SEATTLE, Washington — There is no doubt that everyone is seeking to make the world a better place. Often times donating to charities and supporting businesses with a social goal allows people to rack up a few good karma points. While it is greatly necessary for people to help those in need, the belief that the developing world needs constant donations further perpetuates images of them as hopeless and dependent. The rest of the world forgets that a lot of these countries are capable of escaping poverty if given a fair chance to enter into the global economy. Poverty eradication through social enterprise has proven to have unintended negative consequences.
What is Social Enterprise and Why is it Bad?
The basic definition of a social enterprise is an organization or business that attempts to solve a social problem through a market-based method. These methods often include donations, much like the TOMS’ One for One model that donates one pair of shoes to a child in poverty when one pair is purchased. While this seems like a good idea at first glance, it can often have unintended consequences.
Countries such as those in Africa have always been rich in resources, they are just disconnected from global trade. Emergency disaster relief and mass donations have turned into a model of “Western dumping”: The dumping of free or subsidized food, clothing and supplies as donations, which in turn hurts the local economy because there is no market for local entrepreneurs and artisans.
Emergency aid is incredibly necessary but not over an extended period of time. After decades, if a country is still receiving emergency relief, then true poverty eradication work is not being properly done. The same goes for social enterprises. If enterprises keep donating and believing a difference is being made without actually checking on the effects, then this is not resolving the underlying issues of why poverty exists in the first place.
The Problem with the TOMS Model
People have criticized TOMS for its model and over the years studies have shown that social enterprises actually hurt developing economies rather than help them. Through two primary case studies in Haiti and Ghana, the documentary, Poverty, Inc. takes a deep look into the true effects of poverty efforts by charities and social enterprise businesses.
Two entrepreneurship and development experts discussed the problem they have with the TOMS model. Daniel Jean Louis, a member of Partners Worldwide Haiti, said that wanting to supply people with shoes for the rest of their lives implies wanting people to be without shoes for life in order to continue a life-long supply of shoes.
Andreas Widmer, the Director of Entrepreneurship Programs at the Catholic University of America, says that the unintended consequence of this is that there is a local cobbler who loses his livelihood when an endless supply of free shoes arrives.
Poverty eradication through social enterprise often leads to people receiving free items for many years, causing them to not participate in their local economies. Therefore, the small cobblers, dressmakers and seamstresses go out of business. By reallocating spending to go directly towards helping the businesses and resources that are already within these countries instead of allocating primarily to charities, will help create long-term, sustainable change, rather than simply placing a band-aid over the problem.
Partners Worldwide is an organization that strives to help starting entrepreneurs. It provides an equal global partnership between it and those it is helping. This establishes a mutual exchange of ideas and advice rather than patronizing the local business owner. Based in over 30 countries, Partners Worldwide has helped hundreds of thousands of people rise out of and continuously stay out of poverty. The organization does this through four main pillars: mentoring, training, access to capital and advocacy. It partners with volunteer business affiliates from all over the world who act as mentors for new business owners. It also provides loans, teaches basic business principles and helps to work through any social and systemic barriers that the entrepreneurs may be facing in their countries.
Why Support Artisans and Entrepreneurs?
The second-largest employer in developing countries is the artisan sector, with 65% of the world’s artisan goods coming from the developing world. Empowering artisans and entrepreneurs is a great way to ensure that the money spent goes straight to those who earn it. These workers are able to create quality goods for their communities, create new jobs by hiring employees and are then able to contribute back to their own economies as they make more money for themselves and their families.
One of the best examples of how well this approach works is Peru. It has one of the fastest-growing economies in Latin America and it ranks 8th in the world among entrepreneurship rates. Its poverty rate has drastically declined to just 20% of the population in 2018 from almost 60% in 2004. At the same time, its rate of new businesses created has risen by 113%, while its GDP has skyrocketed to over $226 billion.
A Good Reminder
Supporting social enterprises is nowhere near a bad thing. However, all consequences need to be addressed properly. The developed world should not be seeking to be saviors of the developing world. Developing countries need help but not in the way many people think. Poverty eradication through social enterprise does not address things like training, small business loans and access to international trade. The business expertise in countries like the U.S. can provide invaluable help by empowering budding entrepreneurs in the developing world and help them to sustain their rise out of poverty for life.
– Stephanie Russo