Bill Gates' commitment at the World Economic Forum in Davos, Switzerland, to give $10 billion over the next decade to develop and distribute vaccines to children in the world's poorest countries has stimulated an interesting discussion on what would be the best use for such a large charitable gift. It's an important discussion too, as more very wealthy entrepreneurs use their charitable giving to change the whole paradigm of aid to the "bottom billion."
The Wall Street Journal recently asked eight prominent philanthropists and NGO executives how they would spend $10 billion to achieve the biggest and longest-lasting impact on the world's problems. All eight came up with great ideas, but the clear winner in my opinion came from leading Swedish businessman and philanthropist Percy Barnevik, who said he would use the money to unleash the entrepreneurship of the world's poorest citizens.
My experience in Africa over the past 27 years has convinced me that this is the only way for people to break out of poverty. People are poor because they have no sustainable income. It's as simple as that. They must be given the tools, training and opportunities to earn an income that they can then put to work to improve the lives of themselves, their children and their communities. That is how the United States achieved prosperity and that is how Africa will do it as well.
Barnevik points out that in the developed world, countries with 5% to 10% unemployment put the issue at the very top of their agenda. Yet, in aid programs for developing countries with 50% unemployment, job creation is hardly a priority at all.
Devoting that $10 billion to creating jobs in the developing world is not only the most sustainable solution to poverty, it also offers the best return on investment. Barnevik quotes research that suggests that it costs $200 to create a single job in the developing world, and that eradicating extreme poverty would require 250 million productive new jobs, costing $50 billion in total or $5 billion a year over 10 years – less than 5% of the $110 billion currently spent each year on aid.
Figures released in 2009 by the Government Accountability Office (GAO) support this argument. In 2008, Africa's non-oil exports under the African Growth and Opportunity Act (AGOA) earned $5.1 billion for a cost to the U.S. of about $2 million. In my work over the past decade facilitating trade through AGOA and bringing new investment to Africa, I have seen firsthand the tremendous value of programs like AGOA that grow wealth and jobs rather than dependency.
Barnevik knows whereof he speaks. His career has been a testament to both wealth and job creation. As CEO of first Asea and then Asea Brown Boveri (ABB), one of the largest engineering companies in the world, he increased the value of the company's stock by an average of 30% a year for the 17 years he was at the helm. He has also been the chairman and CEO of the Swedish steel company Sandvik, and chairman of the multinational companies Skanska, Investor AB and AstraZeneca.
Since 1999, Barnevik has used his entrepreneurial skills to create jobs in the developing world by being a major donor, advisor to and now Chairman of Hand in Hand International, an NGO first launched in India to eradicate child and bonded labor. Now, with partner programs in Afghanistan, Brazil and South Africa, Hand in Hand focuses on empowering women by promoting income-generating activities and the growth of micro-enterprises. So far the non-profit has trained over 525,000 women who have started 376,463 small businesses. Its goal is to create 10 million jobs in 10 years.
The organization takes a holistic approach to job creation, providing job and business training and microfinance, and promoting health, hygiene and protection of the local environment through solid waste management and watershed programs. It also works to strengthen grassroots involvement and democracy by setting up Citizens' Councils – almost 2,000 so far - where the community comes together to solve problems and pool resources. Barnevik and the team at Hand in Hand are planning on replicating the model in other African nations.
This is the kind of program that brings real and sustainable results. It is precisely the approach advocated by Columbia University economists R. Glenn Hubbard and William Duggan who, in their book The Aid Trap: Hard Truths About Ending Poverty, call for a modern-day Marshall Plan for the poorest countries of the world. Not the Marshall Plan that most people wrongly imagine as a large scale government-to-government aid program where the U.S. rebuilt Europe after World War II – but what the Marshall Plan was in reality: a program designed primarily to stimulate local businesses so they could sustain and create jobs.
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As I mentioned before, the other seven respondents to the Wall Street Journal's question all had terrific ideas – building schools, stimulating medical research, encouraging innovation, tackling climate change, creating social investment banks, improving statistical research and developing carbon-capture toilets – but none of these ideas deal head-on with the direct cause of poverty: a lack of money. Grow jobs and the rest will follow.
Trade Talk is a regular column by Rosa Whitaker, president and CEO of The Whitaker Group. She was a hands-on architect of the African Growth and Opportunity Act and the first ever Assistant US Trade Representative for Africa. To read other columns by Rosa Whitaker, visit The Whitaker Group website.
