I had the opportunity to re-read the Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty authored by Efosa Ojomo, Karen Dillon, and the late Harvard Business School Professor Clayton Christensen. This book constantly informs our global prosperity work at the Christensen Institute, with innovative frameworks based on years of research on how to educate and train personnel across various entities and government bodies in order to help make economies more prosperous for everyone.
As an African-born entrepreneur and passionate advocate for minority founders and investors creating businesses in underserved markets, I have found myself searching for content that can succinctly address the struggles of these individuals and frameworks that they can use to build profitable businesses with a long-term socio-economic impact. It is one of the reasons I founded the podcast, “Doers Within Us,” to highlight and share their stories and the impact that they are creating both on a local and global level.
It was only when I came across The Prosperity Paradox that I started to see the world differently. The refreshing perspectives and novel insights of how we can address some of these challenges in underserved communities through the lens of innovation theories were both compelling and attainable.
This book not only provides us with a new set of lenses of how to approach significant and long-standing societal challenges such as poverty, socio-economic inequality, and corruption but also spurred an inspiring message that it is for us—innovators, entrepreneurs, governmental officials, and more—to solve them.
In these challenging times, it is easy for any of us to conform to cynicism or settle for small ideas while belittling the impact we can have in our roles in society, especially when we experience the effects of these societal struggles firsthand. However, this book embodies a possible path of how we can be active participants in both local community- and nation-building.
As easy of a read as this book is, I am also aware we are all pressed for time. So, here are three insights from the book that can be a paradigm shift in your thinking and how you can become a doer toward creating inclusive prosperity, beginning at your local community and beyond.
Here are three insights from the book I believe are worth highlighting:
1. Market-creating innovations can serve as a catalyst for prosperity
The first takeaway is that prosperity is not generated through the flood of well-intentioned resources from wealthy countries to low- and middle-income countries. Instead, prosperity takes root when organizations invest in a particular type of innovation we at the Institute call market-creating innovation. This type of innovation serves as a catalyst and foundation for lasting economic development, and results in new jobs and new sources of tax revenues that can fund the development of institutions and infrastructures necessary to further develop societies.
It may sound counterintuitive, but that is the prosperity paradox—true prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets that target nonconsumers in these countries. Nonconsumers are people who, for reasons of unaffordability, inconvenience, or lack of expertise, don’t purchase or utilize products or services.
An example of a powerful market-creating innovation is how the Model T’s effects on the economy helped create American prosperity. As prosperity increased, so too did life expectancy, health, and education levels, while corruption declined. Crucially, Ford became one of America’s, and the world’s, leading automakers, and remains so to this day. Had Ford instead concentrated on competing within a narrow niche market for the wealthy, the company would likely have never eclipsed its competition and become a global industrial titan. Furthermore, the US may never have seen the rise of a middle class that formed the basis of its future prosperity.
2. A “pull” strategy can drive sustainable development
Many programs are focused on implementing what we call a “push” strategy of development, where they directly fund food, water, education, healthcare, and other development projects. These programs push needed resources into communities. But while a push strategy can be useful and necessary in immediate disaster relief or a humanitarian crisis, it often doesn’t create long-term prosperity.
In contrast, the book outlines what we call a “pull” strategy of development, which entails the development of market-creating innovations, often by entrepreneurs, that effectively “pull in” a variety of resources to support the new market, such as infrastructure, institutions, education and, importantly, jobs. Development organizations can increase their impact by channeling their efforts into helping entrepreneurs and innovators capitalize on these opportunities.
In this article, I showcase how the pull strategy can help people and economies recover and build long-term prosperity, especially regarding the several nonprofit organizations in search of funding opportunities to support underserved communities overwhelmed by the ongoing consequences of the COVID-19 pandemic.
3. The equation on corruption is backward
In Efosa Ojomo’s TED talk, he articulated how he and his co-authors dug into the relationship between corruption and economic development. Pouring through historical examples of countries that had escaped poverty and reduced corruption, they discovered something surprising: poor countries don’t need to eliminate corruption in order to become prosperous; they must become prosperous in order to eliminate corruption. It’s what happened in the US, South Korea, and countless other countries.
His book suggests we should look at corruption with a new pair of lenses. Our question should be: “Why does corruption persist in the first place?” The answer to these questions lies in understanding how corruption evolves. In this article, Efosa describes the three phases of corruption.
The first phase is overt and unpredictable corruption, and it is characteristic of many underdeveloped countries like Afghanistan. In this phase, contracts are difficult to enforce, embezzlement and bribery are prevalent and are manifested in daylight, and government institutions are generally hard to trust. When countries are in this phase, they often get very low scores on the Corruption Perception Index.
The second phase in the corruption spectrum is covert and predictable corruption. In this phase, corruption is more or less an open secret. It goes hand-in-hand with development and, as long as development continues to happen, most officials look the other way. China would fall in this category.
The third phase is transparency. In this phase, although some corruption still occurs, it is largely frowned upon and prosecuted to the fullest extent of the law. The US would fall into this category. In the transparency phase, corruption might morph into lobbying.
Evidently, when we understand these three phases of corruption and how they manifest in every society at different points in their development, we then learn that corruption is the outcome, not the problem.
In summation, there is much to read in this book. At the global prosperity arm, our research is guided by two questions: “What is the causal mechanism behind prosperity?” and “How can we engender it in poor countries?” These three takeaways begin to shed some light on how we can, together, start answering these two questions.
Did you read The Prosperity Paradox? If so, what are some insights you find powerful, informative, or interesting? Leave your comments below, tag us on Twitter, or send us an email—we’d love to hear from you!