A Poverty Free World- When? How?

Romanes Lecture at Oxford University, held on December 2, 2008
A Poverty Free World- When? How?
Vice Chancellor Dr John Hood, members of the faculty, students, distinguished ladies and gentlemen :

I am very honored to be invited to deliver the Romanes Lecture at the world famous Sheldonian Theater at Oxford. It is indeed a privilege for me to become a part of this great, hundred- year old tradition at Oxford University. Thank you for inviting me here.
I have chosen today as the title of my speech "A Poverty Free World- When? How?" because I believe that not only is poverty the most pressing issue of our time, I also believe, at the same time, that it is a problem that we have fully the capacity to tackle and overcome within the first half of this century - if only we choose to do so.
I am a compulsive optimist as far as poverty is concerned. I am an optimist because I am convinced that poverty is not as difficult or complex an issue as we are constantly told it is. After all, poverty is about people. I have always said that the ingredients for ending poverty comes neatly packaged within each person. A human being is born in this world fully equipped not only to take care of him or herself, but also endowed with the ability to enlarge the well being of others in the world.

Why is it then that more than a billion people on the planet suffer through a life-time of misery and indignity, spending every moment of their lives looking for food for physical survival alone?



Poverty is not created by Poor People. poverty is not created by the poor people. Rather it is created by the economic and social system that we have designed for the world. It is created by the institutions that we have built, the concepts we have developed by the policies borne out of our reasoning and theoretical framework. In order to overcome poverty, we have to go back to the drawing board and redesign our concepts and institutions.

The Banking System

One major institution that needs to be redesigned is the financial institution. There is something fundamentally wrong with an institution that leaves out more than half the population of the world, because they are consider not credit worthy. This is what my work with Grameen Bank has been about, to design a banking method which can deliver the financial service to the people left out, particularly to the women, the most difficult to reach.

When I first started out and gave that 27 US$ to 42 families in that first village, I never imagined that I would one day create a bank, let alone that our efforts would grow to become a global movement to bring credit and financial services to poor people. When I got started I was trying to solve a local problem. I was shocked to learn that poor people are shackled because they do not have access to even a few dollars to invest or a grow a tiny income generating activity. That poor people were at the mercy of loan sharks in the village, who lent to the poor at exorbitant rates and then forced them to sell their goods to them at a price arbitrarily decided by them. This to me was a kind of slavery.

When I gave the first US$ 27, to try to free them from the clutches of the loan sharks, I didn’t know what would happen. Imagine my surprise when I saw the excitement that this created in them! It just made me want to do more of it. This is what led me to create Grameen Bank, after a long series of little steps. Grameen Bank has grown to become a nationwide bank. It has lent more than US$ 7.0 billion to 7.5 million people in Bangladesh. Our repayment rate is 98%. Our own internal survey show that our members are steadily crossing the poverty line every year, with 64 % of our borrowers, who have been with Grameen Bank for more than five years, have already crossed the poverty line. And now there are microcredit programs around the world, in nearly every country.

Capitalism and the Financial Crisis

Banks explain that poor people are not credit worthy. But the real question to ask is whether banks are people worthy. In the context of the total collapse of the financial system, this question becomes more relevant and urgent. We are still in the midst of the worst financial crisis of the century. In Grameen Bank there are no legal instruments between lender and borrower, no guarantees, no collateral. You can’t get riskier than that, and yet our money comes back while the prestigious banks all over the world are going down with all their intelligent paperwork, all their collateral, all the lawyers and legal systems to back up their lending. This contrast raises many questions in one’s mind.

In the last 50 years, capitalism has reigned supreme. Socialist economies have faded away and moved to capitalism. This has brought unprecedented wealth and prosperity to some countries and to some people. But billions are left out. In some places, the situation is getting worse and worse for those who are left out.

The financial crisis that has gripped the world economy illustrates the social failings of the existing capitalist system. It has been described in the media as casino capitalism or irresponsible capitalism. Credit markets were originally created to serve human needs—to provide business people with capital to start or expand companies and to enable families to buy homes. In return for these services, bankers and other lenders earned a reasonable profit. Everyone benefited. In recent years, however, the credit markets have been distorted by a relative handful of individuals and companies with a different goal in mind—to earn unrealistically high rates of return through clever feats of financial engineering. They repackaged mortgages and other loans into sophisticated instruments whose risk level and other characteristics were hidden or disguised. Then they sold and resold these instruments, earning a slice of profit on every transaction. All the while, investors eagerly bid up the prices, scrambling for unsustainable growth; and gambling that the underlying weakness of the system would never come to light.

With the collapse of the housing market in the United States, the whole house of cards has come down. Millions of people around the world who did nothing wrong are suffering. And the worst effects, as usual, will be felt by the poor. As economies falter, as government budgets collapse, and as contributions to charities and NGOs dwindle, efforts to help the poor will diminish. With the slowing down of economies everywhere, the poor will lose their jobs and income from self-employment.

Bailout cannot be relied on as solution to market problems. In the long-run, self-protection is possible only when market can ensure that it will not allow a crisis to develop in the first place.

I suggest a mechanism to buy all potential toxic assets on a daily basis through a business created by the participation of all businesses, which engage in highly speculative business and make high profits. I suggest that the market must be equipped with a strong mechanism to detect bubbles at the very initial stage and an instantaneous reaction device to shoot it down.

Everyday the market must hunt down the potential toxic assets and these must be bought off by a company created for this purposes. Capitalization of this company may be made from requiring companies to pay a percentage of gains made from highly speculative transactions at a progressive rate. Market must be developed as a self-correcting system. It cannot be left as a wild party of some money-hungry people, and organizations.

I believe we can tackle some of these challenges within the free market system of capitalism provided we design appropriate built-in mechanism to protect the system.

Capitalism is Half-Done Structure

Even if we can overcome the problem of financial crisis, we'll still be left with some fundamental questions about the effectiveness of capitalism in tackling many other unresolved problems In my view the theoretical framework of capitalism that is in practice today is a half-done structure.

The theory of capitalism holds that the marketplace is only for those who are interested in making money, for the people who are interested in profit only. This interpretation of human being in the theory treats people as one-dimensional beings. But people are multi dimensional. While they have their selfish dimensions at the same time they also have their selfless dimensions. Capitalism, and the marketplace that has grown up around the theory, makes no room for the selfless dimensions of the people. If some of the self sacrificing drives and motivations that exist in people could be brought into the business world to make impact on the problems that face the world, there would be very few problems that we could not solve.

Present structure of the economic theory does not allow these dimensions of people to play out in the market place. I argue that given the opportunity, people will come into the market place to express their selfless urges by running special types of businesses, let us call them social businesses, to make a change in the world. In the absence of such opportunity in the market place people express their selflessness through charities. Charitable efforts have been with us always, and they are noble, and they are needed. But we have seen that business is able, to innovate, to expand, to reach more and more people through the power of the free market. Imagine what we could achieve if talented entrepreneurs and business executives around the world devoted themselves in ending, say, malnutrition, without any intention to making money for themselves or the investors.

CSR vs Social Business

Corporate social responsibility (CSR) is considered to be a part of company policy nowadays. CSR usually means let us make money, and then use part of that wealth to help society. This is an important development in the business world. But this still does not let business people to express their selfless urges within the framework of the market. Just as an individual person who makes money in business then gives away a part of his income into charity, similarly now a company, a legal person, does the same—make money and give part of it into charity.

I am proposing a different structure of the market itself; I am proposing a second type of business to operate in the same market along with the existing kind of profit maximizing business. I am not opposed to the existing type of business (although I call for many improvements in it like many others do.) I am proposing a new business in addition to the existing one. This new type of business I am calling “social business,” because it if for the collective benefit of others.

This is a business whose purpose is to address and solve social problems, not to make money for its investors. It is a non-loss non-dividend company. Investor can recoup his investment capital. Beyond that there is no profit to be taken out as dividends by the investors. These profits remain with the company and are used to expand its reach, improve the quality of the product or service it provides, and design methods to bring down the cost of the product or service. If the efficiency, the competitiveness, the dynamism of business could be harnessed to deal with specific social problems, the world would be a much better place.

The concept of a social business crystallized in my mind through my experience with Grameen companies. Over the years, Grameen created a series of companies to address different problems faced by the poor in Bangladesh. Whether it is a company to provide renewable energy or a company to provide healthcare or yet another company to provide information technology to the poor, we were always motivated by the need to address the social need. We always designed them as profitable companies, but only to ensure its sustainability so that the product or service could reach more and more of the poor - and on an ongoing basis. In all these cases the social need was the only consideration, making personal money was no consideration at all. That is how I realized that businesses could be built that way, from the ground up, around the specific social need, without motive for personal gain.

The idea of social business got a boost when we launched a joint venture with Danone. Grameen has teamed up with Danone to bring nutritious fortified yogurt to the undernourished children of rural Bangladesh. The aim of this social business is to fill the nutritional gap in the diet of these children. We sell the yogurt to the poor children to make the company self sustaining. Beyond the investment capital, neither Grameen nor Danone will make money from this venture, by agreement. We have one plant operating in Bangladesh, and we hope to have 50 such plants throughout the country.

We have built an eye care hospital on the social business principle. We have created a joint-venture with Veolia of France to deliver safe drinking water in the villages of Bangladesh. Under the company we are building a small water treatment plant in a rural part of Bangladesh to bring clean water to 100,000 villagers, in an area where existing supply of water is highly arsenic contaminated. We will sell the water at a very affordable price to the villagers to make the company sustainable, but no financial gain will come to Grameen or Veolia. Now more and more companies are coming forward to partner with us to set up new social businesses. We feel excited in creating a series of examples of social businesses, which, hopefully will encourage others to join in.

Some people are skeptical. Who will create these businesses? Who will run these businesses? I always say that, to begin with, there is no dearth of philanthropists in the world. People give away billions of dollars. Imagine if those billions could be used in a social business way to help people. These billions will be recycled again and again, and the social impact could be all that much more powerful. CSR money of the companies could easily go into social businesses. Each company can create its own range of social businesses.

Once the concept of social business is included in the economic theory, millions of people will come forward to invest in the social business because they all have those social dreams in their hearts. We will need to create social stock markets to channel these funds to appropriate social businesses.

Information Technology Can Help End Poverty

The other area where huge strides are being made is in the area of information technology. The advances being made are happening at such a rate that it is difficult to keep up. All manners of gadgets, devices are being created, making those that have come before obsolete in very short periods of time. Websites and online platforms are transforming the way we communicate, do business and interact with each other. The world is getting smaller, but only for those who can afford the technology, and for those who are trained to use it. Unless it is properly directed, the way these advances are taking place, it will go on to deepen the digital divide.

I have been arguing for years that technology could play a powerful role in closing the gaps between the rich and the poor, in a way that other things cannot do. If we could channel some of this brilliant creativity and innovation into creating IT solutions to the problems of the poor, we would succeed much more quickly in our race to end poverty. From e-healthcare and mobile phone banking to online market places to sell the products and services of the poor around the world, we are beginning to see what the possibilities are.

The future of poverty as I see it, will be decided by the technological devices and services that are designed a priori for poor people. These will be designed with their needs in mind, rather than those created for the well off and adapted for the poor. We have the technology, but we have to transform it into the digital genie for the poor.

A broad range of technology has a fundamental role to play in the current global food crisis that we are seeing today. The poor countries like Bangladesh are facing the brunt of this crisis. The shortage of food will wreak havoc in the lives of millions of the poor. As populations rise, their incomes and expectations rise, the global demand of food will continue to rise steadily. We need new technological revolution in agriculture, to ensure that we can have a much higher output of food, grown on the finite amount of land that is available to us. With all the advances taking place today, there is no question that we can come up with breakthroughs in agricultural production, in terms of both yield and quality.

It’s disheartening to see many of the world’s poorest falling back toward poverty just when we thought the planet was ready for a big step forward. We had thought food shortages were a thing of the past, but now they are back—not due to any lack of productive capacity on the part of the world’s farmers, and certainly not due to lack of effort by the farmers themselves, but due to forces that could have been averted—the economic crisis and the world’s failure to address the need to improve agricultural technology to increase yields. We have to focus our attention at the global level to tackle this great new challenge to the world’s poorest.

Globalisation

We live in a globalized world, for better or for worse. What we do in one part of the world has a direct impact on another. We are now connected and inter dependent in an unprecedented way. This can be a good thing, this can be a bad thing. Good waves spread quickly. So are the bad waves. Collapse of the financial system in the USA was immediately transmitted globally. The whole world now has to suffer for something which happened in the USA.

Wrong doings of the rich world impacts on the lives of the poor people very heavily. Blunders of the North can make lives in the South unsustainable.

The issue of climate change and how this will affect the earth, and how human beings will continue to survive on this planet is a very good example of this.

The world has many resources but much of it is non renewable. We have to understand that the patterns of our consumption, and the path to development that the world is taking could seriously endanger our future on this planet. The food crisis is in part caused by changes in climate patterns caused, scientists believe, due to global warming.

Bangladesh is singled out very often as a country that will be most affected, and most quickly, by the effects of climate change. As we all live in the same world, we have to understand that we all have to share this world with everyone today, and also with future generations.

There has to be a new approach.


It is up to your generation, the compassionate and creative young generation, to make a break with this past, and create a new future. We recognize how all of us, wherever we are in the world, are connected by a common fate and destiny in the natural world that we share.

Millennium Development Goals

We started the new millennium with grand hopes for a new world. In 2000, the world pledged in one voice to achieve the Millennium Development Goals.

The most important of those goals was the goal to reduce poverty by half by 2015. All the countries and peoples of the world agreed to these goals, the most bold, the most noble of goals ever set for mankind.

Bangladesh is an example of a country that has made tremendous progress towards the MDGs. The poverty rate has fallen from an estimated 74 percent in 1973 to 57 percent in 1991, to 49 percent in 2000, and then to 40 percent in 2005. Though still too high, it continues to fall by around 2 percent a year, with each percentage point representing a meaningful improvement in the lives of millions of Bangladeshis. The country is on track to achieve the Millennium Development Goal of reducing poverty by half in 2015. Even more remarkably, Bangladeshis rapid economic growth has been accompanied by little increase in inequality.

The sharp drop in poverty is reflected in changes in economic growth, employment patterns, and the structure of the economy. Growth has averaged 5.5 percent since 2000, while per-capita growth has increased to 3.5 percent currently. Population growth, major problem in Bangladesh, one of the most densely populated countries on earth has fallen sharply from an annual average of 3 percent in the 1970s to 1.5 percent in 2000. The decline in population growth has been driven, in large part, by improvements in health care. During the 1990s, the percentage of Bangladeshi mothers receiving prenatal health care doubled. Partly as a result, infant mortality rates in Bangladesh fell almost by half between 1990 and 2005.

Educational opportunities for children have also improved. The 1990s witnessed a tripling in the number of children attending secondary school. More girls now attend secondary schools than boys, a feat unmatched in South Asia and a remarkable achievement given the fact that, in the Bangladesh of the early 1990s, there were three times as many boys as girls in secondary schools.

The problems of poverty in Bangladesh, though improved, are far from being solved. Bangladesh is still one of the poorest countries in the world, with tens of millions of people living at a level barely above subsistence. But the social and economic trends are moving in the right direction.

Despite all the obstacles and difficulties Bangladesh has made great progress. If Bangladesh can do it, so can any other country. Bangladesh is a reason we should not abandon the MDGs. If we go village by village, city by city, district by district, country by country to achieve these goals, it can be done. I believe it can be done. We must all believe it can be done, and work hard with a commitment to achieve them all.

Poverty can be overcome the thought that always energizes me is that the poverty is not created by the poor people. Poverty is an artificial imposition on the people. Poor people are endowed with the same unlimited potential of creativity and energy that any human being in any station of life, anywhere in the world. It is a question of removing the barrier in front of the poor people to unleash their creativity to solve their problems. They can change their lives, only if we give them the same opportunity that we get. Creatively designed social businesses in all sectors can make this unleashing happen in the fastest way.

We are fortunate enough to have been born in an age of great ideas and great technologies. A lot will rely on your asking yourself "What use do you want to make of your creative talent?" Do you want to focus exclusively on making money by using your talent? If you must, go ahead; but while making money through profit maximizing businesses do make sure that your businesses make positive impact in people’s lives, at least, it does not make any negative impact. Alternatively, you could use some or all of your talent to change the world by harnessing the power of creative social businesses to address human and social needs? You can devote yourself exclusively to social business or do both types of businesses. Doing both is an attractive idea too. Making money through responsible profit-maximizing businesses could be the means, while using that money for social businesses could be the exciting end. The solutions to many of our world’s pressing problems could be accelerated through the creation of social businesses.

I always insist that poverty does not belong in civilized society. Poverty belongs only in the museum where our children and grandchildren can go to see what inhumanity people had to suffer, and where they will ask themselves how their ancestors allowed such a condition to persist for so long.

You the next generation, have to decide that poverty no more! We overcame slavery. We overcame apartheid. We have done other things that people once thought impossible. We have put persons on the moon, into space to explore far away worlds. We can overcome poverty, if only we decide that this does not belong to the world that you want to create. It is up to your generation to decide the world you choose to live in will not contain the scourge of poverty.