Efficiency & Innovation: Private Sector’s Strengths Can Help Poor

Growth led by India’s private sector can reduce wage disparity and help in reducing poverty, writes Prince Aditya.

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Efficiency & Innovation:  Private Sector’s Strengths Can Help Poor

The private sector is characterised by a stark self-serving penchant, displaying not the benevolence of the butcher but his own self-interest to put dinner on our plates (to paraphrase Adam Smith).

For decades, the Washington Consensus mandated policies, colloquially referred to as trickle-down economics, which allowed the private sector to access free markets. This trend continued in the hope of a reduction in income inequality.

This meant that the private sector could go about business as usual, and growth would automatically benefit the poor.

Hence, in 2015, when the IMF (one of the cornerstone institutions of the Washington Consensus), decided to debunk the theory. It provided statistical evidence on how income inequality reduces economic growth, and also did something wonderful: Ensuring the parallel alignment of the interests of the private sector and those of the poor.

Also Read: Poverty in Tribal Communities: Are Self-Help Groups Effective?

Reducing Poverty in a Step-Wise Manner

It is observed that poverty affects countries, communities and regions disproportionately. Sub-Saharan Africa still houses more than half of the world’s extreme poor, while the maximum poverty headcount ratio (people below the poverty line) reduction, in the past two decades, has been driven by countries like China, Indonesia and India.

These countries have been characteristically similar in their approach to poverty elimination: Opening themselves to private business; careful design of welfare programmes using the consequent tax revenue; and the utilisation of public-private partnerships to implement these. This again emphasises the importance of the private sector.

Private Sector Pitches In

The strength of the private sector lies in two central abilities that the state and philanthropists have rarely demonstrated: Ensuring efficiency and pioneering technological innovation. The private sector, thus, has the ability to transcend social barriers in removing poverty.

A new drug for HIV, for instance, can prevent millions of children in sub-Saharan Africa from being pushed into poverty.

The efficient delivery of Unilever’s campaign for ‘hand washing’ in Thesgora, a village in Madhya Pradesh, reduced the occurrence of diarrhoea in children from 36 percent to 5 percent, while achieving double digit volumetric growth for their soap brand Lifebuoy.

With a renewed will to end abject poverty, the private sector has to do just what it does best. Along with necessary state policies, a good business climate, and a robust regulatory infrastructure to check exploitation, the private sector will act as a transformative force by harnessing its inherent strengths. In this regard, the private sector is not sufficient, but necessary to end poverty.

(The author is a Young India Fellow and formerly an investment banker at Nomura India. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

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