THE BLOG

Entrepreneurs: The Best Hope for the World's Poorest People

10/31/2012 02:08 pm ET | Updated Dec 31, 2012

Poverty on a scale that's unimaginable in developed countries is the daily reality for nearly half the human population. Today, more than 3 billion people live on less than $2.50 a day (measured in purchasing power), and 1.4 billion live on less than $1.25.

There is good news, though. Global poverty has, in fact, declined dramatically over the past 50 years, proof that this is not an intractable problem. Income inequalities may always exist, but extreme poverty need not always be with us.

Over the years, a multitude of programs have been proposed to tackle the problem of global poverty. Today, the effects of different approaches can be better evaluated, thanks to the powerful technologies now available for research and analytics. And the best of this research points to some surprisingly hopeful conclusions.

Entrepreneurs and their companies turn out to be powerful positive forces for reducing extreme poverty around the world. High-impact entrepreneurs have been shown to play an outsized role in producing the new jobs, revenues and innovation needed for broad economic growth in emerging markets. They also have the power to inspire and mentor others as role models. Together, these entrepreneurs hold an important part of the solution for lifting great numbers of people out of extreme poverty.

Numerous studies have highlighted the power of these high-impact entrepreneurs to generate jobs, encourage innovation and turn emerging markets into growth markets. For example, in a five-year survey of 800,000 randomly chosen adults in over 60 countries, the Global Entrepreneurship Monitor showed that, while only 4 percent of respondents were classified as high-growth entrepreneurs, they generated 38 percent of all jobs created by entrepreneurs in the survey.

As companies generate revenue, attract investments, and increase demand for associated products and services, they contribute to the GDP of their countries, which has been shown to effectively reduce poverty. A study of sub-Saharan Africa by researchers at MIT and Columbia University showed that when GDP per capita went up, poverty went down. Research by Endeavor Insight found similar trends in additional countries with large populations in poverty, such as Brazil, Mexico and China. Similarly, a recent World Bank report shows that a 1 percent rise in mean income or consumption expenditures in a country corresponds with a 3 percent reduction in the proportion of people below the poverty line.

In recent years, micro-finance programs have helped many poor people -- primarily women -- take initiatives in agricultural or business that allow them to support themselves and their families. But these very small enterprises alone simply cannot kickstart the jobs and economic growth needed to transform the world's poorest regions. Research shows that, on average, a high-growth entrepreneur leading a company that can grow to become a large business creates up to 100 times the number of new jobs as a new micro-enterprise.

Research on comparative growth in GDP is equally significant. A recent study done in Mexico showed that 273,000 new microfinanced companies would be needed to grow the country's GDP by 1 percentage point. Only 105 midsize companies would have to grow from medium to large in order to produce the same result. And the jobs created by these entrepreneurial companies were shown to be stable, high-quality and inclusive of diverse skill sets and education levels.

To unlock this transformative potential, Endeavor Catalyst was launched as an innovative philanthropic fund to support promising entrepreneurs in emerging markets. Catalyst's donated funds are co-invested in professional capital raising rounds alongside institutional investors in a neutral, rules-based process. Unlike traditional philanthropy, Catalyst harnesses the value creation of entrepreneurs to produce investment returns that are recycled into new investments, so that initial donations generate ever-increasing funds for social change.

We've long known that the spirit of entrepreneurship exists everywhere -- underdeveloped countries have simply lacked the institutions and mechanisms needed to unlock its power. With Catalyst as a model, we now see that finding, supporting and accelerating the entrepreneurial spirit can be a highly effective investment in a transformed future.