Is it immoral to earn profits from the poor? An African perspective

In two articles by Paul Polak and Mal Warwick, they ask if it is immoral and wrong to earn profits from the poor[1] . From an African perspective, this question is even more fundamental for four key reasons.

Firstly, because 75% of the world’s poorest population – earning less than US$1.25 per day – resides in the African continent (Packtor, 2014) [2].

Secondly, because despite the continent’s robust economic growth – averaging 5.2% per year over the past two decades – the number of people living under $1.25 per day has continued to increase unabated, from 358 million in 1996 to 415 million in 2011 (Chandy, 2015)[3]. Laurence Chandy argued that the number of the poor in Africa are expected to remain around 400 million until 2020, in spite of a forecast of ongoing economic growth.

Thirdly, that the high economic growth on the one hand, and the ever-increasing head count of the poor on the other, supports evidence that positive past and future economic growth has not, and will not be “broad-based”. As a consequence, the level of inequality – which has been, and still is at unacceptably high levels – will remain a key feature of African society.

Fourth, that under the existing economic model, it will take 100 years for poverty to be eradicated in the world (Woodward, 2015)[4]. If it is going to take a century to bring the poorest above the standard poverty line of $1.25 per day, it implies that the Sustainable Development Goal (SDG) of eradicating poverty by 2030 is unrealistic, at best.

Within the context of these poverty dynamics is the reality of Africa’s exceptionally risky “doing business environment”, which comes with a justifiably higher investment premium. So as can be expected, business investments in Africa would attain relatively higher returns (or say profits) that ought to reward investor’s appetite for higher risks.

Against the backdrop of the typical “high risk-high return” scenario in Africa, Polak and Warwick’s moral question becomes somewhat of an enigma. If we know that poverty can never be completely eradicated, and if we have a “high risk-high return” scenario, would it be morally reprehensible for businesses in Africa to seek profit from the continent’s 400 million poor consumers? If so, then what could be deemed a socially acceptable level of profit? Would such a profit level be economically viable?

To answer these questions, Polak made reference to Milton Friedman – a celebrated free market economist who argued that “…there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.” However, many critics do not entirely subscribe to the notion that profit-seeking motives are a lever for reducing poverty, even if governed by a fair rule-based framework.

Critics of free markets argue that, as countries competitively seek to attract foreign direct investment, they implement policy reforms such as tax incentives and favourable profit repatriation laws, which create conditions that disproportionately benefit investors. Philip McMichael – a Marxist political economist – argues that this process sometimes occurs at the expense of the poor, while contemporaneously re-enforcing the cycle of widening equality. Therefore, the ideological connection between free markets, globalisation and widening inequality has been well established.

Whether profit-seeking motives offer a “sustainable” basis for poverty reduction OR not remains a polarised and open-ended debate. What is more interesting, however, is an emerging counter-narrative to the age-long “capitalist versus socialist” economic system argument – called “conscious capitalism”[5]. What makes “conscious capitalism” uniquely fascinating is that the profit-seeking motives – which remain the centre-piece of business survival – are brought much closer in line with societal interests. The integration of social imperatives into a business’ profit model is a critical part of the sustainability equation, and as such, “conscious capital” resolves the moral dimension of “earning profits from the poor”.

Therefore, it is neither wrong nor immoral to earn profits from the poor, if such profits are made under the progressive guiding principles of “conscious capital”, which would allow for profit seeking motives to be framed within the context of creating societal wealth. This is because in the long run, “conscious capital” will expectedly move more people out of poverty, and reduce inequality.

[1] http://businesssolutiontopoverty.com/wrong-earn-profits-poor/https://unreasonable.is/is-it-immoral-to-earn-profits-from-poor-customers/

[2] Jordanna Packtor (2014). Top 10 Poverty in Africa Facts. https://borgenproject.org/10-quick-facts-about-poverty-in-africa/ The Borgen Project.

[3] Laurence Chandy (2015). Why is the number of poor people in Africa increasing when Africa’s economies are growing? https://www.brookings.edu/blog/africa-in-focus/2015/05/04/why-is-the-number-of-poor-people-in-africa-increasing-when-africas-economies-are-growing/ . Brookings.

[4] David Woodward (2015). Incrementum ad Absurdum: Global Growth, Inequality and Poverty Eradication in a Carbon-Constrained World. http://wer.worldeconomicsassociation.org/files/WEA-WER-4-Woodward.pdf

[5] https://www.consciouscapitalism.org/https://hbr.org/2013/01/cultivating-a-higher-conscioushttp://ventureburn.com/2013/04/why-african-entrepreneurs-need-to-be-thinking-about-conscious-capitalism/

 

 

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