?

We know that the poor are expert at the survival-level decisions they have to make daily, because we’ve seen it with our own eyes, year after year. We trust the fundamental intelligence of their decision-making, which is the basis of economics. In areas of endemic poverty, what’s needed most of all is increased economic activity.

The Business Solution to Poverty is based on recognizing this simple building block of human sustainability, the mutually profitable exchange of currency for goods and services of value. The approach to business described in our book is intended to inject cash into marginal communities—by hiring local people and by partnering with local shopkeepers—and to increase economic activity by helping customers either increase their income or save money that can be diverted to more productive uses (for example, eliminating frequent purchases of ineffective or counterfeit drugs and enabling families to send their children to school or make home improvements).

Many well-documented efforts to combat famine with free food have resulted in rendering huge swaths of historically poor areas permanently food-dependent. If an effort based on subsidies is trying to deliver safe drinking water, what happens as soon as the subsidy is removed? The safe drinking water will be unavailable. What happens to the people then? In fact, there’s no mystery here, because we know what happens to the people: they return to drinking contaminated water, their health declines, and they squander money on dubious “cures.”

But if that business is organized to make a profit, as are Spring Health and the other companies we’re building in India, and if it’s designed to scale, it can work for 100,000, or 100 million people if it works for 1,000—and it will endure over time because everyone in the chain of transactions benefits from the exchange. The profit principle assures that it will be maintained and expanded until something better comes along.

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