The Prosperity Paradox

282 Pages·2018·2.44 MB·English

by  Clayton M Christensen

Contents
Cover
Title Page
Preface
Section 1: The Power of Market-Creating Innovations
Chapter 1: An Introduction to the Prosperity Paradox
Chapter 2: Not All Innovations Are Created Equal
Chapter 3: In the Struggle Lies Opportunity
Chapter 4: Pull Versus Push: A Tale of Two Strategies
Section 2: How Innovation Created Prosperity for Many
Chapter 5: America’s Innovation Story
Chapter 6: How the East Met the West
Chapter 7: Mexico’s Efficiency Problem
Section 3: Overcoming the Barriers
Chapter 8: Good Laws Are Not Enough
Chapter 9: Corruption Is Not the Problem; It’s a Solution
Chapter 10: If You Build It, They May Not Come
Section 4: What Now?
Chapter 11: From Prosperity Paradox to Prosperity Process
Acknowledgments
Appendix: The World Through New Lenses
Index
About the Authors
Also by Clayton Christensen
Copyright
About the Publisher
Preface
I spent two years in the early 1970s serving as a Mormon missionary in South
Korea, one of the poorest nations in Asia at the time. In South Korea, I witnessed
firsthand the devastating effects of poverty: I lost friends to preventable illnesses
and saw families routinely having to make impossible choices among putting
food on the table, educating their children, or supporting the older generation.
Suffering was part of daily life. I was so moved by that experience that when I
received a Rhodes Scholarship to attend Oxford, I decided to study economic
development, with a focus on South Korea. I hoped that might lead to a position
at the World Bank, where I could try to help solve the problems I had seen in my
time in South Korea. The particular year I wanted to join, however, the World
Bank wasn’t hiring any more Americans. That option was closed to me. So in
the twists and turns of fate, I ended up at Harvard studying business instead. But
the haunting images of the impoverished country stayed with me.
I am happy to say that when I visit South Korea today, it bears no
resemblance to the South Korea I remember. In the decades since I lived there,
South Korea has not only become one of the world’s richest countries but has
also joined the respected ranks of the Organization for Economic Cooperation
and Development (OECD) countries, and has gone from a foreign aid recipient
to a foreign aid donor.1 American journalist Fareed Zakaria has gone so far as to
call South Korea “the most successful country in the world.”2 I could not agree
more. South Korea’s transformation in just a few decades is nothing short of
miraculous.
Unfortunately, such a dramatic transformation has not been possible for
many other nations that resembled South Korea a few decades ago. By contrast,
Burundi, Haiti, Niger, Guatemala, and many other countries that were
desperately poor in the 1970s are still desperately poor. The questions that
originally spurred my interest in helping South Korea years ago have continued
to nag at me for decades. Why do some countries find their way to prosperity,
while others languish in profound poverty?
Prosperity, it turns out, is a relatively recent phenomenon for most countries.
Most wealthy nations have not always been prosperous. Consider, for example,
the United States. We may forget just how far America has come. Not too long
ago, America, too, was desperately poor, rife with corruption, and chaotically
governed. By almost any measure, America in the 1850s was more impoverished
than present-day Angola, Mongolia, or Sri Lanka.3 Infant mortality at the time
was roughly 150 deaths per 1,000 childbirths—three times worse than sub-
Saharan Africa’s infant mortality rate in 2016.4 American society then—with a
lack of stable institutions and infrastructures—looked nothing like it does today.
But that is exactly why the story of America offers hope to poor nations
everywhere. Finding a path out of poverty is possible. The question is how.5
For decades, we have studied how to stem poverty and create economic
growth in poor countries, and we have seen some real progress. For example, the
rate of extreme poverty globally decreased from 35.3 percent in 1990 to an
estimated 9.6 percent in 2015.6 That represents more than one billion people
being lifted out of poverty since 1990. But as dramatic as that statistic may be, it
might be presenting a false sense of progress. Of the approximately one billion
people who have been lifted out of poverty, the majority—approximately 730
million—are from one country: China. China was able to reduce its rate of
extreme poverty from 66.6 percent in 1990 to less than 2 percent today.7 That is
indeed impressive. But in some regions, such as sub-Saharan Africa, the number
of people living in extreme poverty has actually increased significantly.8 Even
for those who are not technically living in extreme poverty, survival is still very
precarious.
Although it is true that we have certainly made some progress, there seems to
be no consensus on how to eradicate poverty. The suggestions range from fixing
dismal societal infrastructure (including education, health care, transportation,
and so on) to improving institutions, to increasing foreign aid, to boosting
foreign trade, and many others.9 But even those who disagree on the right
solution would surely agree with the assessment that progress has been too slow.
Country 1960s 2015 % change
1 Burundi $470 $315 -33%
2 Central African Republic $677 $339 -50%
3 Malawi $412 $353 -14%
4 Gambia $773 $384 -50%
5 Madagascar $1,108 $393 -65%
6 Niger $1,196 $403 -66%
6 Niger $1,196 $403 -66%
7 Liberia $1,447 $469 -68%
8 Democratic Republic of Congo $1,742 $478 -73%
9 Togo $783 $578 -26%
10 Afghanistan $698 $615 -12%
11 Uganda $686 $625 -9%
12 Sierra Leone $1,128 $675 -40%
13 Benin $802 $709 -12%
14 Senegal $2,003 $935 -53%
15 Zimbabwe $2,207 $1,037 -53%
16 Ivory Coast $1,545 $1,319 -15%
17 Ghana $1,632 $1,401 -14%
18 Zambia $2,252 $1,576 -30%
19 Venezuela $8,507 $4,263 -50%
20 Kuwait $34,087 $29,983 -12%
Figure 1: Per capita income from 1960–1969 was averaged to get a 1960s per capita income
value. Values were adjusted for inflation.
Source: IMF World Economic Outlook Database
Consider this. Since 1960, we have spent more than $4.3 trillion in official
development assistance trying to help poorer countries.10 Unfortunately, many of
our interventions have not had the impact in poor countries that we’d hoped they
would. In fact, many of the world’s poorest countries in 1960 are still poor
today. And even worse, at least twenty countries were poorer in 2015 than they
were in 1960 (see Figure 1), in most cases, even after billions of dollars’ worth
of aid.11
Efosa Ojomo, my coauthor on this book and one of my former students at
Harvard, knows firsthand the pain of failing despite well-intended efforts. His
experience offers insight into the frustration surrounding so many once-hopeful
projects designed to bring better living and working conditions to impoverished
economies. Efosa is originally from Nigeria, but he has spent the bulk of his
adult life living and working in the United States. So while he recognized the
poverty that plagued poor countries, it was somewhat of a distant concern for
him, until he found himself reading the dedication in the book The White Man’s
Burden, New York University professor William Easterly’s attack on Western
efforts to aid impoverished countries. In this book, Easterly told the story of
Amaretch, a ten-year-old Ethiopian girl who rose at three each morning to fetch
firewood. She then had to walk miles to sell the firewood in the market to help
provide for her family.
Efosa couldn’t sleep that night after he read her story. No child deserved to
live such a difficult life. So Efosa, together with some of his friends, set up a
nonprofit organization, Poverty Stops Here, to raise money to build wells in
various parts of his native Nigeria. “The lack of water is the first thing that hits
you when you visit a poor community,” Efosa later shared with me. “Water is
life. It’s why there are so many water projects throughout the world. We just
need to get people water. Everything starts there.” In a similar vein, when you
visit a poor country, the lack of quality education, unpaved roads, bad
governance, and other poverty indicators are painfully obvious. Isn’t it
reasonable to assume that the answer to solving poverty lies in providing one or
all of those things?
Efosa managed to raise more than $300,000 and identified five communities
in which to help build wells. The day Efosa and his supporters visited those
communities to turn on the wells for the first time was one of unmitigated joy,
for both Efosa and the local residents. I can imagine there are few more moving
sights than seeing plentiful, clean water coming from a well in a village that
previously had none.
But as it turned out, wells break down. About six months after building a
new well, Efosa would get a call in his Wisconsin home that the water wasn’t
coming out anymore, and he would have to figure out from thousands of miles
away how to get someone in Nigeria to go and fix it. Since all the wells his
organization built were in rural areas, finding a skilled technician to source parts
and go to the village was always challenging. One problem would be fixed and
another would spring up. Today, only one of the five wells that Poverty Stops
Here installed is still functional. Efosa and his friends, who had so earnestly set
out to help these villages, reluctantly gave up on building additional wells.
Poverty Stops Here, however, is not a unique story. There are more than fifty
thousand broken wells across Africa alone, according to a study by the
International Institute for Environment and Development. In some communities,
as many as 80 percent of the wells were broken.12 In one of the villages that
Efosa targeted for a well, he noticed that there was already a broken-down well
just a few hundred feet from the one Poverty Stops Here built, having previously
been installed by an international aid organization but then abandoned.
The experience was profoundly disheartening for Efosa, who was so eager to
help alleviate suffering. His failure raised some difficult questions for him. If
these vexing problems couldn’t be solved by an injection of resources and
goodwill, then what would help instead? Why do some efforts succeed and not
others? Why do some countries fare better than others? Perhaps most
profoundly, Efosa recognized that easing poverty—or the most obvious signs of
poverty—may not solve the problem long term. Alleviating poverty is not the
same as creating prosperity. We need to start thinking differently. We hope that
this book will change the way you think about the problem of economic
development, the questions that you ask, and the solutions you develop for
helping communities that desperately need it.
*
What do we mean by “prosperity”? There are some obvious and commonly used
proxies for prosperity, such as access to education, health care, safety and
security, good governance, and so on. The Legatum Prosperity Index, which
ranks 148 nations in these categories, also includes several other metrics, such as
environmental efforts. Not surprisingly, countries such as Norway, New
Zealand, and Finland are top performers while Sudan, Yemen, and Central
African Republic are at the bottom of the index.
While these measures are important in assessing the well-being of members
of a society, we believe that an even more important proxy is access to gainful
employment and upward social mobility. So for the purposes of this book, we
define “prosperity” as the process by which more and more people in a region
improve their economic, social, and political well-being.
This is an important distinction because we might classify some countries as
“rich” but not particularly prosperous, such as nations that are endowed with
valuable natural resources. Prosperity breeds increasing freedoms—economic,
social, and political—and is less dependent on access to one or two singular
resources, like oil. And so, while some countries are rich and have figured out
ways to distribute their riches to some of their citizens, we would not consider
them prosperous because their riches have not bred a culture of inquiry,
innovation, and a diversity of markets. They have not led to socioeconomic
mobility for all. And those resources have not led to an environment in which
prosperity will become sustainable after those natural resources run dry or lose
their value in the future. This illustrates the importance of understanding what
creates poverty.
And so my coauthors, Efosa Ojomo and former Harvard Business Review
editor Karen Dillon, and I have set out to investigate how poor nations can
become prosperous.
To make this book easier to read, we’ve written in the first person (my
voice), but the thinking captured here is very much the product of our joint
collaboration. Efosa and Karen have been coauthors in every sense of that word,