Economists talk a lot about “utility.” It’s the generic term they use to refer to the joy, satisfaction, stress relief, etc. we get from the goods and services we consume. My road bike, for example, is a huge source of utility for me. A Chipotle burrito is, likewise, loaded with Mike-variety utility.
In a world where economies of scale are easy to come by, utility is cheap. And in a world where competition and economies of scale exist, utility only gets cheaper as time goes on.
A week ago, I went to Best Buy and paid about $350 for a netbook computer. That’s insanely inexpensive considering the same amount of computing power would have cost millions of dollars and required a warehouse-size space only a few decades ago. When I got home with my new netbook, I connected to the internet and spent the next several hours entertaining myself online, all without spending a penny.
The amount of utility I got out of those transactions was, and continues to be enormous, despite the small price tag. That’s because, in a world like mine, where competition and scale economies abound, meeting my needs and satisfying my “utility requirements” get cheaper with the passing of time.
I can, of course, do without my internet and netbook. But the idea that costs decrease as scale economies and competition increase holds true for our most basic purchases as well, and the implications are hugely important.
In the developed world, we can spend a smaller and smaller percentage of our income on things like food and clothing than can our friends in the developing world. This means that 1) our wealth increases even as wages stay the same; and 2) additional discretionary income is continually freed up for purchases that may be non-essential for survival but critical to getting ahead.
The Next Four Billion, published by WRI, shows, for example, that as people move up from the base of the income pyramid, they spend about the same amount on essentials like food but spend increasing amounts on services like telecommunications and healthcare. This ability to spend more freely on telecommunications and healthcare, in turn, allows them to work more efficiently and productively and supports their journey out of poverty.
The point here is that the economic development problem is not just about increasing people’s incomes. It’s just as much about increasing relative wealth by making access to goods and services more affordable.
And that brings us to the real problem of having markets that are exclusive. Exclusive markets not only support relative poverty and the uneven distribution of wealth but exacerbate it.
Because of their relative lack of access to companies who are able to leverage scale economies, and because many of the markets in which the poor participate are not highly competitive, they pay more for the same goods and services than we do. And the gap is only going to get wider as time passes, unless we can start to build competitive markets in these communities and find far more efficient ways to serve their populations.
For Ayllu, then, helping social enterprises scale is not simply about bringing great ideas to more and more communities. It’s about helping to create competitive, efficient, and INCLUSIVE markets that will both help lift families out of poverty and also narrow the wealth gap. That’s a cause worth fighting for.
2 Comments
November 4, 2009 at 10:23 am
Mike, I followed your blogs and you speak my language to a degree and I enjoy reading your thoughful insights into the world of social entrepreneurship. You echo my heart and mind moreso when you write about the “why” we do this and how to best develop our bottom line – alleviation of poverty syndroms. I think this is your mindset. It is mine. This engagment that I find myself in these days is less about me and more about the bigger part of who, what and why. It is the light at the end of some very dimly lit tunnels from past systems we were in (speaking about myself) coming from socio-economic meager means and philosphies and depending on them to figure it out for me or better yet, support me in my own inability to do anything but get an education, so I was told. So I’m getting my education in social entrepreneurship. I will continue to follow your blogs as best I can and possibly do my own as I acquire constructive criticism and share my own way of lifting burdens around the world through writing, reading and learning what else is required as a “social” worker for change. Thanks.
November 24, 2009 at 7:42 am
Hi Devorah,
Thanks so much for your thoughtful reply. Your enthusiasm for social enterprise is encouraging and inspiring to me, so please don’t lose it! I look forward to reading your posts at some point.
Mike