01/04/2012 09:06 am ET Updated Jun 11, 2013

The Defining Role of Business in Ending Poverty

Congratulations! The very fact that you are reading this article means that you are one of the luckiest billion people on the planet. Why? Simply put, you were born into a state of relative wealth, where even at the bottom of the American income distribution you are still wildly more wealthy than your counterparts in the developing world. Republicans in the American political system like to argue for a bootstrap approach, and say that people are where they are as a result of their hard work. Elizabeth Warren has pushed back, arguing that nobody made it in America without the support of the country and its institutions. Both arguments are partially correct, but radically immaterial when it comes to the discussion of global income distribution.

Let's face the truth. There are well over three billion people struggling to survive while earning less than $3 dollars per day. Can we really argue with a straight face that these three billion people are struggling as a result of bad choices? Much more likely, their poverty and inequality is a result of both bad luck -- they were born into poor circumstances -- and a structural system that favors the wealthy (including us) over their interests.

So now we have a world in which, despite the extraordinary successes of the developed world in creating what Yochai Benkler calls a "networked information economy," where we all have ready access to the Internet and the World Wide Web, there are billions that do not.

Now I want to take a step back and examine the current global efforts to combat serious poverty. While nonprofit organizations and other non-market actors work tirelessly to provide access to basic resources (food, water, education, health) for the world's poorest, they have only been able to bring us to a world where three billion people still earn $3 a day -- unimaginable poverty by anyone living in the United States or Europe. Development aid organizations have sunk billions into the economies of poor countries in order to foster their development, but still, for all of their hard work and dollars spent in order to foster a more prosperous and equitable world, well over three billion people still struggle to survive on earnings of $3 a day or less. I haven't even mentioned the nearly 1 billion people subsisting on $1 a day or less - again, unimaginable poverty.

So despite the best efforts of nonprofits and other non-market actors to lift the world's poor out of poverty, three billion human beings still earn only $3 a day or less. I don't want to minimize the important work that non-market actors like NGOs do to work against poverty, but I do want to emphasize that their efforts are not sufficient to create a world without poverty. Perhaps we should turn to the business world in offering a pathway out of poverty.

At first glance, the results aren't encouraging. The average Fortune 500 company donates about one percent of its net profits to charitable causes, and only some of those causes include the plight of the global poor. The Fortune 500 earned nearly $10.8 trillion in revenue last year, so assuming an average profit margin of 10 percent, the Fortune 500 generated over a trillion dollars in profits in one year alone. Surely these exorbitantly wealthy corporations can contribute more than a mere 1 percent of those profits in order to create economic opportunity for those at the bottom of the economic pyramid, those three billion earning less than $3 per day.

Yet something tells me the role of business in working against global poverty can be far greater than an incremental increase in distribution of profits to the poor. As I argued in my article Capitalism You Can Fall in Love With, we have yet to see a major corporation emerge whose purpose was not merely the blind pursuit of profit, but rather one that proactively engaged with a cause as its rationale for existence. Social entrepreneurship has emerged as a major force with thousands of businesses being formed for the purpose of fulfilling a social mission. As legislative successes in New York and California have shown, new business models called Benefit Corporations now allow companies to, at the level of intention, conduct business for the purpose of benefiting the environment or society. Companies like The Mutual and Movement 121 are forming for the purpose of directing environmental and social impacts through the mechanism of a for-profit company. Even Adidas has offered a radical solution by offering a shoe for the poor for only $1. This is the start of a business trend that will evolve towards maturity in the coming years and decades.

As Paul Polak has shown and written in his groundbreaking book "Out of Poverty", an entrepreneur of twenty five years whose organization, International Development Enterprises, focuses on providing market solutions to the world's poor to bring them out of poverty, the poor are rational actors that, given a chance to interact with markets, will respond in ways that make themselves more profitable and boost their income. In other words, the poor aren't poor because of bad choices. They're poor because they don't have enough ways of making money.

The answer, then, is for corporations to begin to interact with the poor in different ways -- firstly, by seeing them as customers. By bringing them into the economic paradigm, they remove structural exclusion and begin to integrate the poor into the economy as consumers first, and then as producers. By making work opportunities more modular and granular, businesses can turn to the poor to conduct business that previously was impossible -- and all that's needed is some training and an internet connection. A great example of this strategy is the social enterprise Samasource, and it is a strategy that we should see much more of as businesses engage with the world's poor and begin to create income opportunities for them, recognizing that even while doubling or tripling the income of the poor, businesses can dramatically cut costs as the poor offer incredibly cheap labor.

And as I've written, consumers are waiting for companies to step up and align themselves with causes -- one of which is most assuredly ending poverty. 94 percent of consumers are ready to switch products to one that supports a cause. One advertising executive has finally caught on to this trend. Mark Woerde of Amsterdam's LEMZ recently wrote a report on how advertising can heal the world through business. In his report, Woerde notes that the world's businesses spend $450 billion dollars per year on advertising. By evolving business practices towards cause engagement (which consumers want), businesses can both perform better and improve the quality of the world. Clearly there is a lot of room for corporations to step up and be a part of building a better world through innovative and cause-oriented advertising practices.

Business is the most powerful force on the planet, in terms of its capability to move resources, money, and people. When it comes to fighting poverty, businesses have a defining role to play in working to end it. That it is in their best interest to adopt causes has already been proven. But the point of this article is not to prove to business that it is in their interest to adopt causes like global poverty. Rather, I write this article as an imperative, because the world needs business to leverage its gargantuan resources to fight poverty. Without business stepping up, we're left with a world where three billion people live on $3 dollars a day. And that world is clearly no longer acceptable or sustainable.