The Corporate Key: Using Big Business to Fight Global Poverty

George C. Lodge

From Foreign Affairs, July/August 2002

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Summary:  Past attempts to combat global poverty have failed for a simple reason: they have not attacked the problem at its roots. It is therefore time for a new approach, a global corporate alliance that brings business know-how and the profit motive into play.

George C. Lodge is the Jaime and Josefina Chua Tiampo Professor of Business Administration, Emeritus, at Harvard Business School. His most recent book is Managing Globalization in the Age of Interdependence.

In recent months, world leaders -- including President George W. Bush and UN Secretary-General Kofi Annan -- have proclaimed their determination to reduce global poverty. Such promises, however, have been made before, and past efforts to follow through on them have been disappointing. Success this time will require a new institution that can harness the capabilities of global corporations and, helped by loans from development agencies, directly attack the root causes of poverty.

The need for corporate involvement in the fight against poverty stems from several factors. To begin with, many of the world's poor live in countries where governments lack either the will or the ability to raise living standards on their own. Financial assistance to such governments, therefore, has often not helped their neediest citizens. In fact, in spite of the roughly $1 trillion that has been spent on grants and loans to fight poverty around the globe since the end of World War II, nearly half the world's six billion people still live on less than $2 a day; a fifth get by on less than $1. At times, foreign aid has even worsened the plight of the poor, by sustaining the corrupt or otherwise inefficient governments that caused their misery in the first place. In such mismanaged countries -- which number close to 70 -- a way must be found to change the basic system.

Globalization -- seen by many today as a sort of cure-all -- will certainly not eradicate poverty on its own. True, international trade and investment have increased vastly over the last decade, making many people richer. But the problem is that the process has not really been global enough. In fact, some two billion people today live in countries that are actually becoming less globalized: trade is diminishing in relation to national income, economic growth has stagnated, and poverty is on the rise. Most people in Latin America, the Middle East, and Central Asia are poorer today than they were ten years ago, and most Africans were better off forty years ago. The average per capita income of Muslim countries, from Morocco to Bangladesh and Indonesia to the Philippines, is now just half the world average.

Poverty is not, of course, a new phenomenon. But during the Cold War, economic misery abroad did not matter to Washington; the United States and its allies were concerned with sustaining anti-Soviet regimes, not raising living standards. Today, however, a new determination has emerged to deal with what one UN panel has called the "pre-eminent moral and humanitarian challenge of our age." This new resolve may be motivated partly by compassion. But it also reflects a growing recognition that terrorism flourishes among those who think they have nothing to lose. Western governments have also come to appreciate that the world's financial system, which came close to meltdown on several occasions in the 1990s, depends on political stability to sustain itself. And stability in turn requires governments to maintain a certain legitimacy, which means broadening ...

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