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Can the Private Sector End Poverty?

By Rai Sengupta

We live in a time when about 896 million people survive on less than $1.90 a day. A time, when the world produces sufficient food to provide 2700 k/cal to every person every day. Yet, a vast section of humanity is unable to afford it. The reason being this is the paucity of funds. We live in hostile times, with countries like Libya and Somalia having 90% of their populations affected by conflict.

Our world rushes forth into the 21st century. We are progressing rapidly in terms of commerce and global interconnections, yet struggling painfully with hunger and inequality. It is perhaps time to modify some perceptions and forge new partnerships. In this global battle against poverty, it is imperative for the private sector to play a larger than a nominal role, along with governments and multilateral development banks. It has to move beyond the limitations of its profit maximising motive.

Changing Times, Evolving Definitions

The private – public difference rests on the relative weights attached to efficiency and equity. While the private sector limits its arena of concern to the bottom line – subtraction of costs from revenues, the overarching role of the public sector is linked to enhancing welfare and promoting equity.

Traditionally, the private sector has always been associated with the relentless drive to maximise profits, often at the cost of rising inequality. Whereas, the public sector is shown to pay greater heed to the distributive aspect of economic benefits.  The private – public difference rests on the relative weights attached to efficiency and equity. While the private sector limits its arena of concern to the bottom line – subtraction of costs from revenues, the overarching role of the public sector is linked to enhancing welfare and promoting equity.

However, the pressing needs of our times need a rethinking of these distinct roles, a blurring of the lines that separate these two spheres. Can the private sector end poverty? This questions both the ability and moral correctness of the sector. The answer is a yes – though subject to conducive circumstances, governmental aid and supporting institutions.

Coalition: The Right Step Forward

This section aims to answer questions on why the private sector can end poverty, why is it in its interests and how can it accomplish this.  

Poverty eradication.

Public sector can help lift billions out of poverty | Photo Courtesy: Visual Hunt

With increasing globalisation and market linkages, privatisation of Public Sector Enterprises(PSEs) and resources is the norm. An extreme example of this is the Bolivia Water Privatisation. An event which took place in the early 2000s attempted to retain state loans. Large-scale corporations are the new stake holders of global governance, providing 9 out of 10 jobs in developing countries. 

Given its immense all-pervading influence, one can surmise that the private sector has the ability to channelize its resources towards the broader objective of ‘inclusive development’. Against a background of rising populations and dwindling resources, promoting sustainable growth is not simply a public sector requirement. By partnering with business for development, governments are able to harness the managerial skills and innovation that the private sector brings to its other projects and investments.

Why We ‘Need’ the Private Sector

Whatever the private sector loses in terms of margins, it gains in terms of volumes. This way, the private sector is able to tap into new markets and geographies.

Poverty eradication has perks for the private sector too. Bottom of the Pyramid investment by MNCs, such as those pursued by Danone in India and Unilever in Africa, helps to lift billions out of poverty. This, in turn, allows deprived communities to access products and services that have been appropriately priced for them. Whatever the private sector loses in terms of margins, it gains in terms of volumes. This way, the private sector is able to tap into new markets and geographies. Further, participating in the development process allows the private sector to gain in terms of risk mitigation and greater value creation, in addition to positive social positioning.

Currently, Corporate Social Responsibility (CSR) initiatives by the private sector show promising results. Be it is the Tata Foundation supporting weavers in Varanasi or the Bill and Melinda Gates Foundation providing grants to fight Ebola in West Africa, the private sector is increasingly becoming part of a shared agenda to end global poverty. Private-public partnerships can also play a crucial role in elevating livelihoods. Recently, an IFAD-supported project in Rwanda forged a partnership between tea cooperatives and private investors- ensuring 30-40% equity shares for the cooperatives.

Private sector generates employment and makes livelihoods higher.

Further, private sector jobs are more diversified and generate higher wages. If higher incomes and job security is a marker of poverty alleviation, then the private sector is steadily contributing to reducing inequalities. It generates employment and makes livelihoods higher.

In addition, there is immense potential for commercial credit to benefit the lives of the rural poor. While complete credit penetration into the rural hinterland and urban slums is yet to be seen, the availability of commercial credit will no doubt protect the poor against exorbitant interest rates and debt traps.  

Time to Utilise the Private Players

Concludingly, the private sector can end poverty. It can do so because of the new ideas it can bring to the table – innovation, strategy and skills. It has the immense resources it currently wields, and the humungous amount of influence that comes with it. The sector can participate because it is in its own interests to do so – in terms of opening up new markets and tapping new possibilities. All it needs is a reworking of the concept of ‘profit’ – from being a commercial end goal accruing to shareholders, to a social product to be distributed among all stakeholders.


Rai Sengupta is a final year Economics student at Shri Ram College of Commerce.

Featured Image Credits: Visual Hunt

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