Social development v2.0?

Thursday, November 29, 2007

Bill Gates? address at Harvard?s commencement ceremony this year brought much-needed attention to the idea of ?creative capitalism?. Talking about the world?s sharpest inequities, Gates convinced his audience that the answer to them lies in making markets work better for the poor. In his words, creative capitalism is about “stretching the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities.”

The need for creative capitalism arises from the basic workings of free-market corrupt-state economies – most developing world economies – where the poor have neither any power in the market nor any voice in the system. In India 125,000 children lose their lives every year to Rotavirus, a preventable disease, vaccination against which costs a few thousand rupees. This is 300 times the number of people who die in a plane crash worldwide every year.

But while Boeing and Airbus spend millions of dollars and work relentlessly to make their aircraft safer, no company is rewarded immediately for investing heavily in research that makes Rotavirus vaccination affordable to the mass potential consumer base in the developing world.

And although long-term economic returns may cause the next gold rush in the pharmaceutical industry, high financial risk and uncertainty are powerful barriers to entry for any first mover.

A shining example of creative capitalism in public health is the concept of an ’Advance Market Commitment,’ an advance bulk order for drugs and vaccines that are today nonexistent. Such a financial commitment from philanthropies and governments allows pharmaceutical companies to hedge the economic risk in making heavy R&D investments for risky third-world markets. In effect, the foundations commit to subsidise long-term future purchases of a yet-to-be-developed vaccine that could address some of the most pressing public health needs of these countries, subject to certain conditions.

It?s hard to imagine the life-saving potential of a simple market-based risk-hedging tool like the AMC. PneumoADIP, the first AMC pilot currently underway, is a $30 million effort to accelerate the development of new life-saving pneumococcal (anti-pneumonia) vaccines for the world?s poorest children. It is estimated that this pilot AMC will prevent up to 5.4 million childhood deaths by 2030, almost all of which would have occurred in the developing world.

Had the AMC not committed resources to drive speedy research, no pneumococcal vaccines would have reached the world?s poorest countries before 2023 -almost a decade down – resulting in many, many more million deaths. Another important dimension of creative capitalism is heavy innovation to create low-cost high-utility products for poor subsistence-market consumers. Rather than treat them as beneficiaries of donors? noble gestures, it?s time to view the world?s 1.3 billion people making under $1/day as a mammoth potential consumer base in a ?low-margin high-volumes? market – what some call the fortune at the bottom of the pyramid.

As Julia Novy-Hildesley of the Lemelson Foundation, a leading promoter of inventiveness, rightly puts it, “People are more likely to use and benefit from a product they?ve invested in themselves.” The capitalist model is “very empowering” compared with traditional giveaways.

The drip irrigation system, designed by International Development Enterprises, is a classic example of a low-cost high-utility product. This simple device, which starts at Rs 250, consists of an elevated bag that uses gravity to distribute water to crops via a network of plastic pipes, and can increase crop yields by more than 50% while reducing total water use.

More than 85,000 units of this device have been sold so far in India, and Paul Polak, the founder of IDE, believes that the future of global development lies in delivering such products at a fair market price. “When you give things away, you lack discipline in how you design them because you don?t have to get feedback from the customer,” he says.

Private philanthropists and governments can play a big role in fostering such “humane entrepreneurship” by rewarding entrepreneurs who use creative ideas to serve under-privileged communities. Support from the philanthropic sector could be in many forms including professional and technical support, resource mobilisation for seed capital or other forms of funding, mentorship and networking assistance, or simply community recognition. One such successful initiative is Bill Drayton?s global organisation called Ashoka, which has recognised and supported more than 1,800 local entrepreneurs – with astonishingly powerful ideas, most of which are both sustainable and replicable – from more than 60 countries so far.

Astonishingly, when it comes down to the basics of improving people?s lives most solutions are striking in their simplicity. But often it?s seeing the obvious that?s most challenging. According to Polak, “The biggest challenge is reducing a known technology to its most basic elements to keep costs down.” In June this year, a stunningly simple product – the PermaNet – stole the show at ?Design for the Other 90%,? a display in New York of 40 innovative low-cost solutions to combat poverty. Designed by Vestergaard Frandsen, the PermaNet is a washable insecticide-treated net that keeps out mosquitoes, and has a life span of four years.

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Source: Economic Times (link opens in a new window)