economic recovery post COVID

Avoiding the prosperity paradox:
How to build economic resilience in a post-COVID world

By: and

July 23, 2020
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EXECUTIVE SUMMARY

Although the ramifications of COVID-19 have been swift and indiscriminate, people living in poverty have been disproportionately impacted by the deadly disease.

By some estimates, the economic fallout from the pandemic could push as many as half a billion people into extreme poverty, putting decades of progress in emerging economies at risk. Understandably, global efforts have focused largely on providing near-term relief in the form of healthcare and economic aid, but it’s equally important to help emerging economies build a strong economic foundation that fortifies their resiliency in good times and bad. Unfortunately, conventional development strategies, which often employ stopgap measures aimed at the most conspicuous issues like low-quality education and nonexistent infrastructure, have failed to create a sustainable path for people to escape poverty. A prosperity paradox is at play: efforts to solve visible signs of poverty don’t actually lead to lasting prosperity.

Instead, the most viable way to help economies become prosperous and build long-term resiliency is through investment in a specific type of innovation that more deeply sows the seeds of widespread opportunity: market-creating innovation.

Market-creating innovations transform complicated and expensive products into products that are simple and affordable, making them accessible to a whole new segment of people—known as nonconsumers—for whom there was always underlying demand, but no accessible solution. These innovations are particularly powerful because they create an abundance of jobs to serve the vast new market, and generate taxable revenue to help fund public services such as education, infrastructure, and healthcare. Equally important, the successful markets trigger an entrepreneurial culture that leads to more innovation—and by extension, development.

It turns out that many of today’s prosperous countries such as Japan and Korea escaped poverty and weathered economic shocks by prioritizing market-creating innovations. Japan, for instance, was in dire economic straits after World War II but ultimately became one of the world’s wealthiest countries thanks to local innovators including Canon, Panasonic, Sony, and Toyota.

Today’s innovators have a similar opportunity to create new growth engines for their organizations and the countries that have been most devastated by the pandemic. While successful market-creation has traditionally been attributed to luck, this paper provides innovators with a predictable roadmap to:

  1. Discover market-creating opportunities. By identifying barriers to consumption, looking for workarounds to common problems, considering aversions to situations, and reflecting on personal experiences, innovators can unlock the oceans of demand found in nonconsumption.
  2. Estimate the market for nonconsumption. Nonconsumers are often discounted based on their inability to purchase existing solutions, however there is enormous untapped potential when innovators come up with affordable and accessible solutions to everyday struggles.
  3. Develop a new value network. To profitably serve nonconsumers, innovators must fundamentally rethink which upstream suppliers, downstream channels to market, and ancillary providers enable a cost structure that keeps nonconsumers’ needs in mind.

Whether it comes in the form of a global pandemic, a natural disaster, or a real estate bubble, periodic economic crises are inevitable, and they will always hit poor countries the hardest. However, when countries become prosperous, their ability to withstand and bounce back from a crisis is significantly strengthened. For many emerging economies, investing in market-creating innovations is the critical missing piece in the prosperity puzzle.

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Efosa Ojomo is a senior research fellow at the Christensen Institute, and co-author of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Efosa researches, writes, and speaks about ways in which innovation can transform organizations and create inclusive prosperity for many in emerging markets.

Rich Alton is the director of emerging research at the Clayton Christensen Institute. He is responsible for training new visiting research fellows, advising them on research questions, and helping them drive their research to publication.