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Businesses urged to participate in efforts to address poverty
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WHILE we actually live in a golden age of wealth creation, poverty reduction is still the biggest issue facing us today. Twenty-five years ago, close to half the world’s population lived on less than a dollar a day. Rapid economic growth since then has lifted hundreds of millions out of poverty.
Growth is what solves most of the big economic and social problems: poverty, government deficits, quality of life, rising healthcare and retirement costs. Today less than one in five live in extreme poverty, which we now measure at US$1.25 a day. But we live on a populous planet, so that is still over a billion people.
There is a problem though. To achieve the same reduction in poverty again requires a much higher growth rate than we actually have today. And falling living standards in many places in recent years, especially among poorer sections of society, have produced surges of populism and heightened risk that “protest politics” might damage economies. So UBS has produced a white paper, entitled Furthering the Fight Against Poverty, which focuses on practical ways that business can help.
You might wonder why UBS, which is the world’s largest wealth manager and serves some of the most affluent clients in the world, would care about this — particularly at a time when it would be much more popular to join the chorus on the now-hot topic of inequality. Well, we firmly believe that business has a role to play and a responsibility to help address the issue of poverty.
And with many highly successful entrepreneurs as clients, we see firsthand their importance in creating the enduring businesses that provide the jobs, generate the tax revenue and support the supply-chain and infrastructure spending that underpin economic growth. While government clearly plays the major role in fighting poverty through education, taxes and trade, business creates the wealth that matters.
Skills to meet labor market needs
Furthering the Fight Against Poverty has identified ways business can make a difference. One is to ensure that workforces in both the developed and emerging markets have the skills to meet changing labor market needs.
Businesses are among the first to see changes in the labor market, but few countries have the necessary relationship between business and educators to ensure this information reaches the education system. Building this link will help. Youth unemployment is a massive problem in both developed and developing countries. I think of the Middle East, North Africa and southern Europe, where unemployment rates are anywhere from 20 percent to 60 percent. Retraining those whose current skill sets are mismatched to employment needs is a pressing issue where business can help directly, for instance, with apprenticeships.
We see opportunities for major philanthropists — who are often also phenomenally successful entrepreneurs — to engage as strategic partners, rather than simply as donors, in tackling social challenges such as education, healthcare and financial inclusion. As I talk to our clients around the world, it is clear to me that many are already thinking deeply about how they can best contribute.
Philanthropic funding can play a vital role in testing and stimulating innovation that, when proven, can be implemented on a larger scale by businesses or governments. One way to do this is through impact investing, which aims to achieve both social and financial goals, creating a win-win that can appeal to mainstream private investors. Development impact bonds are one innovation where investors provide financing for a development project and, if agreed outcomes are achieved, returns are provided by a donor, nongovernmental organization or government agency.
The UBS Optimus Foundation has just launched the first-ever development impact bonds in education to fund a program to enroll and keep girls at school in Rajasthan, India. The Children’s Investment Fund Foundation will pay a return to investors, depending upon the results achieved in areas like numeracy and language skills. We hope this bond will become a “proof of concept” that can be replicated and scaled-up elsewhere.
Jim Yong Kim, president of the World Bank, has been vocal about the critical role of the private sector in tackling poverty. I agree. Business people can make a real contribution by partnering with governments and non-profits, and by applying business skills like innovation and creativity.
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