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Global poverty - is business the answer?

Principal Voices


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When activists discuss the way less developed countries have missed out on the benefits of globalization, multinational corporation are often portrayed as the villain. To George C. Lodge they're the solution -- and the only one.

A professor at Harvard Business School for more than 40 years and expert on developing economies, Lodge has developed a radical plan to combat global poverty by harnessing the power of big business, rather than complaining about its effects.

His proposal would see the world's biggest multinational corporations, with the support of charities and the United Nations, set up and manage aid projects with the eventual aim of making a profit.

Thus, as one example, Swiss food giant Nestle could manage a Third World dairy, with building services group Cemex providing the housing and Ericsson, a leading telecoms player, sorting out communications.

In a newly-published book co-written with Australian aid sector economist Craig Wilson, Lodge argues that decades of global aid spending on poorer countries -- some $2.5 trillion since World War II -- has largely been wasted.

"Much of the money goes to governments," Lodge argues. "The problem is that in many countries of the world, governments lack either the desire or the ability to reduce poverty.

"So what you are doing is sustaining a status quo which may indeed be the cause of poverty. And people are realizing that this is the case, even the World Bank."

Where poorer nations have pulled themselves upwards, such as Japan, South Korea and Singapore, business has been at the center of wealth creation, Lodge notes.

His book calls for the establishment of the World Development Corporation (WDC) -- an aid organization which while "blessed" by charities and the UN, would be run by multinationals on strict business lines.

The WDC would be owned and managed by about 12 multinationals. I'm thinking of the companies that have historically had a good record in the developing world: Unilever, Nestle, Cemex, BP, Shell and so on," says Lodge.

"The staff of the WDC would identify a country, identify a project in that country that would have a maximum effect on poverty and that would, eventually, be profitable, and thus sustainable."

Initially, however, projects would be sustained with public money.

"That raises legitimacy problems, of course -- why should public funds be used to finance a profitable venture? That legitimacy problem would require the oversight of NGOs and the UN, that's why their involvement is so important," he says.

Lodge bases his idea on hard experience. In charge of international labor relations while serving in the Eisenhower and Kennedy administrations, Lodge traveled widely in developing nations.

He later helped set up INCAE, now Latin America's best-renowned business school. There, Lodge spent three years studying a project in Panama where a provincial bishop had established a co-operative to assist poor farmers.

It was only a success, he, says, because it made a profit: "There isn't enough charity money in the world -- or tax revenue -- to reduce global poverty substantially. It can only be done by profitable business."

The WDC would be "the missing link" in development, says Lodge, who has discussed it with charities and the UN, and even has a chief executive of a global company -- who he declines to name for now -- slated to head it.

The WDC would also tackle fundamental contradictions caused by the increasing primacy of global business.

"The old idea that a corporation derives legitimacy from satisfying shareholders and competing to satisfy consumer desires is no longer adequate. One reason is that the sum of consumer desires does not necessarily equal community need," says Lodge

"Governments, of course, are supposed to define community needs and see that they are fulfilled. The trouble is that in much of the world, governments are not doing that in a way that is acceptable to public opinion.

"So the multinational is left, forced in effect to itself define community need and to implement it. This is a legitimacy problem, because nobody elected them to do that."

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