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Iqbal Z. Quadir

Inclusive Prosperity
in Low-Income Countries

Innovations Case Narrative:
The Legatum Center for Development and
Entrepreneurship, MIT

The world is awash with ideas for helping the poor. Generally these involve some
combination of aid, charity, and volunteer work. This makes intuitive sense but
ignores an important part of reality. The needs—seen as business opportunities—
of those without wealth can spur spectacular innovation. Johannes Gutenberg’s
printing press slashed the cost of book production by a factor of close to 100. To
reach the masses, Benjamin Day sold newspapers at one-sixth the price his pred-
ecessors had charged. Henry Ford cut the price of the automobile by a factor of
ten. Ray Kroc had low-income people in mind when he developed McDonald’s.

These entrepreneurs did not invent books, newspapers, cars, or hamburgers.
These entrepreneurs were driven to reach a much wider population; they concep-
tualized and executed business models that have revolutionized how we live, while
at the same time generating great profits. Generally speaking, entrepreneurs do
not necessarily invent things; the entrepreneurial function itself lies in providing
“only the will and the action,”1 in order to assemble the ingredients, possibly from
others, to implement a vision for reaching a market.

Perhaps unwittingly, the entrepreneurs and countless innovators like them
were demonstrating a universal pattern: innovations move toward those with
lower incomes. Every innovation spurs a complex chain of reactions, but entrepre-
neurs push consistently toward lower costs and larger markets. This saves known
resources or creates new ones, puts price pressures on existing products, and

Iqbal Quadir is a professor of the practice of development and entrepreneurship at
MIT, the Founder and Director Emeritus of the MIT Legatum Center, the Founder
of Grameenphone in Bangladesh, and the Cofounder of Innovations journal.

The ideas and opinions expressed here are those of the author. They have been gath-
ered through his experience in founding the Legatum Center and establishing its
programs, which has involved learning from others in the MIT community. They are
not necessarily those of MIT, the Sloan School of Management, or the sponsors of the
Legatum Center, or of professors who supported the Center.

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Iqbal Z. Quadir

engages more people in the economy. Moreover, if the new products are tools that
increase productivity—bicycles, sewing machines, cell phones—they give people
greater purchasing power for new goods and services. As the innovation process
cycles forward, more and more low-income people gain access to goods and jobs.
At the same time, higher produc-
tivity, more choices, and a more
rational economy emerge.

Every innovation spurs a
complex chain of reactions,
but entrepreneurs push
consistently toward lower
costs and larger markets.
This saves known resources
or creates new ones, puts
price pressures on existing
products, and engages more
people in the economy.

Today’s innovations may show
up in unexpected ways and places,
but they follow the same pattern
and are no less spectacular than
they were in Henry Ford’s day.
Organizations such as Bridge
International (children’s educa-
tion, Kenya), bKash Limited
(money transfer, Bangladesh), M-
Kopa (equipment leasing, Kenya),
and Narayana Hospitals (cardiac
surgery, India) are prime exam-
ples. A 2009 Wall Street Journal
article called Narayana’s founder,
Dr. Devi Shetty, “the Henry Ford
of Heart Surgery” for offering cut-
ting-edge medical care in India at a
fraction of its cost elsewhere.2

The Legatum Center at MIT was founded on the belief that low-income peo-
ple have enormous potential to offer the world and can stimulate serious innova-
tion. The Center thus supports and trains entrepreneurial students who head out
from MIT to launch businesses in low-income countries. In so doing, the Center
also brings the realities of low-income countries, where a majority of the world’s
population lives, to MIT’s doorstep, thus adding to MIT’s innovation ecology.

THE CENTER’S INCLUSIVE PHILOSOPHY
AND THE FOUNDERS OF MODERN ECONOMICS

About 125 years ago, Alfred Marshall, in his Principles of Economics, wrote about
“the steady progress of the working classes during the nineteenth century,” a time
of great innovation in England. He then “question[ed] whether it is really impos-
sible that all should start in the world with a fair chance of . . . life, free from the
pains of poverty.” “The answer,” he continued, “depends in a great measure upon
the facts and inferences, which are with the province of economics; and this it is
which gives to economic studies their chief and their highest interest.”3

Marshall was fully aware of the work of Adam Smith, who sat down to write
The Wealth of Nations 125 years earlier, in the 1760s, when England was just

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Inclusive Prosperity in Low-Income Countries

approaching the Industrial Revolution. Having observed the improving economic
conditions in eighteenth-century England and Scotland, Smith advanced a pro-
found thesis about political economies, a model for creating “universal opulence
which extends itself to the lowest ranks of the people.”4 For this purpose, Smith
championed the division of labor, which he found to be most effective in increas-
ing the “wealth” of nations—that is, the capacity of the average person to purchase
goods and services.

Smith envisioned a “commercial
society” in which individuals specialize
in the niches most suited to them, max-
imizing their income and allowing them
to satisfy all of their other needs (for
goods and services) through purchases
in the marketplace. At the heart of
is “competition,”
Smith’s thinking
which compels market participants to
push toward ever-greater specialization
increased participation. Smith
and
believed
they
increase their specialization, are com-
pelled to relinquish other activities to
their fellow citizens, creating an ever-expanding economic mesh of exchanges. By
focusing on individuals’ areas of strength, this inclusive process helps both rich
and poor make gains.

The Legatum Center at
MIT was founded on the
belief that low-income
people have enormous
potential to offer the
world and can stimulate
serious innovation.

individuals, as

that

David Ricardo later demonstrated that this point is valid even when the rich
are more adept at tasks done by the poor. This competition-driven inclusion
process can give rise to inclusive prosperity. For this reason, the term “competitive
commerce” better represents Smith’s process of expanding specialization and
exchange than do “capitalism” or “capitalist system,” terms that have come to be
loosely used and may not represent competitive commerce.5

For Smith, each tiny step toward greater specialization is an innovation
(although he used the term “improvement”). Each step is a “new” advancement of
the economy as a whole. Smith also believed that these progressive specializations
led to a complex piece of work being broken into smaller bits, making each bit
potentially easier to mechanize or automate, leading to further innovations. When
the watermill was invented, for instance, it allowed an improved method of
milling; the inventor’s neighbors brought him more milling jobs; and he was able
to do each job better, or at a lower cost, or both. Further specialization was encour-
aged by another set of innovations, accumulated over a long period of time, that
made physical exchanges easier (e.g., money facilitating exchanges; clocks facili-
tating coordination and appointments; canals and steamboats facilitating move-
ment of goods and people).

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Iqbal Z. Quadir

Therefore, the drive to specialize and enjoy an increase in wealth is intricately
interwoven with the drive to innovate and enjoy the corresponding increase in
wealth.

About 100 years ago, Joseph Schumpeter went further and championed entre-
preneurs, those who implemented innovations—often radical—in their search for
greater profits. He clarified the mindsets and motivations that might set innova-
tion in motion and concluded, as Smith had earlier with his “universal opulence,”
that affluence would spread and include everyone:

Queen Elizabeth [I] owned silk stockings. The capitalist achievement
does not typically consist in providing more silk stockings for queens but
in bringing them within the reach of factory girls in return for steadily
decreasing amounts of effort. . . . The capitalist process, not by coinci-
dence but by virtue of its mechanism, progressively raises the standard of
life of the masses.6

Schumpeter used the term “capitalist process”; however, “competitive commerce”
probably better describes what he meant. Schumpeter observed that “capitalism”
is moved forward not necessarily by capitalists but by entrepreneurs, another rea-
son why the term “capitalism” can be misleading. That is, the entrepreneurial
function is distinct from the provision of capital.

Schumpeter’s conception of entrepreneurial action is inherent in competitive
commerce as discussed here. According to Smith, profit-seeking entrepreneurs,
unprotected by the public sector, are forced to provide the best possible products
at the lowest possible prices. To do so, they either fight (i.e., compete)—by seeking
further divisions of labor and achieving gains in productivity in order to offset
declining profits—or they take flight—by adopting radical innovations and taking
off in entirely new directions. Either way, in competitive commerce, the innova-
tion process moves forward, eating into the profits of existing businesses, com-
pelling entrepreneurs to set new innovations in motion, and engaging more and
more participants.

As participants become increasingly dispersed, the economy gets an addition-
al boost because, as F. A. Hayek wrote some 70 years ago, “knowledge of the cir-
cumstances of which we must make use never exists in concentrated or integrated
form, but solely as the dispersed bits of incomplete and frequently contradictory
knowledge which all the separate individuals possess. The economic problem of
society . . . is a problem of the utilization of knowledge not given to anyone in its
totality.”7 Each participant brings into play information about his or her particular
location and needs. The more inclusive the economy, the more information flows
into it.

Therefore, if competitive commerce is allowed to advance, it will expand pro-
ductivity, purchasing power, inclusiveness, the flow of information, and the inno-
vation process—all at the same time. Competitive commerce unleashes an inno-
vation process that generally extends ever outward to those with lower and lower
incomes. While the competitive commerce model is rarely realized in its pure

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Inclusive Prosperity in Low-Income Countries

form—indeed, the deviations from it are far more pervasive, especially in low-
income countries—the model helps us understand those deviations and their
severity, pointing to potential remedies. In recent decades in China, hundreds of
millions of people have risen out of poverty as a process with meaningful sem-
blance to competitive commerce got going, even with the limitations imposed by
the Communist state.

ACHIEVEMENTS SO FAR: SMALL BUT SIGNIFICANT

The Legatum Center takes seriously the notion that competitive commerce is a
viable model for low-income countries—even if the ideal of competitive com-
merce is unlikely ever to be fully realized. The Center’s position is that every new
entrepreneurial venture disperses power, however small the amount, and con-
tributes to the cause of advancing competitive commerce.

Elements of the idea behind the Center had been gathering in the author’s
mind since the early 1990s when he struggled to put together Grameenphone in
Bangladesh. He realized that a radical drop in costs (not unlike the impact of
Gutenberg’s printing machines) was taking place in digital technologies, including
mobile phones. In addition, these mobiles could be tremendous productivity
tools, boosting the users’ incomes almost immediately and enabling them to pay
for services and improve their economic lives. This led him to work on innovative
distribution schemes. Through his experience, he realized that young men and
women attending Western universities could introduce new innovations from the
West to low-income countries. Armed with the knowledge and training gained at
these universities, potential entrepreneurs could custom-tailor products and serv-
ices in low-income countries, devise new distribution schemes, and establish com-
mercial enterprises that allowed them to make serious economic gains in tandem
with the citizenry of these countries. The Legatum Group, with a similar philoso-
phy, decided in 2007 to make generous and significant donations to MIT in order
to back the idea, and the Center came into being with the support and guidance of
MIT leadership and many senior faculty members.8 The Center was inaugurated
in October 2008 through a conference that, among other prominent speakers,
included five Nobel laureates in economics,9 endorsing the vision of the Center.
Four years later, observing the early performance of the Center and its students,
The MasterCard Foundation committed to another significant donation. A few
smaller donors also came forward. Since then, the Center has benefited from a
number of prominent individuals worldwide who have served on its advisory
board.10

The Center started with only 12 Fellows in its inaugural, fall 2008 class. By the
fall of 2014, more than 200 Fellowships had been offered, and 160 Fellows had
completed the program. Admission is competitive; approximately 150 MIT grad-
uate students apply each year, from which about 30 are selected.

Fellows usually enter with their ideas only “half-baked” the program helps
them complete the “baking process.” The program itself is geared toward prepar-

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Iqbal Z. Quadir

The Legatum Center’s Contribution to
MIT’s Innovation Ecology

MIT is known worldwide for its unmatched innovation ecology. However, good
innovations require meaningful engagement with realities on the ground—a
point completely consistent with MIT’s founding motto, Mens et manus. To this
end, the Legatum Center strives to bring low-income countries to MIT’s
doorstep: to connect the campus with the realities of developing countries and
enable a deep understanding of these countries’ needs, particularly their entre-
preneurship needs. The Center’s connections to the developing world can also
serve to stimulate the innovative minds of MIT students and faculty members.
These connections are the Center’s greatest strength and potentially its most sig-
nificant contribution to MIT. Recent developments at the Center, strengthening
its connection to ground realities, are:
(cid:2)(cid:1) Case Studies. Since 2012, the Center has produced case studies of entrepre-
neurial trajectories in low-income countries. By telling the stories of success-
ful entrepreneurs and the challenges each faced and overcame, the cases seek
to provide students with new ideas and a sense of the efforts made by more
experienced practitioners. Each of the Center’s cases includes a story of about
15 pages, a teaching note, and, where possible, a video interview. As the
Center builds up its library of cases, it is compiling both a roster of the prob-
lems entrepreneurs may encounter in low-income countries and an extensive,
in-depth collection of possible ways to overcome these problems. Some of the
Center’s cases are already being used at Harvard and Tufts.

(cid:2)(cid:1)Catalysts. The Center has recruited a set of volunteers to act as its eyes and ears
in low-income countries. This program’s initial focus has been on sub-
Saharan Africa, but it could expand to other parts of the world, subject to
resource availability. The Catalysts are generally entrepreneurs or otherwise
accomplished individuals. They identify potential Fellows, spread the word
about the Center’s programs, act as on-the-ground mentors for the Center’s
Fellows and alumni, and identify entrepreneurs from their regions who might

ing students for entrepreneurial careers and includes an individual needs assess-
ment, individualized coaching on venture preparation, mentorship guidance from
in the Boston area, a course titled
successful business practitioners
Entrepreneurship in Large Markets with Low Income, and networking opportuni-
ties with successful entrepreneurs and potential funders.

Legatum Center Fellows have explored ideas as varied as fog harvesting (using
a nanotechnology-based mesh to extract water from the air); drone-based imaging
of agricultural lands in order to create maps of fertilizer needs; the production of
nutritious food from moringa leaves, which are widely available in Africa and
Asia; enabling entrepreneurs to transform non-recyclable waste streams into

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Inclusive Prosperity in Low-Income Countries

be potential speakers at the Center or subjects for case studies. The Catalysts
visit the Center once a year and share opportunities emerging in their regions.
(cid:2)(cid:1) Recruitment. The Center now has a recruitment manager to run a “mini
admissions office” within the Center. Although the Center’s Fellows must
meet the prerequisite of admission to an MIT graduate program, the Center
has strived to go beyond simply recruiting from MIT’s current students. In
order to become and sustain itself as the premier center in the West for entre-
preneurship in low-income countries, the Center searches globally for stu-
dents who are both strong candidates for MIT and dedicated to entrepreneur-
ship in low-income countries. Because the fundamental entrepreneurial drive
generally comes from within, the selection of Fellows is an enormously
important component of the Center’s programs. An active recruitment
process can expand the pool of applicants and afford greater selectivity to the
Center.

(cid:2)(cid:1)Competition: The Center has just launched a competition, the Zambezi Prize,
for entrepreneurs in sub-Saharan Africa who have launched ventures promot-
ing financial inclusion (e.g., microfinance, leasing, mobile payment systems,
saving schemes, micro-insurance). Competition semifinalists will be able to
tap into the Center’s and MIT’s innovation ecologies and refine their offer-
ings. At the same time, the competition is expected to bring a wealth of knowl-
edge to the Center concerning the kinds of innovations that are actually tak-
ing hold in sub-Saharan Africa.

Over the last 153 years, MIT has contributed countless innovations to the
American and global economies. But the various entrepreneurial drives in these
economies have also contributed to MIT’s innovation ecology. MIT could not
have become the giant that it is in isolation. The biotechnology companies in
MIT’s neighborhood contribute to its ecology, just as MIT contributes to their
successes. By the same logic, low-income countries, where more than three bil-
lion people live, can contribute to MIT’s innovation ecology. The Legatum
Center plays a distinct role in helping connect MIT to a global network of entre-
preneurs in these countries.

high-quality building materials and durable goods; and employing environmen-
tally sustainable production techniques to grow agricultural products used in
high-end cosmetics and foods.

Implementing these ideas in low-income countries is difficult, and it is too
early to tell how many of the 160 Fellows will eventually create successful ventures.
Among other things, young men and women have many other life priorities in the
immediate years after they graduate. Various bureaucratic hurdles in low-income
countries also create serious impediments. However, about 30 of the Fellows have
already started companies. Most of these are in the earliest stages, but a few,

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Iqbal Z. Quadir

including the following examples, have advanced to the point where they are serv-
ing customers:
(cid:2)(cid:1)In Nigeria, Bilikiss Adebiyi cofounded WeCyclers to recycle urban scrap metal.
The project is designed to solve the urban waste challenge for households and
recyclers in densely populated low-income neighborhoods by motivating fami-
lies to recycle through an SMS-based incentive program. Families are rewarded
with points for recycling, and they can redeem those points for items of value,
like cell phone minutes and basic household items.

(cid:2)(cid:1) In Kenya, David Auerbach and Ani Vallabhaneni founded Sanergy.
Encompassing the full life cycle of waste, Sanergy designs its own toilets, sells
them to consumers, and then collects the waste, which is converted into electric-
ity for sale to the national grid or into organic fertilizer for sale to commercial
farms.

(cid:2)(cid:1) In Tanzania, Norikazu Ogawa founded SeedAfrica to provide agricultural
machinery leasing and logistics services. SeedAfrica’s target customers are the
poorest farmers in Tanzania, those for whom increased productivity can maxi-
mize earning potential, thus lifting them out of poverty. SeedAfrica currently
serves 30–40 farmers per month.

(cid:2)(cid:1) In India, Akash Bhatia cofounded Infinite Analytics, which serves clients in
India and the United States. His company uses neuro-linguistic programming,
machine learning, and other techniques to analyze “big data” to help predict
user behavior for a variety of businesses, including enterprise business, e-com-
merce, and travel.

(cid:2)(cid:1) In Pakistan, Adnan Shahid founded Ideogeny, which helps startups as well as

small and medium-size companies turn ideas into business opportunities.

(cid:2)(cid:1)In India, Sidhant Pai and Katie Spies cofounded Protoprint. Based in Pune, the
company empowers urban waste pickers with the technology to ethically pro-
duce fair-trade 3D printer filament from the waste plastics they collect.
Protoprint markets the filament globally, providing consumers with a price-
competitive, recycled alternative to virgin plastic.

(cid:2)(cid:1)In Mexico, Javier Lozano founded Clinicas del Azucar, which provides afford-
able diabetes care. Using cutting-edge technology and a comprehensive redesign
of how patients are cared for and interacted with, the company has reduced the
annual cost of care by 70 percent. By lowering costs, it makes effective care more
accessible to more people in Mexico and helps to prevent many of the compli-
cations that arise from diabetes.

(cid:2)(cid:1)Also in Mexico, Enrique Bay founded Kiwi, an online platform that helps users
make big-ticket purchases of products in advance through affordable payment
plans, while allowing merchants to widen their customer base and increase sales.

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IN TRAINING ENTREPRENEURS,
THE CENTER STANDS APART FROM THE “NEO-LEGACY”

The Western approach to
help low-income countries
through aid to
governments and charity
to NGOs has became the
new legacy—which this
paper calls “neo-legacy”—
is in contrast to the
Western commercial
legacy that predates it by
several centuries.

For several centuries, commerce has been the central force in economic, social,
and political progress in the West. That is the real Western “legacy,” as reflected
by such Western thinkers as Smith, Schumpeter, and Hayek. In contrast, the
approach taken toward the advancement of low-income countries has been dis-
tinctly noncommercial. Since World
War II, the West has generally
encouraged high-income countries to
help low-income ones by providing
aid to their governments and charity
to nongovernmental organizations
(NGOs). Given the power, influence,
and resources of the Western coun-
tries, this approach has had a great
impact on
thinking worldwide,
including on the thinking of business
leaders and other professionals in the
West. In fact, most people in the
West, if asked, cannot immediately
explain why nontaxable charitable
organizations are called “nonprofits”
in the West but “nongovernmental
organizations” in low-income coun-
tries. The distinction is instructive: it
highlights the fact that in the West
first attempts to solve society’s prob-
lems involve commerce, with the fallback being nonprofit organizations; in con-
trast, in low-income countries the first attempts to solve problems involve govern-
ments, with the fallback being NGOs. This pattern is etched so deeply that people
generally take it for granted as part of the natural landscape of how the world
works. The Western approach to help low-income countries through aid to gov-
ernments and charity to NGOs has become the new legacy—which this paper calls
“neo-legacy”—and it contrasts with the Western commercial legacy that predates
it by several centuries. The Legatum Center’s theory of change stands in stark con-
trast to this neo-legacy.

Neo-legacy represents an entrenched, pervasive mode of thought that is both
self-fulfilling and self-perpetuating. Aristotle, who emphasized the need to incor-
porate data and observations into thinking, observed that slavery existed every-
where during his time and concluded from this that slavery was a natural fact of
life. In the last seven decades, widespread aid to governments in low-income
countries has led even business professionals and academics to accept another

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Iqbal Z. Quadir

“fact of life”: that the road to progress for poor countries is paved with charity and
aid.

This automatically leads to a clear distinction in how training programs in
entrepreneurship are structured in high- and low-income countries. In the West,
the question of whether leadership or entrepreneurship can be taught is common-
ly debated. An implicit (and rarely acknowledged) assumption of such debates is
that entrepreneurship is both necessary and feasible. In low-income countries,
these are not assumptions but actively debated issues in and of themselves. Such
questions arise in people’s minds because (so the thinking goes) state-based efforts
must be dominant for some good reason.

Another effect of the neo-legacy on innovation cannot be ignored in the con-
text of the training of entrepreneurs: The neo-legacy has contributed to the cre-
ation of overbearing bureaucracies that stifle innovation and initiative. If innova-
tions provide a tailwind to economic and social progress, then the neo-legacy
counters with a headwind. From this, additional questions emerge. For instance,
how can entrepreneurship be made feasible given the forces that oppose it?

The neo-legacy has given rise to many complex problems in low-income
countries. While those problems are beyond the scope of this article, those in the
West who support entrepreneurship in low-income countries generally follow one
of three strategies to avoid them:

1. They simply ignore the problems and instead train entrepreneurs for low-
income countries in much the same way they train entrepreneurs for ventures
in the United States and other high-income countries. Perceptive students, such
as those at MIT, are not content with this solution. They want to understand
how their work fits into the larger political economies. And because they want
to contribute to progress in low-income countries, they need to understand
how entrepreneurship, more so than nonprofit efforts or aid, contributes to this
goal.

2. Many Western academics recognize the value of entrepreneurship and com-
mercial progress in low-income countries but place responsibility for it on the
governments of those countries. Entrepreneurship, the argument goes, requires
an appropriate environment that should be created by prudent governments.
But this approach fails to recognize the interactive nature of the different sec-
tors of a political economy and how governance improves through the blos-
soming of entrepreneurship in the private sector. Further, it ignores the limit-
ing consequences of entrenched and overwhelming state power in low-income
countries—and how those interests themselves may fundamentally oppose
entrepreneurship.

3. Finally, some proponents of entrepreneurship in low-income countries choose
to focus on countries that are relatively developed, such as Malaysia, Turkey,
and Costa Rica. These countries have already experienced sufficient growth to
enable ideas from high-income countries to be applied. The choice to focus on

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Inclusive Prosperity in Low-Income Countries

relatively more-developed countries thus leaves out more difficult places where
effective entrepreneurial interventions may have a more fundamental impact.

The Legatum Center takes a more direct approach, attempting to deal with the
neo-legacy head on. The Center aims not only to adequately prepare entrepre-
neurs for the unique conditions in the most challenging low-income countries but
also to promote (including in publications such as the Wall Street Journal,
Harvard Business Review, Nature, and Science) the idea that entrepreneurship is a
more effective means of progress than aid.

Concurrently, the Center has developed a curriculum that taps into (1) the
mainstream Western intellectual tradition that is generally consistent with entre-
preneurial and bottom-up progress; (2) lessons from Western entrepreneurs—
such as Josiah Wedgwood, Isaac Singer, and Henry Ford—who operated in low-
income environments; (3) case studies of successful entrepreneurs working in
contemporary low-income countries; (4) current technological phenomena that
are unleashing new possibilities; and (5) the knowledge of contemporary practi-
tioners, both entrepreneurs and their funders.

PROFITS, COMPETITION, AND INCLUSIVENESS

The question of profits not surprisingly arises in the minds of the Center’s Fellows;
it is counterintuitive to think that an entrepreneur trying to make profits can be
helpful to low-income people, especially in countries with widespread poverty.
This partly explains the wave of rising interest in “social entrepreneurship,” a term
that, although it generally encompasses both nonprofit and for-profit enterprises,
manages to imply that entrepreneurship, on its own, is not necessarily social.
Social entrepreneurship is thus conceived as using the strengths of entrepreneur-
ship to address social issues.

Because the Center is associated with low-income countries, and those coun-
tries are generally perceived to have social problems, the Center is often assumed
to be promoting social entrepreneurship and to be focused on ventures that focus
only on these problems. In fact, the Center simply promotes for-profit ventures
that provide goods and services to “the average person” in a low-income country.
The Center has nothing against nonprofit organizations or non-governmental
organizations. Rather, it tries to emphasize that the powerful roles played by for-
profit ventures should not be sidestepped. Young men and women who are
inspired to create effective business ventures can have a profound impact on the
process of development. The belief that regular entrepreneurship does not gener-
ate social progress may, as a result, prejudice potential entrepreneurs against for-
profit ventures. That is an unfortunate outcome, because so long as such ventures
do not enjoy a monopoly or other kinds of unfair protection from governments
(i.e., so long as they participate in competitive commerce), they are likely to pro-
mote a great deal of social progress by promoting greater inclusivity, as explained
before.

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Most people expect that the poor and the weak will, almost by definition, fare
poorly in competition and commerce. On the surface, then, competitive com-
merce does not sound like something that will benefit them. However, the word
“competitive” here describes what can exist among businesses as they compete for
customers and other resources, including workers. Competitive commerce puts a
check on powerful business owners and empowers the weak: that is customers and
employees. Furthermore, those who are concerned about the weak usually worry
that private-sector activities will leave them
behind. However, private-sector activities
are not necessarily coequal with competitive
commerce. The latter involves competition
that pushes the inclusive process forward.
Private-sector activities that manage to avoid
competition may not be compelled to seek
efficiency and may not be an inclusive force.
Since profits accrue to the owners of a
successful business, an easy (if intellectually
dubious) jump is to conclude that others do
not benefit from those profits. Far from it.
Potential profits lure investors into new ven-
tures. Actual profits help businesses scale up
and attract imitators, leading to competition.
Once competition sets in—and the state does not step in to protect businesses
from this competition—a great many social benefits ensue, with inclusiveness
prominent among them.

The lure of profits
encourages
entrepreneurs to offer
themselves as
stepping-stones,
allowing society to
march forward.

Under competitive commerce, the need to produce profits requires that com-
panies pay attention to consumers and address their genuine needs. This creates
price pressures on the competing companies, and consumers save money that, in
turn, creates demand for other goods and services. Pressure on price (1) helps to
contain inflation; (2) enlarges markets—more people can afford the goods at a
lower price; and (3) forces business owners and managers to find more efficient
ways to produce goods, thus generating innovation, advancing technologies, and
freeing resources to be used for other purposes.

Within a company, competition provides at least three benefits for workers.
First, it forces a company to treat its workers better and pay them well so they do
not leave to work for competing companies. As recent experience in China
demonstrates, wages will rise even when the labor supply is large if the force of
competitive commerce is powerful enough. According to an Economist article in
2012, “[labor] costs in China have recently been growing by around 20% a year.”11
Second, profit pressure leads to an upgraded labor force as companies try to make
the most of their employees and so provide them with training. Third, under prof-
it pressure, a company cannot discriminate among workers, other than according
to their job performance, contributing to a culture of meritocracy.

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Inclusive Prosperity in Low-Income Countries

Competitive commerce also pushes businesses to spend money on advertising.
This, in turn, helps sustain media and promote transparency. Commercial
progress is also an antidote to the demagoguery that plagues low-income coun-
tries. James Madison, “father” of the U.S. Constitution and thus no stranger to the
idea of checks and balances, saw that commercial progress gave rise to various
interest groups—“[a] landed interest, a manufacturing interest, a mercantile inter-
est, a moneyed interest, with many lesser interests”—whose very existence com-
plicates the demagogue’s interest in coalescing people into a common mass. The
Founding Fathers saw commerce as not just an end but also a means toward good
governance. In many low-income countries, whose governments do not have the
checks and balances established by the U.S. Constitution, commerce is even more
crucial to preventing demagoguery.

If entrepreneurs pursue profits through competitive commerce, social
progress ensues as an unintended and less visible consequence. In other words,
with competitive commerce, entrepreneurs make economic gains in tandem with
consumers, some of whom may be poor. The entrepreneurial gains, are potentially
only temporary; another entrepreneur comes along and offers something better,
leading to the decline of the first entrepreneur while consumers move forward
with the second. The lure of profits encourages entrepreneurs to offer themselves
as stepping-stones, allowing society to march forward.

THE IMPACT OF THE NEO-LEGACY ON LOW-INCOME COUNTRIES

Although the complex and vexing issues associated with the neo-legacy are
beyond the scope of this article and lie outside the Center’s purview, one of its
adverse consequences directly impacts the work of the Center’s Fellows: a key lim-
iting factor on starting or sustaining ventures in low-income countries, as anyone
traveling through or working in these countries will experience, is overbearing
bureaucracy. Western intellectuals have been aware of this for a long time. In the
context of theorizing about rent-seeking societies, economist Anne Krueger, for
instance, noted 40 years ago that in these countries, “government interventions
are frequently all-embracing.”12 People tend to think of this bureaucratic domi-
nance as part of “Third World culture.” However, these problems have tangible
and systemic reasons, and the culture is the effect, not the cause. Colonization,
largely dedicated to administration, hardened precolonial structures. Aid to gov-
ernments, part of the neo-legacy, was initiated to manage the Cold War between
the Soviet Union and the West, then expanded the colonial-era bureaucracies.

Many economists who study the effectiveness of “aid” have difficulty finding
any positive effect. For example, a recent study that looked at data on middle- and
low-income countries for the period 1970–1999 found that “aid represents an
important determinant of government expansion.” The author, Karen Remmer,
further found that “aid promotes not only increased spending but also reduced
revenue generation.”13 A couple of hundred years ago, similar conclusions were
reached by the Founding Fathers of the United States, who possessed extensive

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Iqbal Z. Quadir

Possible Future Pathways for the Legatum Center

Entrepreneurship in low-income countries can rejuvenate the innovation
process there, a point completely consistent with the missions of the Sloan
School of Management and MIT at large, and with the cause of creating pros-
perity in low-income countries. Here are five reasons why the future of the
Center can be bright.

First, articulating and advancing a purely business-oriented theory and
practice of development can distinguish the Center and the Sloan School in
which it is housed from other business schools or universities that may be mired
in the neo-legacy. This is why an appreciation of the consequences of the neo-
legacy is so important. Academic institutions in the West have backed—both
intellectually and financially—the theory of state-based progress in low-income
countries since its emergence 70 years ago, even though the theory is inconsis-
tent with the history of economic progress in the West and the Western main-
stream intellectual tradition. Sloan can potentially assert itself on the more solid
idea that commercial innovation, energized by competition, is an inclusive
process that can lift up billions of people. Given the magnitude of the develop-
ing world, the global importance of which is being increasingly recognized, the
Center can help differentiate Sloan from other business schools in America.

Second, progress has been made in the last decade toward an appreciation
of individual initiatives and away from state-based efforts, and toward for-profit
ventures and away from nonprofit projects.14 Many “impact” investment funds
have emerged in recent years that are funding entrepreneurs in low-income
countries. The Legatum Group, supporting the Center’s vision, and subsequent-
ly The MasterCard Foundation and other donors and partners coming forward,
represent an emerging wave. The Gates Foundation, originally started as a char-
ity in the fields of health and medicine, has now begun to make equity invest-
ments in inclusive and innovative businesses. At least two reasons account for
this shift. One is the continued poverty of at least three billion people. Another
is the actual innovations that are blossoming in low-income countries. Bridge
International, bKash Limited, Narayana Hospitals, and M-Kopa were all men-
tioned earlier in this article, and all but Narayana were founded within the short
lifetime of the Center. In other words, a momentum is building that the Center
can capitalize on.

historical knowledge about how a political economy hangs together. In “Federalist
#30,” Alexander Hamilton emphasized that “the necessities of a nation, in every
stage of its existence, will be found at least equal to its resources.” Hamilton did
not say that resources needed to be found according to the necessities. He emphat-
ically meant the reverse as a fact of life. On the other hand, a nation may have
necessities that require more than its existing resources, but in that case the gov-
ernment would have the right incentives to make people more productive and col-

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Inclusive Prosperity in Low-Income Countries

Third, the Center potentially could create revenue-generating programs to
supplement funds raised through grants and donations. American corporations
are already interested in learning from and possibly partnering with Fellows
who have successfully created new ventures. For instance, one alumnus Fellow
is creating a chain of low-cost diabetes clinics in Mexico that is ripe with lessons
of interest to large health-related American companies. What succeeds on the
ground can educate not just researchers and students at MIT but also corpora-
tions, which might well pay annual fees in order to engage with the Center and
its Fellows. In addition, the Center could organize two- or three-week training
programs for entrepreneurs in low-income countries during the summers. The
Center has received indications that the demand for such programs is already
large and continuing to grow.

Fourth, given adequate funds and faculty endorsement, the Center has the
potential to significantly expand its program at MIT. The academic program,
currently consisting of one course, could be expanded to include four to six
courses on innovative venture creation in low-income countries, possibly lead-
ing to a concentration within the MBA program. For instance, one course could
explore contemporary cases in low-income countries, while another could
examine new technologies from MIT labs or elsewhere that have the potential
to solve pressing problems in low-income countries. A course could be offered
on the ways in which entrepreneurship alters political economies—albeit grad-
ually—and leads to better governance. Another could provide an economic his-
tory of the West with a special focus on the roles entrepreneurs have played.
Exposure to Western entrepreneurial history opens the eyes of students from
low-income countries and boosts their confidence that they, too, can bring pos-
itive change. In addition to new course offerings, a research unit could be
launched to explore what advances and what impedes the innovation process in
specific counties in the low-income world.

Finally, because low-income countries comprise 80 percent of the world’s
population and MIT is, and aspires to remain, the premier innovation-intensive
global university, the Legatum Center can be an important part of Sloan and
MIT at large. The fact that low-income countries and other universities are
mired in the neo-legacy only enlarges the possibilities for Sloan and MIT.

lect more revenues, something that gives rise to an interlocking relationship
between people and governments and greater accountability.

The Founding Fathers offer other lessons that help explain the predicament of
low-income countries. The Framers, deeply motivated to “oblige [the govern-
ment] to control itself” (Federalist #51), expected that “one department may com-
mit encroachment on the chartered authorities of others” (Federalist #49). In the
Federalist Papers, Madison and Hamilton repeatedly expressed fears of
“encroachments from the federal government” (Federalist #26 and #46), “enter-
prises of ambitious rulers in national councils” (Federalist #28), and “aggrandize-

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Iqbal Z. Quadir

ment of the legislative at the expense of other departments” (Federalist #49), and
they used words such as “invasion” and “usurpation” to describe behaviors they
expected from government departments; for example, “invasion of public liberty
by the national government” (Federalist #28), “to invade the rights of the individ-
ual States” (Federalist #46), “invaded the rights of the less numerous parts”
(Federalist #46), and “schemes of usurpation” (Federalist #46).

Madison and Hamilton were worried about interdepartmental behavior in the
U.S. government, but the logic of their argument is as cogent when applied to gov-
ernments in low-income countries, where the lack of restraining mechanisms only
eases government’s outward expansion. That low-income countries experience
excessive government should thus come as no surprise; it is in the nature of gov-
ernments to encroach, invade, and usurp, and those behaviors have been further
enabled by inherited colonial machinery expanded with outside aid. No matter
what good rationale may have given rise to the neo-legacy, aid to governments had
this unfortunate effect.

STATE ACCOUNTABILITY
AND THE ROLE OF COMPETITIVE COMMERCE

The arguments made prior to this point should not be misconstrued as implying
blind faith in commerce, in the path of which governments in low-income coun-
tries stand as an impediment. Rather, the purpose of the article and the Center is
to show that entrepreneurship constitutes a path of progress for these countries
that potentially leads to a healthy balance between the state and commerce. At the
moment, a great imbalance exists between the two because of the neo-legacy.

The state does perform critical functions, including those related to defense,
the police force, public health, environmental protection, and, yes, the protection
of property rights (without which commerce in the long term is not feasible in any
meaningful way). Many problems in human societies need to be addressed collec-
tively. A society in which the state fails to perform its critical functions may some-
how survive but is unlikely to prosper. Thus, although the importance of com-
merce and its possible role in improving governance should not be understated,
neither should one conclude that commerce alone is a viable alternative to govern-
ment or a panacea for other social ills.

Likewise, we must acknowledge that commercial forces are potentially capable
of corrupting governments. Adam Smith warned of the possible pernicious effects
of a private sector that, out of self-interest, colludes with the public sector to block
competitive commerce. That is why he advised governments not to intervene in
commercial matters. He was worried that government interventions would end up
protecting businesses at the expense of competitive commerce and, in effect, con-
sumers. At the same time, he argued, profits set off their own self-correcting forces
(i.e., through competition), unleashing a host of social benefits and eventually
eliminating unreasonable profits. If governments protect businesses and business-

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Inclusive Prosperity in Low-Income Countries

es manage to avoid competition, then businesses preserve their profits while sac-
rificing the social benefits that ensue from competition.

What determines whether a state performs its critically necessary functions
without being swayed into potentially abusive roles? Some people argue that polit-
ical leadership determines whether the state is able to walk the fine line between
doing the right things and avoiding the wrong things. But when the issue is con-
sidered systematically, one sees that a state’s behavior cannot exclusively depend
on the specific personalities of those who may be heading it at any given time. The
more space competitive commerce has to take hold, the more advanced the inno-
vation process, the greater the dispersion of power, the bigger the spread of inclu-
sive prosperity, and the more likely the state will do the right things and restrain
itself from wrong ones. Special interests (i.e., where inclusivity is low) push gov-
ernments to adopt policies that are damaging to societies as a whole. The problem
is mitigated as special interest groups broaden through greater inclusivity.15

Almost every country in the world today has an economy that is a combina-
tion of state-run and privately run enterprises. In addition, privately run enter-
prises are subject to state regulations, some of which may reflect and benefit vested
economic interests. In all cases the state exerts significant influence over its own
economy. Nonetheless, the economies of the world can reasonably be divided
between those that are “excessively state-influenced” (the “statist world”) and
those that are “not so excessively state-influenced.”

Once we conceive of such a division, we realize two things. First, the statist
world is, in reality, likely to be the one with poverty and great inequality. Second,
and more important, competitive commerce, which is naturally aligned with the
human desire for uplift and continually seeks ways to emerge, will struggle most
persistently even where the forces of bureaucratic power and vested economic
interest are stacked against it. Understanding this struggle is important for identi-
fying correctly the sources of the headwinds and tailwinds that fledgling compet-
itive commerce may encounter.

But the persistent struggle belies the notion that commerce and entrepreneur-
ship must hold back until governments do the right things. The drive to advance
in life is always trying to plant the seeds of competitive commerce. Sometimes
competitive commerce advances, and sometimes it does not, depending on which
side is gaining greater strength, whether the innovation process is freely bubbling
up from below or the bureaucracies and associated vested interests are succeeding
in suppressing it.

Commercial forces can get going wherever they find enough economic trac-
tion for one reason or another. Archeologists have uncovered evidence of com-
mercial enterprise in ancient Mycenia and Mesopotamia.16 Godric of Finchale
established himself soon after the Norman Conquest in 1066, before property
rights were recognized, yet still became one of Britain’s most successful mer-
chants.17 In China in the 1980s, some enterprising entrepreneurs from the main-
land went to Hong Kong to use Hong Kong’s legal institutions and sources of cap-

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Iqbal Z. Quadir

ital; they then did business in the mainland as foreign companies.18 Once entrepre-
neurial efforts find traction, they will grow as large as the environment allows.

In the statist world of South Asia, Africa, and Latin America, for instance,
innovation from below has gotten a boost in the last two decades from the Internet
and other information technologies, including cell phones. The consequent eco-
nomic expansion in these regions has necessarily shrunk the fraction of the
economies under the statist hold. The spread of these technologies and the associ-
ated entrepreneurial efforts were by and large not organized, planned, or even
facilitated by states. The net
effects are the expansion of
state
economies, more
accountability, and further
impetus to the process of
bottom-up innovation. The
good news lies in the fact
that the innovation side gen-
erally enjoys far greater
growth than the bureaucracy
side that is holding it back.
Thus the bureaucratic side
may eventually switch from
a predatory to a supportive
role with the innovating and
growing side, making the
society as a whole more pro-
ductive.

Who is to say that there are no
new ideas brewing in the young
minds now attending MIT and
other universities? There must
be new Gutenbergs, Days,
Fords, Singers, and Krocs—
hailing from low-income
countries—who can unleash
new possibilities in their home
countries. They simply need to
be nurtured, inspired, and
exposed to the entrepreneurial
possibilities that exist.

The growth of entrepre-
neurship
in South Asia,
Africa, and Latin America in
recent years, the growth that
has occurred
in
opposition to state bureau-
cracies, parallels the way
commerce once grew in medieval Europe in opposition to the state and the
church. European history shows that a potential long-term effect of the struggle
between innovation and bureaucracy is that governance can improve through
commercial progress. Authorities and other powerful individuals in pre-modern
Europe put up barriers to commercial progress that kept people poor. But these
obstructions were small. European rulers were weak and fragmented, especially
outside France. In the struggle between competitive commerce and the restraining
means of the rulers, competitive commerce generally won out. Barriers gradually
fell as people increased their incomes largely through entrepreneurial initiatives,
enticing authorities to align themselves with citizens and thus creating mutually
beneficial economic arrangements.19

largely

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Inclusive Prosperity in Low-Income Countries

Many would say that low-income countries are plagued by apparent cultural
impediments to their economic and social progress. From this follows the argu-
ment that, for a productive, commercial society to take form, governments must
first take steps to produce good governance and alter the mindsets of the citizenry.
Among Western societies, however, progress in governance and culture was an
effect of commerce, not a precondition for it. Western intellectuals from Adam
Smith to Georg Simmel to Max Weber have recognized that commerce has posi-
tively transformed governments, cultures, and behavior by making people more
rational and mutually accountable.

Unsurprisingly, a process as complex as commerce can give rise to problems.
However, commerce has many self-correcting features. The problems engendered
by commerce generally can be addressed by competition among businesses and
government supervision, with the latter rooted in citizens’ empowerment, which
itself arises through the jobs, training, products, and services that come about
through commercial progress.

CONCLUSION

The Legatum Center can have a huge impact worldwide by contributing to the
unleashing of competitive commerce in low-income countries. Even if the ideal is
never achieved anywhere, the right forces, embodied in innovations and entrepre-
neurs, can be released. Mobile phones, for instance, have brought countless bene-
fits to low-income people and added at least a trillion dollars to their annual GDP.
Who is to say that there are no new ideas brewing in the young minds now attend-
ing MIT and other universities? There must be new Gutenbergs, Days, Fords,
Singers, and Krocs—hailing from low-income countries—who can unleash new
possibilities in their home countries. They simply need to be nurtured, inspired,
and exposed to the entrepreneurial possibilities that exist.

Under a narrow lens, the Legatum Center trains entrepreneurial students
seeking to launch businesses in low-income countries. A somewhat broader view-
point reveals that the Center serves to bring the realities of low-income countries
to MIT’s doorstep, enriching MIT’s innovation ecology, through which new and
relevant innovations can emerge. At the same time, the Center exists to impart a
clear message on the important and distinct role of entrepreneurship in low-
income countries as the most effective way to progress and, in turn, contribute to
global peace and growth.

MIT now has a good head start in this area of global need and possibility. At
the same time, a Center properly grounded in actually solving problems will com-
mand attention from the emerging global community, exemplified by The
Legatum Group and The MasterCard Foundation, in the old American philoso-
phy: individual initiatives, appropriately harnessed, can achieve great things.

1. Joseph Schumpeter, The Theory of Economic Development. New Brunswick: Transaction Publishers,

1997, p. 132. (The original was published in German in 1911.)

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Iqbal Z. Quadir

2. Geeta Anand, “The Henry Ford of Heart Surgery, Wall Street Journal, November 25, 2009.
3. Alfred Marshall, Principles of Economics, 8th ed., London: Macmillan, 1920, Bk. 1, pp. 3–4.
4. Smith wrote, “It is the great multiplication of the productions of all the different arts, in consequence
of the division of labour, which occasions, in a well-governed society, that universal opulence which
extends itself to the lowest ranks of the people.” Adam Smith, An Inquiry into the Nature and Causes
of the Wealth of Nations, ed. Robert M. Hutchins, Chicago: Encyclopedia Britannica, 1952, Bk. 1, p.
6.

5. The terms “capitalist system” and “capitalism” were first used by critics such as Werner Sombart and
Karl Marx. Over time, Joseph Schumpeter and others who celebrated “capitalism” began to use these
terms in a positive tone, bringing them into a more neutral understanding. “Competitive commerce”
correctly describes the system envisioned by Smith. Rooted in competition, competitive commerce,
unlike “private-sector activities,” gives rise to inclusive prosperity.

6. Joseph Schumpeter, Capitalism, Socialism, and Democracy. New York: HarperCollins Publishers,

1942, pp. 67–68.

7. F. A. Hayek, “The Use of Knowledge in Society,” American Economic Review, September 1945, pp.

519–520.

8. Notably from MIT president Susan Hockfield and senior MIT professors Philip Clay, Charles

Cooney, Michael Cusumano, Merton Flemings, Eric Grimson, Wesley Harris, Bengt Holmstrom,
Edward Roberts, Adele Santos, Bishwapryia Sanyal, and Antoinette Schoar.

9. Professors Lawrence R. Klein, Eric S. Maskin, Robert C. Merton, Edmund S. Phelps, and Paul A.

Samuelson.

10. Individuals who have served as members of the Legatum Center Advisory Board: Thomas Barry,
Joseph Bartlett, Tim Berners-Lee, Alpheus Bingham, Richard Broyd, Rick Burnes, Michael Chu,
John Hennessy, Bernard R. Horn, Hadeel Ibrahim, Mo Ibrahim, Ira Jackson, Karim Khoja,
Phillippa Malmgren, Kiran Mazumdar-Shaw, Julie Meyer, Jacqueline Novogratz, Arthur
Obermayer, Robert Pattillo, Edmund Phelps, Hanadi al Thani, Joseph Turner, Judi Wakhungu,
and Shoshana Zuboff.

11. “Comparative Advantage: The Boomerang Effect,” The Economist, April 21, 2012. Available at

http://www.economist.com/node/21552898

12. Anne O. Krueger, “The Political Economy of the Rent-Seeking Society,” American Economic

Review, 64, no. 3 (1974): 291.

13. Karen L. Remmer, “Does Foreign Aid Promote the Expansion of Government?” American Journal
of Political Science, 48, no. 1 (2004): 77–92. Productivity data seem to bear this out. According to
William Easterly, “the growth of output per worker [in poor countries] was three percent in the
1960s, 2.5 percent in the 1970s, 0.5 percent in the 1980s and 0 percent in the 1990s.” William
Easterly, The Elusive Quest for Growth, Cambridge, MA: MIT Press, 2001, p. 74.

14. The author makes this observation through eight years of experience in cofounding and coediting
this MIT Press journal, Innovations, with Professor Philip Auerswald of George Mason University.
15. Mancur Olson explains this issue well. Among Olson’s works, see pp. 95-96 in his book Power and
Prosperity: Outgrowing Communist and Capitalist Dictatorships, New York: Basic Books, Inc.,
2000.

16. Michael Hudson, “Entrepreneurs: From the Near Eastern Takeoff to the Roman Collapse,” in
Invention of Enterprise, ed. David Landes, Joel Mokyr, and William Baumol, Princeton, NJ:
Princeton University Press, 2010, p. 8.

17. Ronald Shillingford, The History of the World’s Greatest . . . Entrepreneurs, London: History of the

World’s Greatest…, 2010, pp. 2–8.

18. Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State, New

York: Cambridge University Press, 2008. pp. 5-7.

19. For example, members of the British Parliament in the 13th–16th centuries, knowing that the
monarch required their approval to levy taxes, succeeded in extracting various liberties in
exchange for higher taxes—money that was generated from commercial progress—and the
monarch’s power consequently declined. Although the contemporary barriers to commerce are
strong in low-income countries, their larger possible markets can potentially counter these barri-
ers.

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