[Park Chung-hoon's DotdanBook] Giving Money to Poor Countries Is Not a Panacea

Clayton M. Christensen et al. 'The Prosperity Paradox'

Pioneering the Mobile Phone Market in Africa
The 'Seltel' Legend That Created a 24 Trillion Won Market

'Pouring in' Support Cannot Escape Poverty
Consumers Must Be Created Through Market-Creating Innovation

Corruption in Poor Countries Is Merely a Second-Best Option Depending on Circumstances
It Naturally Disappears When a Better Market Is Created

Mo Ibrahim, originally from Africa, devised a plan in the late 1990s to build a mobile phone network in sub-Saharan Africa. Many doubted whether people struggling to make a living day-to-day could afford to use mobile phones. Banks were reluctant to invest in Ibrahim’s company, 'Seltel.'

However, Ibrahim cultivated this barren land with the spirit of 'Ugong Isan' (the foolish old man who moved mountains). He generated electricity where there was none and personally taught employees when they did not understand their tasks. A few years later, the situation completely reversed. Within six years of its founding, Seltel had established offices in 13 African countries and secured 5.3 million customers. The prepaid card costing at least 25 cents was a huge success.

Following Seltel’s success, many mobile communication companies emerged in Africa. Thanks to this, 4.5 million jobs have been created up to this year. The taxes paid by these companies alone amount to $20.5 billion (approximately 24.6 trillion won).

Meanwhile, Efosa Ozomo, born in Africa, wanted to solve poverty issues. Having made his way as a scholar in the United States, he founded a nonprofit organization called 'Enough Poverty Now' about a decade ago. With funds raised, the organization dug wells in poor African villages suffering from water shortages.

However, the villagers’ joy was short-lived. Within a few months, the wells were left broken and neglected due to a lack of management capability. Moreover, there were no technicians to repair them. Of the five wells, only one is currently functioning properly.

Professor the late Clayton Christensen giving a lecture at the 'Business of Software' event held in Boston, USA, in 2011. Photo by Flickr

These two cases starkly illustrate the paradoxical aspects of prosperity. Until now, educational facilities were built in poor countries, railways were laid with large investments, and advanced societal systems were introduced as they were. However, these efforts failed to produce proper effects. Even if people learned, there were no jobs to get; there was no logistics to utilize transportation infrastructure; and few were willing to readily accept foreign and unfamiliar systems.

'The Prosperity Paradox,' co-written by the late Clayton Christensen, a Harvard Business School professor famous for the theory of 'disruptive innovation,' and his students, emphasizes that for society to prosper, innovation that pulls in consumers rather than simply pushing forward is necessary. This is called 'market-creating innovation.' 'The Prosperity Paradox' is Professor Christensen’s final book, published shortly before his passing in January.

Market-creating innovation is the concept of attracting non-consumers into the ranks of consumers. The method is to make complex and expensive products or services much simpler and cheaper. When non-consumers who currently cannot afford means to improve their lives become consumers, infrastructure and jobs are naturally 'pulled in' as well.

Thanks to Seltel, new jobs in advertising and distribution were created. Seltel was able to build health and education infrastructure for its employees and local communities with the profits earned. Ultimately, it even gained the power to change social culture.

Professor Christensen says that the development of the United States, which was poorer than Angola in Africa in the 18th century, was also due to market-creating innovation. The Singer sewing machine, Eastman Kodak’s film camera, and Ford’s mass-produced automobile 'Model T' are representative examples.

When sewing machines were mass-produced, not only the textile industry but also the furniture industry for storing clothes developed accordingly. Kodak developed a system where anyone could easily take photos and have them developed, employing 100,000 people by the late 1960s. The Model T was the primary contributor to resource development, road construction, and countless job creations. The automobile mass production system that gave birth to the Model T spread beyond the United States worldwide, bringing global prosperity.

So, can market creation succeed even in third-world poor countries rife with corruption and bribery? The author says that the question should shift from 'How can we eradicate corruption?' to 'Why is corruption so persistent?' He explains, 'Corruption is merely a relatively better path, a second solution, or a useful expedient in environments where better options are scarce.'

If better alternatives emerge through market creation, the utility of corruption diminishes. This opens the door to a more transparent society. For example, in the past when cassette tapes were used, illegal music like 'mix tapes' was rampant. But recently, innovative online music service markets like Spotify and Netflix have been created. Becoming a paid subscriber to content services is actually cheaper than searching for illegal online distribution channels.

Professor Christensen also cites the case of Korea. During President Park Chung-hee’s administration, corruption such as collusion between the government and large corporations was rampant under the guise of development. About 30 years later, his daughter, President Park Geun-hye, was impeached on charges related to various corruptions.

Professor Christensen says, 'When society invests more in innovations that create prosperity for citizens, systems that fight corruption improve noticeably, albeit slowly.' Therefore, many other corrupt countries today also have the potential to become more transparent societies like Korea.

The COVID-19 pandemic has brought social and economic crises worldwide. Rather than prosperity, restoring the status quo is urgent. However, even in such difficult times, somewhere in the world, opportunities for market-creating innovation are hidden. Finding these and reigniting the engine of prosperity is the final task the author leaves us.

(The Prosperity Paradox - Why Poverty Does Not Disappear, Clayton M. Christensen, Efosa Ozomo, Karen Dillon, translated by Lee Kyung-sik, Bookie, 19,800 won)

This content was produced with the assistance of AI translation services.