Aneel Karnani
Reducing Poverty
through Employment
Give a man a fish, you feed him for a day; teach him how to fish, and he will
be able to feed himself for the rest of his life. This is an old cliché, and like all
clichés it has an element of wisdom. Pero, it does not go far enough. A fisher-
man with a simple rod and a canoe will not go hungry, but he will still be
poor. For him to rise above poverty, he needs steady employment at reason-
able wages in a commercial fishing company. Now his daughter might move
up the development ladder and go on to become an engineer.
Widespread poverty is an urgent challenge for the world. The starting point for
addressing this challenge is the simple and obvious observation that the primary
problem of the poor is that they have a low income. As the above parable indicates,
the best way to alleviate poverty is to increase the income of the poor by providing
productive employment. It is necessary to view the poor as producers and empha-
size buying from them.1 Many of the current approaches to poverty alleviation
miss this simple point.
Advocates of foreign aid believe that poor countries are caught in a “poverty
trap” and need major injections of aid to trigger economic development.2 Foreign
aid is accused of emphasizing big objectives, big projects, top-down planning, y
a one-size-fits-all approach rather than, as Easterly advocates, bottom-up solutions
tailored to the local context. Another criticism is that very little aid actually goes to
stimulate enterprise development, even though private enterprise is well estab-
lished as the best path out of poverty. Foreign aid is also accused of creating con-
tinuing dependency and fostering corruption.
The advocates of market liberalization believe that free and open markets are
the only vehicle for growing a nation out of poverty, and that the “trickle-down”
effect will lead to poverty reduction. Sin embargo, globalization has not brought the
promised economic benefits to many poor people in the developing world. El
Aneel G. Karnani is Associate Professor of Strategy at the Stephen M. Ross School of
Negocio, University of Michigan. He is the author most recently of Fighting Poverty
Juntos: Rethinking Strategies for Business, Governments, and Civil Society to
Reduce Poverty (Nueva York: Palgrave Macmillan, 2011).
© 2011 Aneel Karnani
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Aneel Karnani
problem with the neoliberal free market approach is that it grossly underestimates
the role of the government in economic development and poverty reduction.
Chang argues that today’s economic powers, from the U.S. to Britain to South
Korea, all attained prosperity through some government intervention in industry.3
The “bottom of the pyramid” (BOP) proposition, popularized by C. k.
Prahalad, argues that selling to the poor can simultaneously be profitable and
eradicate poverty.4 The BOP approach views the poor primarily as consumers—an
attractive market for multinationals. Sin embargo, the BOP market is quite small and
is unlikely to be very profitable, especially for a large company. Además, the BOP
initiative could result in the poor spending
money on low-priority goods that would
be better spent on higher priority needs,
such as nutrition, education, and health
care, thus ending up with reduced welfare.
The BOP approach also significantly
underestimates the role of the government
in providing basic services, such as educa-
ción, public health, infrastructure, clean
agua, and public safety.
To escape from poverty,
the poor need
productive jobs that
lead to higher income.
The foreign aid approach sees the poor
as passive recipients of charity; the market liberalization approach sees the poor as
automatic beneficiaries of a trickle-down effect; the BOP approach sees the poor
primarily as consumers. None of these approaches to reducing poverty emphasizes
directly increasing the productive capacity of the poor; eso es, increasing their
earning power.5 This article argues for the need to focus on the poor as producers
and emphasizes not selling to the poor, but buying from them.
To escape from poverty, the poor need productive jobs that lead to higher
income. At the Millennium Summit in 2000, the international community, bajo
the leadership of the United Nations, adopted the Millennium Development Goals
(MDGs). The first MDG focuses on the eradication of poverty and hunger.
Following the widespread conviction that poverty can only be reduced if people
have decent and productive jobs, a new target was added under MDG 1 en 2006:
achieving full and productive employment and decent work for all, including women
and young people. The United Nations Conference on Trade and Development
argues that poverty reduction in the least developed countries requires a “para-
digm shift” so that national and international policies focus on developing produc-
tive capacities and creating productive jobs.6
There are essentially two ways for a person to be a member of the labor force:
as an employee, or being self-employed. The microcredit movement aims to help
the poor become self-employed. Sin embargo, most studies suggest that microcredit is
only beneficial to a limited extent; the reality is less attractive than the promise.7
The vast majority of microcredit clients are caught in subsistence activities and
compete in overcrowded markets. They usually have no specialized skills, no paid
staff, own few assets, and operate on too small a scale to achieve efficiencies. De este modo
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Reducing Poverty Through Employment
they do not earn enough to rise out of poverty. A recent World Bank study based
on interviews with 60,000 poor or formerly poor people in 15 countries concludes,
“Tiny loans usually provided under microcredit schemes do not seem to lift large
numbers of people out of poverty.”8 Most clients of microcredit are microentrepre-
neurs by necessity and not by choice. Creating opportunities for steady employ-
ment at reasonable wages is the best way to take people out of poverty. El
International Labor Organization (ILO) estados, “Nothing is more fundamental to
poverty reduction than employment.” It then argues vigorously for “decent
employment”—work
eso
offers people a good income,
seguridad, flexibilidad, protection,
and a voice on the
job.9
Employment is not only the
key source of income, it also
enhances other dimensions of
well-being, including skills,
physical abilities, and self-
respeto.
Reducing poverty through
employment requires three
major thrusts:
(1) generate employment,
(2) increase employability, y
(3) make the labor markets
más eficiente.
Reducing poverty through
employment requires three
major thrusts: (1) generate
increase
employment,
employability, y (3) make
the labor markets more efficient. The first thrust works on the demand side of the
labor market by creating job opportunities appropriate to the skills of the poor.
The second thrust works on the supply side of the labor market by increasing the
employability of the poor through education and vocational training programs.
Labor markets, especially in developing countries, have a great deal of friction due
to a lack of information and labor mobility; programs such as job-matching and
placement services can help make the labor market more efficient and thus
increase employment. Increasing employment opportunities, employability, y
labor market efficiency are, por supuesto, complex challenges for which there is no
magic solution. It is too ambitious and perhaps futile to try to develop a holistic
theoretical framework or a comprehensive action program to increase employ-
ment for the poor. It is better to make well-targeted and pragmatic interventions
supported by conceptual logic and empirical evidence.
(2)
A whole variety of public policies and private strategies are needed to generate
employment. Even though the private sector is primarily responsible for job cre-
ación, gobiernos, international organizations, and NGOs can and should facili-
tate this process. Generating employment requires regulatory policies that facili-
tate the creation and growth of private businesses; the World Bank’s Doing
Business project provides an objective basis for understanding and improving the
regulatory environment for business.10 Other factors that influence job creation
include access to capital, a pool of entrepreneurial talent, macroeconomic stabili-
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Aneel Karnani
ty, infrastructure and public services—and this is not an exhaustive list.
Desafortunadamente, many poor countries have not generated adequate employment
and as a result have not made much progress on reducing poverty. Some combina-
tion of inappropriate government policies and market failures leads to inadequate
job creation.
Rather than discussing all the things that need to be done to generate employ-
mento, I argue for choosing a “good enough” starting point and taking some action.
I do not suggest that this is the best or the only starting point, just that it is an effec-
tive and feasible place to start. en este documento, I sacrifice breadth for focus, compre-
hensive theory for pragmatic action. I argue that it is a good idea to focus on the
small and midsized enterprise (SME) sector to be the major driver of job creation,
and then supplement my conceptual argument with a case study to illustrate that
this is a feasible proposal. I describe an innovative and effective approach by
TechnoServe, a midsized NGO based in Washington, CORRIENTE CONTINUA., to help generate jobs by
facilitating the growth of SMEs in many poor countries, especially in Africa and
Latin America. In particular, I describe TechnoServe’s success at revitalizing the
cashew nut industry in Mozambique.
Increasing the employability of the poor is also a complex challenge that
requires a variety of public policies and private strategies. The central issue in
increasing employability is, por supuesto, education, including vocational training and
retraining. One reason that job creation does not keep pace with economic growth
and may even hamper it is that labor markets, especially in developing countries,
have considerable friction. Factors that influence labor market efficiency include
job-matching programs, infrastructure, public services, public health, and labor
mobility—and this too is not an exhaustive list. I argue that it is a good idea to
focus on increasing employment among rural youth. De nuevo, rural youth are neither
the only nor necessarily the best target group for increasing employment, but it is
an effective, good enough place to start. I will supplement my conceptual argu-
ment with a case study to illustrate its feasibility. I describe an innovative program,
the Employment Generation & Marketing Mission (EGMM), organized by the
government of Andhra Pradesh state in India to identify, train, and link unem-
ployed rural youth to jobs in the private sector. EGGM facilitates employment of
poor rural youth by increasing their employability and reducing the friction in the
labor markets.
EMPLOYMENT
In development economics, there is considerable theoretical and empirical support
for the increasing preponderance of wage labor in a developing economy. The ILO
divides the labor force into four categories: (1) “employees” are paid wages or
salaries based on an explicit or implicit contract; (2) “employers” are self-employed
and have engaged one or more employees; (3) “own-account workers,” alone or
with one or more partners, are self-employed and have not engaged employees;
y (4) “contributing family workers” are employed on an informal basis in an
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Reducing Poverty Through Employment
establishment operated by a relative living in the same household. Own-account
workers in developing economies are associated with subsistence agriculture and
other low value-added activities, such as petty trade, that often provide low and
irregular income. Contributing family work is often unpaid, although compensa-
tion comes indirectly in the form of family income; it is particularly common
among women in developing countries. The share of “vulnerable” employment is
defined as the sum of contributing family workers and own-account workers
divided by total employment. A high proportion of vulnerable workers indicates a
large subsistence agricultural sector, lack of growth in the formal economy, y
widespread poverty. Empirical research by the ILO confirms a positive relationship
between incidence of poverty and vulnerable employment.11 Poverty reduction is
linked to an increase in employment and a reduction in vulnerable employment.
Growing Employment
No country has significantly reduced poverty without experiencing economic
growth, but economic growth has had a widely different impact on poverty reduc-
tion across countries. A 1 percent increase in per capita GDP can reduce income
poverty by as much as 4 percent or as little as 1 percent.12 The link between eco-
nomic growth and poverty reduction is mediated by job creation. It is possible to
have economic development without significant job creation, which then leads to
a lesser impact on poverty reduction. En años recientes, many less developed coun-
tries have achieved higher rates of economic growth than in the past, and even
higher growth of exports. But there is a widespread sense that this is not translat-
ing effectively into poverty reduction and improved human well-being.13
Analyzing the recent economic history of Mexico, Eduardo Zepeda concludes,
“Mainstream policies managed to generate growth that proved neither pro-poor
nor sustainable. The Mexican experience shows the need to leave behind the blind
faith in market forces and embrace employment-based policies.”14
Por ejemplo, the Indian economy has experienced rapid economic growth for
several years, especially since the process of economic reform was initiated in 1991.
In spite of this growth, unemployment and underemployment remain major
problemas. Open unemployment—about 8 percent in 2007—is not a true indica-
tor of the gravity of the unemployment problem in an economy such as India’s,
characterized as it is by large-scale underemployment and poor employment qual-
ity in the unorganized sector. Sixty per cent of India’s workforce is self-employed,
many of whom remain very poor. Nearly 30 percent are casual workers; eso es,
they work only when they are able to get jobs and remain unpaid for the rest of the
días. Only about 10 percent are regular employees, of which two-fifths are
employed by the public sector. India’s jobless growth is the result of a distorted
emphasis on a capital-intensive and skill-intensive development path.15 Capital-
intensive sectors, such as heavy manufacturing, and skill-intensive sectors, como
information technology, will not solve India’s poverty problem. Rajat Gupta, para-
mer managing director of the consulting firm McKinsey, dice, “There’s much talk
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Aneel Karnani
in India about the knowledge worker and the knowledge economy. Yet they are
sideshows to getting the basics right. India needs more jobs in sectors such as man-
ufacturing, construction, and agribusiness, where it isn’t necessary to be a knowl-
edge worker to make a living.”16
There is growing concern about ensuring “pro-poor” growth. The last decade
has witnessed a decline in the share of the world’s working-age population (edad 15
and older) that is employed. It stood at 61.4 por ciento en 2006, 1.2 puntos de porcentaje
lower than ten years earlier. The decrease was larger among young people (edad 15
a 24); within this group, the ratio decreased from 51 por ciento en 1996 a 46.8 por-
cent in 2006.17
In developing countries, the problem is not only unemployment but also the
conditions of work for those who are employed. En 2006, there were 1.3 billion
people who worked but were still unable to lift themselves and their families above
el $2 a day poverty line. Account also must be taken of the unemployed people looking for work but unable to find it, and people so discouraged that they have given up looking. That is a very large deficit of decent employment. Free market advocates often argue that the best antidote to poverty is econom- ic growth—the so-called trickle down effect.18 It is assumed that economic growth will automatically lead to job creation, which in turn will lead to poverty reduc- ción. The problem is that the trickle down effects of general economic growth are too little, too slow, and too uneven. There is a need to target programs specifically at poverty reduction rather than just waiting for the general growth effect to kick in. The recent political changes—disillusionment with market liberalization and a drift to the populist left—in several South American countries (Venezuela, Bolivia, Ecuador, and Nicaragua) support such a direct emphasis on poverty reduction. Developing countries need to emphasize growth in labor intensive, low-skill sec- tores, such as agriculture, light manufacturing, garment manufacture, and tourism. Desafortunadamente, many poor countries have not generated adequate employment and as a result have not made much progress on poverty reduction. Some combi- nation of inappropriate government policies and market failures leads to inade- quate job creation. This is not to advocate a return to the statist policies that stifled economic growth for decades in countries such as India and China. There is much ideologi- cal debate about the roles of the free markets and the state in achieving overall eco- nomic growth.19 Regardless of one’s position in this debate, sin embargo, contempo- rary history clearly shows that the private sector is the best engine of job creation. Por ejemplo, China has made the single largest contribution to global poverty reduction in the last three decades. Since the beginning of reforms in 1978, más que 250 million people have been lifted out of poverty in China. The private sec- tor has been the fastest growing segment of the economy, growing at 20 percent per year for the last 25 años, more than double the economy’s average. Desde 1992, the private sector has created three-quarters of all new jobs, according to the International Finance Corporation.20 There is, por supuesto, no simple answer to how to stimulate the growth of the private sector. The World Bank measures the ease of 78 innovaciones / Meaningful Markets Downloaded from http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Reducing Poverty Through Employment Figure 1. Contribution of Different Sectors to Total GDP doing business in 183 countries by focusing on indicators in ten different areas, ranging from “starting a business” to “protecting investors” to “closing a busi- ness.”21 This helps promote understanding of how various policies, laws, and regu- lations can facilitate the growth of the private sector, especially the SME sector. Small and Midsize Enterprises The next issue is which sector of the economy is likely to be a good target for job creation. The non-governmental economy can be divided into three sectors: the informal sector, small and midsize enterprises, and large enterprises. The informal sector covers all economic activities whose income is not reported for tax purpos- es and which are not covered, or are insufficiently covered, by formal arrangements and generally operate outside the formal reach of the law. Different countries adopt different criteria for defining SMEs. Despite this variation, most sources define SMEs in terms of employment and there is rough agreement about the cut- off points: microenterprises have fewer than 10 employees, small enterprises fewer than 50 employees, and medium enterprises fewer than 250. SMEs are defined as formal enterprises, which assumes that all microenterprises operate in the infor- mal sector. En principio, por supuesto, this need not be true. En la práctica, sin embargo, especialmente- cially in developing countries, most microenterprises operate in the informal economy and are not recorded in the SME data. Virtually all the vulnerable employment discussed above takes place in the informal sector. Meghana Ayyagari et al. provide a new database that contains comprehensive statistics on the contribution of SMEs and the informal sector to the total GDP across a broad spectrum of countries, as summarized in figure 1.22 The SME sector generates a higher fraction of GDP in high-income countries than low-income countries. The share of the informal sector has a negative relationship to the coun- try’s income level. Curiosamente, the joint contribution of the informal and SME innovations / volumen 6, number 2 79 Descargado de http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Aneel Karnani sectors to GDP remains approximately constant across income groups, at around 65 percent to 70 por ciento. As income increases, sin embargo, there is a marked shift from the informal to the SME sector. The economic structure in low-income countries is polarized, with the infor- mal and large enterprises playing a large role and the SME sector being too small— the so-called “missing middle.” The path to development is clearly associated with a growing role of the SME sector.23 Another World Bank paper using cross-coun- try data also finds a “strong association between the importance of SMEs and GDP per capita growth. This relationship, sin embargo, is not robust to controlling for simultaneity bias.”24 Thus, while a large SME sector is characteristic of successful economies, there is not enough empirical evidence to prove that SME growth caus- es economic growth. It is plausible that the direction of causality flows in both directions. Sin embargo, most governments have programs to support the development of the SME sector. In Pakistan, Por ejemplo, the promotion of SMEs has been the “center piece of Government’s strategy for economic revival, poverty alleviation and employment generation.”25 The World Bank and other international aid agen- cies provide targeted assistance to SMEs in developing countries; Por ejemplo, the World Bank approved $1.5 billion for SME support programs in 2002.26 Several
NGOs also focus their efforts on the SME sector, such as TechnoServe, the case
study I describe in depth below. Another example, ApproTEC, is a small NGO that
aims to promote economic growth and employment creation in Kenya and other
countries by developing and promoting technologies that can be used by entrepre-
neurs to establish and run profitable small-scale enterprises.
The ILO argues that SMEs are the major creators of employment opportuni-
ties and therefore hold an important key to employment and poverty reduction.27
SME expansion boosts employment more than large firms because SMEs are more
labor intensive, less skill intensive, and less capital intensive, and thus create jobs
better suited to the poor. This is also appropriate for developing countries with an
abundance of labor and relative shortage of capital. SMEs contribute to a more
equitable income distribution because they tend to be more widely dispersed geo-
graphically than larger enterprises, thus helping to reduce economic disparities
between urban and rural areas. The presence of SMEs in the economy tends to
increase competition, which promotes greater economic dynamism. SMEs are
often the source of economic growth and innovation, and they support the devel-
opment and diffusion of skills and entrepreneurial talent in the economy.
In developed countries, some microenterprises are successful and grow into
SMEs over time. Sin embargo, this is much less common in developing countries. El
self-employed poor, the microentrepreneurs in developing countries, usually have
no specialized skills, often practice multiple occupations, and rarely graduate into
SMEs.28 This is another reason for directly supporting the SME sector.
It is interesting to compare China and India in this dimension. In the last two
décadas, China has reduced poverty significantly more than India, because China
has created a large number of jobs that pay enough to lift people out of poverty.
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Reducing Poverty Through Employment
Cifra 2. Working Poor ($2/día) as Fraction of Total Employment A “working poor” person does not earn enough to lift himself or herself and his or her family above the poverty threshold. One reason for this is the much faster growth of low-skill employment in the man- ufacturing sector in China.29 The industry structure of manufacturing in China is dramatically different from that in India, where about 87 percent of manufactur- ing employment is in microenterprises of fewer than ten employees—a smallness of scale that is unmatched in any emerging country.30 The corresponding number in China is less than 5 por ciento. Acerca de 5 percent of manufacturing employment in India is in the SME sector, compared to 40 percent in China. Vulnerable Employment To eliminate poverty, it is not enough to increase employment; it is also necessary to reduce vulnerable employment. It is instructive to consider (see figures 2 y 3) the pattern of poverty and vulnerable employment over time in East Asia, South Asia, and sub-Saharan Africa, three regions that together account for about three- quarters of the poor in the world.31 In East Asia, which is largely China, where the incidence of poverty has declined significantly (see figure 2), the share of vulnerable employment is rela- tively small and shrinking (see figure 3). In South Asia, which is largely India, and sub-Saharan Africa, where the incidence of poverty has declined much more slow- ly, the share of vulnerable employment is significantly larger and shrinking only slowly. In comparison, the share of vulnerable employment in developed economies is dramatically smaller. Vulnerable employment, most of which takes place in microenterprises, does not effectively reduce poverty. Economies of Scale There is a great deal of research that confirms a positive relationship between firm size and labor productivity. This should not be surprising, as economies of scale do innovations / volumen 6, number 2 81 Descargado de http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Aneel Karnani Figure 3. Vulnerable Employment as Percentage of Total Employment exist. Evidence from India shows that total factor productivity is about twice as high in firms with more than 250 employees than in those with only 10 or fewer employees, with progressive increases in scale yielding considerable gains in pro- ductivity.32 This problem is particularly acute for microenterprises with fewer than ten employees. Many of these businesses operate at too small a scale; they have low productivity, which leads to meager earnings that cannot lift the owners out of poverty.33 In his study of microenterprises in Kenya, Daniels found that only 26 percent of these owners earned an income above the minimum wage.34 The productivity of SMEs lies somewhere between the microenterprises and large firms.35 SMEs concentrate on activities where the scale economies are not so significant and their relative disadvantage is minimal compared to large firms, including labor-intensive industries such as light manufacturing, and service industries such as restaurants and vehicle repair. Another strategy is to avoid direct competition with large firms by focusing on specialized and niche markets. Small firms have the advantage of greater flexibility and agility and can also try to gain economies of scale through strategic alliances and outsourcing.36 SMEs in develop- ing countries need to practice these strategies more effectively in order to achieve growth; this is exactly how TechnoServe helps small enterprises in developing countries to thrive and grow bigger. TECHNOSERVE I now describe an innovative and effective approach by TechnoServe, a midsize NGO (annual budget about $50 millón) based in Washington, CORRIENTE CONTINUA., which is
designed to generate jobs by facilitating the growth of SMEs in many poor coun-
intentos, especially in Africa and Latin America. TechnoServe’s mission is to help
entrepreneurial men and women in poor areas of the developing world to build
businesses that create income and employment. Adopting a market-oriented
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acercarse, TechnoServe identifies high-potential but underperforming economic
subsectors and then seeks to resolve the market failures that constrain their devel-
opment. En 2008, TechnoServe helped 1,348 businesses achieve sales of $149 mil- lion and profits of $16 millón; these businesses paid $9 million in wages to 32,600 employees. TechnoServe’s approach is based on a few basic principles: • Reduce poverty by emphasizing job creation. Focus on SMEs as the engine of job creation. • Private businesses are at the center of economic growth and job creation. Emphasize a market-oriented approach. Involve multiple players, including government and trade organizations. TechnoServe’s role is that of a facilitator. • Emphasize appropriate technology to balance labor intensity with productivity. Competitive advantages of SMEs include an appropriate balance between labor and capital intensity, flexibilidad, velocidad, and “localization.” • Local entrepreneurs play a critical role in this process. Each business has to suc- ceed in a competitive environment by emphasizing cost competitiveness and being responsive to customer needs. To see this approach in action, we look at one of TechnoServe’s success stories: the revitalization of the cashew industry in Mozambique. The Cashew Industry in Mozambique The cashew nut industry in East Africa was once a driving economic force, and Mozambique was the leading producer in the world. It reached its peak in 1973, when it accounted for 240,000 tons of raw cashew nuts, of which 210,000 tons were processed in Mozambique. After Mozambique achieved independence in 1975, government planners ignored cashew nut production and it started to decline. This trend was aggravat- ed by years of disruption in agricultural marketing, initially stemming from the government’s interventionist approach to national resource allocation—that is, a centrally planned economy—and later from a devastating and prolonged civil war. Unable to care for their trees, the farmers left them untreated for years, which led to the spread of pests and diseases. Uncontrolled forest fires also affected impor- tant cashew orchards. Processing capacity also deteriorated, both physically and in terms of managerial expertise. Total production dropped to as little as 22,000 tons in 1990; por 2002 it had recovered to only 50,000 tons, none of which was processed locally. En 1998, the Mozambique government lifted an export ban on raw cashew nuts. Exporters could offer higher prices than the struggling domestic factories, and most raw nuts were sent to India. The local factories shut down, eliminating many jobs and reducing the domestic demand for raw nuts. By the year 2000, instead of feeding a vibrant domestic industry serving the global market, Mozambique’s raw nuts were being sold to Indian processors, effectively exporting a major agro-industrial opportunity. innovaciones / volumen 6, number 2 83 Descargado de http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Aneel Karnani TechnoServe in Mozambique TechnoServe’s involvement in the Mozambique cashew industry began in 1998 and has been instrumental in its revitalization. En 2005, Mozambique produced 82,000 tons of raw nuts, 9,000 tons of which were processed locally; exports totaled $3.6 millón, with strong potential for further growth. Por 2008, exports of
processed kernels had more than doubled, alcanzando $10 million and creating over 6,200 formal sector jobs. The incomes of about 120,000 small-scale farmers have increased significantly, based on a combination of yield improvement and better prices. Para 2008, the incremental incomes of farmers due to price increases attrib- utable to the domestic processing industry were calculated at just under $2.5 mil-
lion. The increment is due to domestic processing which yields higher prices. El
ultimate size of the industry could be many times larger, based on gradual replant-
ing and expansion of the nation’s over-mature cashew orchards.
TechnoServe began by identifying the opportunity and making a business case
for the cashew industry in Mozambique. The fact that Mozambique has a progres-
sive government was an important and positive factor, as TechnoServe wants to
work in countries where entrepreneurs can flourish and regulations are not oner-
ous. The organization’s donors share its skepticism about centrally planned
economías.
TechnoServe’s regional director wrote an unsolicited proposal to USAID,
which was accepted and funded. TechnoServe subsequently hired a new director
for Mozambique, a seasoned agri-business professional, and engaged a volunteer
from the Netherlands office of McKinsey & Compañía, the management consulting
firm. Working with key stakeholders, the volunteer analyzed the cashew industry
to identify key drivers of commercial success and decide on a competitive strategy.
Their strategic approach involved three major interrelated elements: focusing on
small to midsize enterprises, hand shelling, and locating factories near farms. El
analysis revealed that smaller factories in prime production areas had advantages
in purchasing raw materials and transportation costs, and that using labor-inten-
sive shelling technologies was superior to mechanical options when workers were
properly trained and motivated. The lower investment and operating costs of these
smaller plants also made them more feasible for local entrepreneurs.
Históricamente, large-scale processors dominated the Mozambican cashew indus-
intentar. The old plants in Mozambique had a capacity of 10,000 tons and used
mechanical shelling technology; the capital cost was $600 per ton, and the operat- ing cost was $1.30 per kilogram of output. TechnoServe proposed using small-
scale plants with a capacity of 1,000 tons and manual shelling technology; the cap-
ital cost was $140 per ton, and the operating cost was $0.56 per kilogram of out-
put. Even the output quality (measured by percentage of whole nut yield) was bet-
ter for the small plants. To run large-scale plants successfully required sophisticat-
ed managers not readily available in Mozambique. The smaller plants were consid-
ered much more likely to achieve better capacity utilization. Pequeño, geographically
dispersed plants located close to raw nut sources were also expected to reduce
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Reducing Poverty Through Employment
transportation costs and increase supplier loyalty and commitment.
Each small plant would employ 200 workers for a monthly wage bill of
$15,000; the employees would enjoy an official minimum wage salary; one month of paid vacation; all insurance, salud, and pension entitlements; one meal a day; and child care. Each plant would provide a reliable market for raw cashew nuts from about 10,000 small-scale farmer families and pay a premium price for quali- ty. Another advantage of locating plants near farms was that the plants could pro- mote improved production and husbandry by providing farmers with better seedling varieties, extension training, and other inputs. While this is currently hap- pening only on a limited basis, there are signs that it will expand. TechnoServe then recruited a business advisor, a local cashew nut industry expert, to establish a one-stop shop to provide all services to entrepreneurs. En 2001, TechnoServe partnered with a progressive Mozambican entrepreneur, Antonio Miranda, to launch the new enterprise, Miranda Caju. In the early phase, the business advisor provided intensive support for Miranda Caju: recruiting supervisors, selecting workers, advising on the compensation system, training workers, designing plant layout, identifying equipment, and designing locally fab- ricated equipment, such as a boiler. After some start-up glitches, the firm was soon profitable. Miranda Caju opened a second 1,000-ton plant in 2004; revenues that year were $1 millón.
TechnoServe used Miranda Caju’s first plant as a working laboratory to refine
the business model and train other interested entrepreneurs. Por 2006, TechnoServe
was working with nine start-up enterprises that had a total capacity of 11,700 tons.
TechnoServe offered these entrepreneurs a wide range of resources, incluido
strategic planning, marketing, technical advice, quality control, supply-chain man-
agement, and facilitating access to investment and working capital. Volunteer con-
sultants, many from McKinsey & Compañía, Bain & Compañía, and other global
companies, supplemented TechnoServe’s efforts in Mozambique. Miranda Caju,
the initial processing plant, paid TechnoServe $5,000 per year for consulting serv- ices, a mechanism that ensured TechnoServe was really adding value. For later industry entrants, the fee was waived in favor of the new companies supporting two industry trade associations, Association of Agribusiness Industries (AIA) and AICAJU (see below). Marketing Cashew Nuts Although the small-scale plants process efficiently, their individual marketing is inefficient. These small rural enterprises do not have the scale to develop and maintain effective communications and commercial relationships with foreign buyers, let alone to develop proprietary brands. The logistics of export markets require container-size shipments of uniformly graded and sorted cashew nuts, which favors much larger-scale operations. TechnoServe took the lead in develop- ing the Association of Agribusiness Industries, a private service company owned by some of the cashew processing companies. Located in the northern port of Nacala, innovaciones / volumen 6, number 2 85 Descargado de http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Aneel Karnani AIA is the primary marketer of the cashew nuts processed by its owners, as well as by some non-owners. It acts as a final quality-control agent and exporter, organiz- es bulk purchases of equipment and consumables, and offers some limited train- ing and technical assistance to its members. With pro bono assistance from the advertising agency Young & Rubicam, the AIA has developed a brand, Zambique, to control product quality and communicate the superior qualities of AIA-brand- ed cashew nuts. AIA is also assuming the leading role in negotiating with the gov- ernment on policies that affect the industry, which was previously done by TechnoServe. AIA has begun to provide many of the services that TechnoServe provided in the first several years, but on a for-profit basis. TechnoServe brings together various players to support the cashew industry. It worked with the industry to resuscitate the AICAJU, the cashew nut trade associa- ción, as a broad industry advocate. It released a key staff member to work as a pri- vate consultant to assist the government of Mozambique with strategic planning for INCAJU, the government agency responsible for promoting the cashew nut industry. With TechnoServe’s guidance, AIA is now working with the government to design and implement policies favorable to the cashew industry. Por ejemplo, it is advocating a gradual reduction of the protective export tax on raw nuts, which penalizes farmers and undermines real long-term industry competitiveness. When the processors needed working capital to purchase their year’s supply of raw mate- rial during the brief harvest season, TechnoServe worked with INCAJU to design a loan guarantee program supported by the government. Needs rapidly expanded beyond INCAJU’s resources, and USAID stepped in to support a loan guarantee program offered by the Ministry of Industry and Commerce. En 2009, efforts were begun to have a local commercial bank take over the loan program without a guar- antee. En 2008, the factories in Mozambique processed 23,700 tons of cashews. TechnoServe’s 16 clients’ cashew-processing plants bought nuts from over 100,000 small-scale producers, had total revenues of $12 millón, employed over 4,700 peo-
por ejemplo, and paid $1.6 million in wages. En 2008, having achieved its original aim of reviving the domestic cashew nut processing industry in Mozambique, TechnoServe ceased its program of subsi- dized assistance. Having subsequently shared some of the lessons learned in Mozambique through its cashew sector work in Tanzania, Kenya, and South Africa, TechnoServe is now replicating the approach through a large program working with West African cashew processors in Benin, Burkina Faso, Cote d’Ivoire, and Ghana. EMPLOYABILITY Reducing poverty through employment requires three major thrusts: (1) generate employment, (2) increase employability, y (3) make the labor market more effi- cient. I now turn to the second and third of these issues. The best way to increase the employability of the poor is, por supuesto, to improve education. But education 86 innovaciones / Meaningful Markets Downloaded from http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Reducing Poverty Through Employment alone is not the solution to unemployment. In developing countries, the supply of educated people has often outpaced the supply of jobs to accommodate them; unemployment tends to increase among better educated young people. South Asia’s labor market is characterized by pervasive unemployment and underem- ployment, especially among the youth and the educated.37 “There is a widening chasm between students’ qualifications and . . . employability. It sweeps the coun- intentar [India], particularly its . . . non-metropolitan regions.”38 Data from the Employment Generation & Marketing Mission (EGMM) indicates a significant problem of unemployment among the educated in the state of Andhra Pradesh in India (ver tabla 1). Even when economic growth generates employment opportunities, the jobs might not get filled, due to friction in the labor markets. The education system sometimes graduates students without giving them the skills required by employ- ers, thus there is a mismatch between the curricula adopted by the schools and the requirements of the marketplace. Companies have job openings and there are qualified people who need jobs, but the jobs and the people do not get linked together. The poor might not even be motivated to look for a job. There are also problems caused by a lack of information and labor mobility. Even if motivated to find a job, the poor often do not know where and how to search for one. Además, the jobs could be in a geographically, socially, and culturally unfa- miliar and/or unreachable place. Youth Unemployment Crisis The transition from school to work and from childhood to adult life can determine a person’s and a family’s—and, collectively, a community’s—chances of escaping poverty. As the youth reach adulthood and become parents, their having good and steady employment is likely to lead to a significant and sustained reduction in poverty. Young people are among the world’s greatest assets, and yet youth are more than three times as likely as adults to be unemployed. The global deficit in employment opportunities has created a situation in which one out of every three youth is either seeking but unable to find work, has given up the job search entire- ly, or is working but still living below the US$2 a day poverty line. “The world is
facing a growing youth employment crisis . . . In recent years slowing global
employment growth, and increasing unemployment, underemployment and disil-
lusionment have hit young people the hardest.”39 Today, 89 percent of the world’s
youth live in developing economies, where the employment deficit is most
extreme.
There is growing evidence that being unemployed at an early age has a direct
and negative impact on future income streams. Research has shown that unem-
ployed youth suffer a permanent decrease in their lifetime earning profile; uno
study suggests an income penalty from early unemployment as high as 21 por ciento
at age 42.40 Youth unemployment results in reduced investment in human capital,
depriving the young of labor force experience in the time of life when it yields the
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Mesa 1. Education and Unemployment in Andhra Pradesh.
highest return, and frequently leading to unsuitable labor behavior patterns that
last a lifetime. If they fail to gain a proper foothold in the labor market from the
start of their working life, young people are less able to make choices that improve
their own job prospects and those of their future dependents, thus perpetuating
the cycle of insufficient education, low productivity, and poverty from one gener-
ation to the next.
Youth unemployment is costly not only in terms of economic development but
also social development. There is a proven link between youth unemployment and
social exclusion, and it creates a sense of vulnerability, uselessness, and idleness
among young people.41 Youth unemployment is also associated with high levels of
crime, violence, substance abuse, and the rise of political extremism. In some
countries, virtually the only paid employment open to young men is with the var-
ious armed groups involved in civil conflict. For unemployed young women, el
danger of entrapment in the sex industry is widespread.42
Christoph Ernst of the ILO calls for special youth employment programs in
addition to general growth and investment policies, and argues that a strategy for
job creation needs to cover both labor demand and supply, combined with well-
targeted and structured interventions.43 Many governments have developed initia-
tives targeted at youth employment. Even in a rich country like Canada, the gov-
ernment created the Youth Employment Strategy to help young people, particular-
ly those facing barriers to employment, get the information and gain the skills they
need to make a successful transition into the workplace.44 Recognizing the risk of
falling behind on the target of achieving decent employment, and youth employ-
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Reducing Poverty Through Employment
ment in particular, the government of Tanzania has introduced an employment
creation program.45 NGOs too have entered this arena; the Youth Entrepreneurship
and Sustainability (YES) campaign was launched in 2002 to promote youth
employability and employment creation.46 The 83 YES country networks bring
together diverse stakeholders, including governments, companies, banks, y
ONG. I next detail the case study of the Employment Generation & Marketing
Mission, a good example of what Ernst advocates: a well-targeted intervention
focused on youth employment.
THE EMPLOYMENT GENERATION & MARKETING MISSION
EGMM is an innovative and effective organization that addresses the issue of
employment among the underprivileged rural youth in Andhra Pradesh (AP) en
India.47 EGMM does not help create jobs; bastante, it facilitates the employment of
poor rural youth by reducing friction in labor markets. It was launched in October
2005 as an autonomous body under the Rural Development Department of the
Andhra Pradesh government, which is located in Hyderabad, the state capital.
EGMM is a government organization that works closely with the private sector
and rural communities. The program works on a large scale: 101,000 youth were
trained in 2009, con 73 percent placed in organized-sector jobs. EGMM first iden-
tifies and motivates the poor unemployed youth, provides them with brief train-
En g, then works with companies to match these young people to jobs, and finally
helps them make the transition to a job in the urban environment.
Andhra Pradesh
Andhra Pradesh is the fourth largest state in India, with a population of about 80
millón. The per capita income in AP is about the same as for all of India, y el
annual economic growth in AP has been 5.5 percent over the last two decades. AP
is a major producer of agricultural products; it is also home to many industrial and
information technology companies. As in India in general, unemployment is a
major problem in the state of Andhra Pradesh. A typical village there with 500
households (acerca de 2,500 gente) tiene 50-60 unemployed people, of whom five are
university graduates and seven graduated from an industrial training institute.
Fortunately, the rapid economic growth in AP in recent years has created many
low-skill jobs, such as security guards, retail assistants, construction workers, y
garment factory workers.
Identifying and Motivating
Identifying unemployed rural youth in the interior of the state is the first chal-
lenge, since villages and tribal hamlets in remote areas have limited connectivity. A
cadre called the Job Resource Persons (JRPs) has been created and trained by the
EGMM from among the communities. The JRPs travel to rural villages, where they
go from house to house and participate in village meetings in order to create a
database of the unemployed youth.
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The next step is to motivate the youth to seek employment. The unemployed
youth in remote areas are frustrated that their education has not helped them get
jobs, and previous government job programs have not been effective. The jobless
youth then fall prey to social problems like drugs and naxalism—a radical, a menudo
violent revolutionary communist movement in India. Local youth constantly ask
the JRPs why they should enroll in the training programs offered by EGMM, so to
help motivate them, the JRPs invite an employed young person who has benefited
from the training, or his/her mother whose life has been improved by the sustained
income flow, to address the youth groups and explain the variety of training
options that are based on individual aspirations and qualifications.
The AP government has facilitated the creation of a large network of self-help
grupos (SHGs) for rural women. These are basically thrift and credit groups that
meet regularly and use their collectivized savings to leverage bank loans for income
generation and consumption purposes. EGMM works with SHG leaders, who are
opinion-makers in their communities, to discuss unemployment and jobs issues in
their monthly meetings and participate in the valedictory functions. SHG leaders
are also taken to visit companies where youth from their villages are employed.
This results in grassroots ownership of the work and makes them stakeholders in
the process. At their monthly meetings, the SHG leaders influence the mothers of
unemployed youth, who in turn motivate their children.
Capacitación
EGMM has set up 280 no-frills academies that cover a wide range of topics linked
to the emerging economic growth sectors. These include the Rural Retail Academy,
Rural Security Academy, Rural English and Soft Skills Academy, Work Readiness
and Computer Academy, a construction training center, and a textile training cen-
ter. To achieve acceptance and scale, the unemployed youth are channeled into a
training program appropriate to their qualifications and aspirations. Youth who
are illiterate and want to remain in their home village are advised to enroll in the
construction or textile industry training programs. Youth who are literate (10th
grade and up) and are willing to relocate enroll in the Retail, Security, Inglés, y
Work Readiness academies. I will illustrate the training process described by the
Security and Retail academies.
The business of providing security services is growing at the rapid rate of 35
percent per year in AP. Hay 800 companies or contractors in this sector in AP
solo. Many of them are exploitative fly-by-night operators who employ youth
from villages and often do not pay them their earned wages. The youth then return
to their villages in a few months, disenchanted with the system. To combat this,
EGMM formed an alliance with G4S (formerly G-4 Securicor), a $2 billion Danish company that is the world’s leading security solutions group and operates in over 100 countries. G4S is the largest security services company in India, con 130,000 employees. Entry-level security guards earn reasonable wages, Rs. 48,000 ($1,066)
per year, with fringe benefits such as a retirement fund and medical reimburse-
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Reducing Poverty Through Employment
mento. This compares to the per capita income in India of Rs. 38,084.48 Before the
alliance, G4S interviewed 200 youth, and fewer than 10 percent passed the compa-
ny’s screening. EGMM conducted an analysis of the company’s recruiting needs,
from which it developed a 15-day training module, with the help of the company,
which taught the youth basic conversational English, grooming, and goal-setting
habilidades. EGMM spent $82 on each candidate for the training program. After the training module, 70-80 percent of the youth passed the company’s screening process. “The quality of manpower provided by EGMM is really good and we plan to recruit 5,000 persons in 2006-07,” said P. V. Sudarshan, the G4S general manag- er in Andhra Pradesh.49 Buoyed by the success with G4S, other security services companies, such as Protex, have approached EGMM to provide skilled manpower. EGMM trained and placed 15,000 youth in security agencies in 2007. The positive impact of this sim- ple model led to the rural community taking ownership of the program. Surveys indicated that 500,000 entry-level retail jobs will be created in the southern states of India alone. In response to the booming retail market, EGMM set up Rural Retail Academies, which offer a 45-day training program that includes course modules developed with the help of industry. Besides emphasizing cus- tomer relations management, the program also covers simple spoken English, life skills, and personality development. This includes lessons on body language, grooming, etiquette, time and conflict management, and leadership qualities. Youth are taught how to build their resumes, interviewing skills, and job search skills. Local teachers were recruited through written tests and interviews and groomed to be trainers rather than teachers. In rural India, classes tend to be non- participatory and emphasize rote learning. In contrast, EGMM trainers were groomed to emphasize active, participatory learning and market-oriented skills. Besides learning pedagogical approaches such as role-playing, the trainers were taken through an immersion process. They accompanied the JRPs to the villages for three days and worked on choosing youth for their first classes. The trainers also sat through company interviews to understand the market requirements. En 2006-2007, 15,000 youth were placed in entry-level jobs in companies such as McDonald’s, Wipro, Reliance Retail, and the India Tobacco Company. Their incomes ranged between $533 per year in semi-urban locations and $1,333 in major cities. “The results have been very encouraging,” says S. Sivakumar, CEO of India Tobacco Company’s agri-business division.50 Transition Going from living with family in a rural village to living alone in a big city and working in a large company is a challenging transition. An EGMM survey of com- panies employing rural youth showed high attrition in the first month. A major cause of the attrition was the simple fact that the companies didn’t pay salaries until the end of the first month, and the poor youth often arrived in the cities with- out any money. This made it difficult for them to survive the first month and innovations / volumen 6, number 2 91 Descargado de http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Aneel Karnani resulted in their dropping the job. EGMM now lends one-month’s salary to the newly employed youth, which is repaid in soft installments. EGMM counselors meet the youth when they first migrate to cities and help them find low-cost hos- tel accommodations and generally get settled in. The counselors also visit the youth in the workplace to deal with any initial challenges. En 2007, the late Y. S. Rajasekhara Reddy, then chief minister of Andhra Pradesh, announced a plan to arrange transit homes in and around Hyderabad, the biggest city in AP.51 The youth are allowed to stay in these homes for three to six months, which gives them time to find other suitable accommodations. While EGMM does provide training, its success is due more to its role in improving the efficiency of the labor market for rural youth from remote loca- ciones. It identifies and motivates these young people and then gives them appro- priate information about job opportunities. Equally importantly, it increases labor mobility by facilitating the youth’s transition from remote rural locations to an unfamiliar urban environment. Impact EGMM was started in 2005 by the state government of AP, with the help of the World Bank, the central Indian government, and seed capital of $1.11 millón. El
results so far have been impressive: EGMM trained 75,000 youth in 2008 y
101,000 en 2009. The budget increased to $4.44 million in 2006-2007 y para $24.44
million in 2007-2008. Eighty percent of the trainees were placed in jobs in the pri-
vate organized sector; the firms recruiting included McDonald’s, Reliance Fresh,
HDFC Bank, Unilever Hindustan, Larsen & Toubro, and Arvind Mills. “We are
spending about $222 per student, and the target is to train 100,000 rural youth to make them employable in 2007-2008,” said rural development minister Dr. Chinna Reddy.52 EGMM’s experience shows that providing one job in the organized sector to one youth can take the entire family out of poverty in a sustained manner. The rural poor are mostly agricultural laborers with erratic incomes of barely $266 a
año. Youth who work in the cities often send money back to their families. Uno
small survey conducted by EGMM showed average remittances of $533 a year. The survey showed that 38 percent of the families use the remittances to pay off debts, 19 percent to purchase assets, 12 percent for education, 23 percent for savings, y 8 percent for other reasons. Many anecdotes suggest a significant increase in the self-confidence and self- esteem of the youth involved in the program. One example is Gonela Swamy, a 20- year-old from the village of Veldanda in Warangal, who was clueless about what he wanted to do after graduating from school.53 He became depressed when he failed to get a job due to his lack of fluency in English and poor communication skills. After completing the 45-day training program at the Rural English and Soft Skills Academy, Swamy found a job working as a customer support associate in 92 innovaciones / Meaningful Markets Downloaded from http://direct.mit.edu/itgg/article-pdf/6/2/73/704809/inov_a_00071.pdf by guest on 08 Septiembre 2023 Reducing Poverty Through Employment Hometown, a shopping mall. “It is the turning point in my life. From loitering around in my village, today I am working in the capital,” a beaming Swamy said. Curiosamente, aspirations soar even for those youth who are placed in low-level entry jobs. Several youth who worked as security guards in IT companies have enrolled in computer classes; they now aspire to work “from outside to inside an IT company.” An EGMM executive recounted the story of a manager at IBM who was amazed to hear a security guard tell him it was his last day, because he had learned some computer programming in his spare time and was now switching careers. Employment opportunities in India are highly discriminatory against women.54 EGMM also helps to correct this imbalance: 40 percent of their trainees are women. Public-Private Partnership A major reason for EGMM’s success is that it combined the market-oriented approach of the private sector, the economies of scale provided by the government, and the commitment of the grassroots communities. EGMM is incorporated as a society by the rural development department of the government of Andhra Pradesh, making it a government-managed program strongly linked to private- sector needs. Its institutional framework departs from existing governmental norms: the executive committee is chaired by the state’s minister of rural develop- mento, and its members are senior government officers and top executives from the private sector. The top managers of EGMM, which is headed by the executive director, are a private-sector team responsible for strategy development and imple- mentation. Aiding the top management team are senior government officers and, in the field, an implementation team of professionals and members of communi- ty organizations. The program and its targets are monitored by the chief minister, and state-level ministers participate in activities such as graduation ceremonies, all of which helps to achieve an enabling political environment. The rural development department consciously decided that EGMM budgets should be funded by the government, without any contribution from private com- empresas, to achieve the scale needed. The funding was justified partly because this program reduces social tensions created by unemployed youth and does so at the reasonable cost of $222 per person. The impact is measurable and can be achieved
within only two to three months, which is the length of the training courses.
Government participation also helps reduce costs; Por ejemplo, unused govern-
ment schools were converted into training academies.
According to TeamLease, a temporary staffing company in Bangalore, India, 58
percent of India’s youths are not prepared for work or suffer from some kind of
skill deprivation.55 While around 14 million people enter the workforce every year,
solo 7 percent work in the organized sector. While the privatization of skill devel-
opment is possible to some extent, significant government intervention in deliver-
ing training and financing is needed to reach poor people. Manish Sabharwal,
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chairman of TeamLease, says companies are not ready to pay to train potential
recruits, and candidates are unable to pay for training or placement services. Mucho
then depends on programs like EGMM. “We are not a human resources outfit. Nuestro
agenda is to take people out of poverty and provide jobs to first-generation work-
ers,” says Meera Shenoy, executive director of EGMM.
Private-Sector Network
The top management team of EGMM has cultivated a network of companies in
rapidly growing industries that have large demand-supply gaps for entry-level
manpower, such as services, textiles, and construction. Members of the network
range from CEOs of companies to regional human resources managers. No appeal
is made to the companies based on corporate social responsibility. Bastante, el
companies participate in the network because it is in their self-interest to do so.
Due to the rapid growth in the Indian economy in recent years, there is a shortage
of qualified labor. EGMM helps the companies tap into an alternate labor pool:
poor rural youth who are trained and motivated to work. This puts the EGMM
and companies on equal footing and helps in negotiating better work conditions
for the rural youth. Por ejemplo, in the retail sector, companies recruiting for
entry-level positions used to require candidates to have completed the 12th grade.
Now companies in the network recruit youth who have passed only 10th grade and
have been trained by EGMM.
EGMM encourages young people to work in their companies for at least one
año, which reduces the attrition level for the companies. Recruiting from the rural
academies also reduces companies’ recruiting costs, since the candidates have been
prescreened by EGMM. The network companies tend to come back regularly to
the Rural Academies for their entry-level manpower needs.
Companies participate actively in designing the training programs and also
often give guest lectures. This ensures that the training is market oriented and
deepens the companies’ involvement in the program. All network companies are
required to go to the rural academies to recruit the youth. A side benefit of this has
been that company executives quite often have to spend a night in or near a village,
and they have used their time to interact with the youth, listening to their stories
of poverty and struggle. This helps the executives understand the context of the
young people’s situations more fully and have a deeper exchange with the commu-
nity. It also sensitizes companies to the passion and vision of EGMM and changes
their mindset about youth. After such visits, executives often volunteer to partici-
pate in training modules and give guest lectures.
GENERALIZATIONS
I have argued that poverty reduction efforts should focus on increasing employ-
mento. Focusing on employment assumes a reasonably pro-business environment
in the country, but this is a low-threshold requirement. This approach probably
would not work in collapsing economies within failed states such as Sudan,
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Reducing Poverty Through Employment
Myanmar, and Somalia, but it would work in a large number of emerging
economías. The two countries discussed above, Mozambique and India, are far
from ideal environments. On the World Bank’s “Doing Business Index,"
Mozambique ranks 135th and India ranks 133rd out of 183 countries. Sobre el
“Corruption Perception Index,” Mozambique ranks 126th and India 85th out of
180 countries. Andhra Pradesh ranks near the top, sin embargo, among the states in
India in terms of pro-business environment and lack of corruption. En ese sentido,
the two case studies are set in environments not atypical of many emerging
economías.
At a broad conceptual level, both TechnoServe’s and EGMM’s interventions are
consistent with and illustrative of the central thesis of this article: that the best way
to reduce poverty is to create opportunities for steady employment at reasonable
wages. The labor market involves employers (the demand side) and employees (el
supply side). With regard to employers, it is a good idea to target the SME sector,
which is the major creator of employment opportunities and is underdeveloped in
poor countries—exactly what TechnoServe does. With regard to employees, it is a
good idea to target the youth, who suffer higher unemployment than adults and
would benefit more from increased employment—exactly what EGMM does.
These ideas, illustrated by these two case studies, have broad generalizability: ini-
tiatives that focus on increasing employment and target the SME sector or the
youth would be useful in most developing countries.
CONCLUSIÓN
The best way to reduce poverty is to raise the income of the poor by focusing on
them as producers. As labor is the main resource that most poor people are
endowed with, labor-intensive growth is the most effective way to reduce poverty.
Creating opportunities for steady employment at reasonable wages is the best way
to take people out of poverty. Reducing poverty through employment requires
three major thrusts: (1) generate employment, (2) increase employability, y (3)
make the labor market more efficient. These are not just abstract ideas but prag-
matic, action-oriented proposals.
Agradecimientos
I would like to thank Meera Shenoy (Executive Director, Employment Generation
& Marketing Mission), Bruce McNamer (CEO, TechnoServe), Simon Winter
(Senior Vice President, TechnoServe), and Steve Londner (Senior Advisor,
TechnoServe) for much help and access to their organizations.
1. Aneel Karnani, “Mirage of Marketing to the Bottom of the Pyramid,” California Management
Revisar 49, No. 4, 2007, páginas. 90-111.
2. Jeffrey Sachs, The End of Poverty. Nueva York: Penguin Books, 2005. For a critique of this approach,
see books by development experts Easterly and Dichter. W.. Easterly, The White Man’s Burden.
Oxford: prensa de la Universidad de Oxford, 2006; t. W.. Dichter, Despite Good Intentions. Amherst: Universidad
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Aneel Karnani
of Massachusetts Press, 2003.
3. Thomas Friedman, The World Is Flat. Nueva York: Farrar, Straus and Giroux, 2005. For a critique of
this approach, see books by economists Stiglitz and Chang. George Stiglitz, Globalization and Its
Discontents.New York: W.W. norton, 2002; Ha-Joon Chang, Bad Samaritans. Nueva York:
Bloomsbury Press, 2008.
4. C. k. Prahalad, The Fortune at the Bottom of the Pyramid. Upper Saddle River, Nueva Jersey: Wharton School
Publishing, 2004. For a critique of this approach, see research by Aneel Karnani: “Mirage of
Marketing to the Bottom of the Pyramid”; Fighting Poverty Together: Rethinking Strategies for
Negocio, Governments, and Civil Society to Reduce Poverty. Nueva York: Palgrave Macmillan, 2011.
5. A. Sen, Development as Freedom. Nueva York: Libros ancla, 2000.
6. “The Least Developed Countries Report 2006,” United Nations; Developing Productive
Capacities, Working Paper, United Nations Conference on Trade and Development, 2006.
7. Aneel Karnani, “Microfinance Misses Its Mark,” Stanford Social Innovation Review, Verano 2007.
8. Moving Out of Poverty: Success from the Bottom Up. Washington, corriente continua: Banco mundial, 2009.
9. “Global Employment Trends Brief,” International Labor Organization, 2007.
10. See http://www.doingbusiness.org/. Accessed September 13, 2009.
11. Key Indicators of the Labor Market, 5ª edición. Geneva: International Labor Organization, 2007.
12. Martin Ravallion, “Pro-Poor Growth: A Primer.” Washington, corriente continua: Banco mundial, 2004.
13. “The Least Developed Countries Report 2006”; Developing Productive Capacities.
14. Eduardo Zepeda, “Learning from the Past: Mexico’s Failed Pro-Market Policy Experience,"
Poverty in Focus. Brasilia, Brasil: International Poverty Center, December 2008.
15. k. Kochhar et al., “India’s Pattern of Development: What Happened, What Follows?" Diario de
Monetary Economics, 53:981-1019, 2006.
16. Rajat Gupta, “Fulfilling India’s Promise,” McKinsey Quarterly, Special Edition, 2005.
17. “Global Employment Trends Brief,” International Labor Organization, 2007.
18. Por ejemplo, A. Virmani, “Poverty and Hunger in India: What Is Needed to Eliminate Them,"
working paper no. 1/2006-PC, The Government of India, Planning Commission, 2006.
19. For opposing views on this ideological debate, ver, Por ejemplo, Martin Wolf, Why Globalization
Works. New Haven: Yale University Press, 2004; Ha-Joon Chang, Bad Samaritans. Nueva York:
Bloomsbury Press, 2008.
20. Scaling Up Private Sector Models for Poverty Reduction. Washington: corriente continua: International Finance
Corporation, 2004.
21. See http://www.doingbusiness.org/. Accessed September 13, 2009.
22. Meghana Ayyagari, Thorsten Beck, and Asli Demirguc-Kunt, “Small and Medium Enterprises
across the Globe: A New Database,” policy research working paper 3127, The World Bank,
Agosto 2003.
23. Anne O. krüger, “The Missing Middle,” working paper 20, Indian Council for Research on
International Economic Relations, New Delhi, 2009.
24. Thorsten Beck, Asli Demirguc-Kunt, and Ross Levine, “Small and Medium Enterprises, Growth,
and Poverty: Cross-Country Evidence,” policy research working paper 3178, El Banco Mundial,
December 2003.
25. “SME Led Economic Growth: Creating Jobs and Reducing Poverty,” Government of Pakistan,
Ministry of Industries, Production and Special Initiatives. Disponible en
http://www.smeda.org/downloads/smepolicy2007.pdf. Accessed January 8, 2010.
26. Beck et al., “Small and Medium Enterprises.”
27. “World Employment Report 2004-05,” International Labor Organization, 2005.
28. A. Banerjee and E. Duflo, “The Economic Lives of the Poor,” Journal of Economic Perspectives,
2006.
29. krüger, “The Missing Middle.”
30. Sean M. Dougherty, Richard Herd, Thomas Chalaux, and Abdul Azeez Erumban “India’s Growth
Pattern and Obstacles to Higher Growth,” working paper no. 62, París: OECD, 2008.
31. Key Indicators of the Labor Market.
32. Dougherty et al., “India’s Growth Pattern.”
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Reducing Poverty Through Employment
33. Karnani, “Microfinance Misses Its Mark.”
34. l. Daniels, “The Role of Small Enterprises in the Household and National Economy in Kenya: A
Significant Contribution or Last Resort,” World Development 27, No. 1, 1999.
35. “World Employment Report 2004-05,” International Labor Organization, 2005.
36. A. Fiegenbaum and A. Karnani, “Output Flexibility: A Competitive Advantage for Small Firms,"
Strategic Management Journal 12, No. 2, 1991.
37. The Mahbub ul Haq Human Development Centre, Human Development in South Asia 2003: El
Employment Challenge. Karachi, Pakistán: prensa de la Universidad de Oxford, 2003.
38. Vishal Krishna, “Educated, but Unemployable,” Businessworld. Available at http://www.business-
world.in/content/view/2531/2609/1/0/. Accessed April 28, 2008.
39. Global Employment Trends for Youth, International Labor Organization, 2006.
40. PAG. Gregg and E. Tominey, “The Wage Scar from Male Youth Unemployment,” Labor Economics,
Agosto 2005.
41. PAG. ryan, “The School-to-Work Transition: A Cross-National Perspective,” Journal of Economic
Literature, 2000.
42. Working Out of Poverty, International Labor Organization, 2003.
43. Christoph Ernst, “Promoting Youth Employment,” Poverty in Focus. Brasilia, Brasil: Internacional
Poverty Center, December 2008.
44. See http://www.servicecanada.gc.ca/eng/epb/yi/yep/newprog/yesprograms.shtml. Accedido
Enero 8, 2010.
45. See http://webapps01.un.org/nvp/frontend!policy.action?id=462&tab=analysis. Accedido
Enero 8, 2010.
46. See http://www.yesweb.org/aboutus.htm. Accessed January 8, 2010.
47. See http://www.egmm.ap.gov.in/. Accessed January 8, 2010.
48. Amount is for the year 2008-2009. The exchange rate is approximately $1= Rs. 45.
49. Ravi Reddy, “Rural Youngsters Fly High with Security Services Jobs,” The Hindu, Septiembre 16,
2006.
50. Malini Goyal, “Jobs for Rural Youth,” The Economics Times, Noviembre 7, 2007.
51. “Transit Homes for the Rural Youth,” The Hindu, Agosto 21, 2007.
52. “Andhra Charts Plan to Train 1 Lakh Rural Youth,” The Economic Times, Noviembre 9, 2007.
53. Ravi Reddy, “A Ray of Hope for Rural Youth,” The Hindu, Agosto 3, 2007.
54. The Mahbub ul Haq Human Development Centre, Human Development in South Asia 2003.
55. “A Fresh Start,” The Wall Street Journal, Septiembre 17, 2009.
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