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The Sustainability Challenge of Poverty and its Impact on Business

Keywords: Poverty, Sustainability, Governments, NGO’s Business, Fairtrade.

Contents

Background to the Sustainability Challenge of Poverty ................................. 2

What causes Poverty? .................................................................................... 2
Poverty and the impact on the Sustainability Agenda .................................. 4
Stakeholders and their impact on Poverty .................................................... 6
Poverty and the impact on Business – Solutions for the Future .................... 7
Conclusion .................................................................................................... 10
References.................................................................................................... 10
Appendices ................................................................................................... 12
Background to the Sustainability Challenge of Poverty

In January 2016, 17 United Nations Sustainable Development Goals (SDGs) came into operation, with
the aim to universally end poverty, protect the planet and ensure that all people enjoy peace and
prosperity. In short these were implemented to ensure that the planet and people that live on it are
meeting the needs of the present generation without comprising the ability of future generations,
therefore ensuring that as inhabits of the planet we are being sustainable. (Blowfield 2013)

The first United Nation (UN) SDG is that of Poverty, however the 17 goals are interlinked and success
with one goal will inevitably help and ensure the success of the others. For a full list of the United
Nations Sustainability Development Goals please see Appendix 1.

The definition of extreme poverty according to the UN is defined as living on less that $1,25 per day,
according to the World Bank that figure is slightly higher at $1.90 per day. It is estimated by the UN
that globally more than 830 million people are living in extreme poverty. Whilst this figure has
halved over the course of the last 25 years, there are still many people across the world who have
limited or no access to clean water, food or sanitation. The UN points out that poverty is not just
about the lack of income and resource to maintain a sustainable livelihood, but it includes access to
education, exclusion, social mobility and hunger, which are some of the other UN sustainability
development goals. Counties such as China and India which have seen rapid economic growth over
the last few years have meant that millions have been lifted out of poverty. However, this has not
been the case globally and in areas South Asia, and the Sub-Saharan there has been limited progress.
In fact, 80% of those living in extreme poverty come from those two regions. Dornan (2017) points
out that although extreme poverty has been falling there is more concern over the issue that the
economic equality within countries is rising. What is also to note is that over half of the cases of
extreme poverty in the word are below the age of 18. Alongside poverty are other sustainability
challenges that exist including; high infant mortality, low life expectancy, under-developed
agriculture, poor infrastructure, political instability and disease.

What causes Poverty?

The causes of world poverty have been a major source of debate over the years. German
philosopher, Thomas Pogge (2008) argued that affluent people in the developing world have
contribution-based duties to help protect the poor. Overland (2013) challenges this idea and argues
that Pogge’s thesis should be more about how affluent people, and indeed business can often
exploit poor people rather than how they contribute to poverty. Overland (2013) also goes on to
state that affluent countries use their superior bargaining power to get poorer countries to accept
trading schemes that are unfavourable to the affluent, or in other terms is better understood as
exploitation. Alia (2017) assesses the impact of economic growth on exit time in relation to the
African County of Benin and concludes that, with a growth rate per capita of 4.2%, it would take
between 7 and 10 years for the average household in Benin to exit poverty. Alia (2017) goes on to
suggest that policies to accelerate poverty reduction should emphasise the development of
humanity capital and ensure that growth is inclusive.

Caranti (2010) asks the question about the mechanisms behind poverty; is it climate change,
availably of resources, cultural issues, pollical issues, or like Pogge (2008) who questions that it might
be to do with the rules that currently govern trade, or that intellectual property might be better
causes of poverty?

The Food and Agriculture organisation of the UN (FOA) in a 2012 summit in Rome, stated that
although economic growth might help reduce poverty rates it also must be ensured that:

 The Economic Growth could reach the poor. Although this depends on the level of equality
in each country. Those with less access to resources (such as land, health, education and
water) find it harder to join the growth process.
 The poor must use the extra income on the improvement of food, education, health and
sanitary conditions.
 Governments need to support and accumulate resources to benefit the poor.

Whatever the causes of poverty, a sustainable production and consumption model needs to be in
operation, effectively changing the way we eat. Finding ways to feed the world are paramount to the
success of eradicating poverty and enabling adequate access for all to food.

Whilst the UN has an ambition to eradicate poverty by 2030, it can’t do this without the support of
national governments, local government, NGO’s, businesses and communities. Within the UN
several organisations are responsible for liaising with suppliers, business, governments and
communities.
These are namely:
 The Committee for the Promotion and Advancement of Cooperatives (COPAC)
 This is a Partnership between representatives of the cooperative movement, farmer
organisations, cooperative development agencies, and the United Nations and its agencies.
Its aim is to coordinate sustainable cooperative development through policy dialogue and
collaborative activities
 The International Co-operative Alliance (ICA)
This is a not-for-profit, international association. It works with global and regional
governments and organisations to create legislative environments that allow co-operatives
to form and grow.
 International Labour Organisation
This organisation focuses on policy and legal advice, capacity-building through human
resource development, poverty alleviation through self-help, alternative delivery
mechanisms for social services, and a special regional programme for indigenous and tribal
peoples.
 The Food and Agriculture Organization (FAO)
Submits to tackle food shortage and poverty issues and encourages member governments to
establish enabling environments conducive to improving small producers’ livelihoods.
 International Fund for Agricultural Development (IFAD)
The International Fund for Agricultural Development is an international financial institution
and a specialised agency of the United Nations dedicated to eradicating poverty and hunger
in rural areas of developing countries.

Poverty and the impact on the Sustainability Agenda

Poverty has a wider impact in a developing country on its quest to be sustainable. The establishment
of global institutions like the UN and international polices such as the United Nations Sustainable
Development Goals area attempting to address wider sustainability issues such as environmental,
social inclusion and economic development. However, poverty levels continue to rise with limited
employment in, particularly, in rural areas, unsatisfactory working conditions and a lack of growth
for job creation means there is a challenge for developing countries to be sustainable. Cobbinah et
all (2014), argues that a common feature of poverty is the over-reliance on natural resources and the
environment for their livelihoods which tends to degrade the environment and further compounds
poverty. By understating the interactions between poverty, climate change, rapid urbanisation,
economic development and environmental conservation and policy interventions to support all,
these areas will enable developing countries to become more sustainable and therefore, in turn,
reduce poverty.

Whilst it is assumed that poverty is mainly an issue in more rural areas of developing countries low-
income settlements now occupy a large portion of urban housing in the developing world (Rham
2016). Often linked to poor policy implementation and weak governments, international agencies
and government have failed to stop the physical, social and environmental issues found in these
slums and overcrowded settlements. Whilst sustainable development should, in theory, promote
economic growth, maintain social inclusion and minimise environmental impact, Rham (2016)
argues that you can’t achieve this by concentration on improvement conditions for just rural
workers. Improving polices for sustainable housing in urban areas, eradicating the need for slums
and low-income housing are also required. Working in isolation won’t impact on countries that need
to assist with poverty. These issue need to be addressed with the wider issues and challenges of
making a country sustainable.

Just as there is a diverse range of literature on poverty and causes of poverty, there are also many
academics that have researched how to address poverty. Hoy and Sumner (2016) argue that there
are enough natural resources available world-wide to tackle poverty but they are not being used to
end poverty. Their findings provide a rationale for national redistribution as a way to end poverty
quicker than economic growth. They also conclude that ending global poverty might be within the
financial capabilities of some national governments of developing countries if they look at potential
new taxations or the re-allocation of existing public finances.

Poverty alleviation in Nigeria according to Ayinde and Bankloe (2016) isn’t down to trade, there is a
clear link between sustainable development and trade, and not poverty and trade as previously
thought. They also argue that while government involvement matters for increasing per capita
income and potentially reducing poverty, government involvement does not support sustainable
development. What is clear from the research is that perhaps each country needs to address poverty
according to polices and culture and although redistribution of resources might help on a global
scale, more local polices and county specific initiatives alongside global initiatives will aid further in
the quest to reduce poverty.

A further study by Page (2015) across Africa concludes that while there has been rapid economic
growth, there has not been the creation of enough jobs especially for the young and that the
employment rate is similar to that of 20 years ago. Contrast this with Asia, where major changes in
economic structure have accompanied growth and poverty reduction therefore linking employment
and poverty. Page concludes that this is down to the lack of structural change.

Stakeholders and their impact on Poverty

So, who are the key stakeholders that can impact on poverty and how can they work together to
combat poverty and reach the UN Goal of eradicating all aspects of extreme poverty by 2030.

Key to the success of this UN goal are Governments and tackling poverty alongside other key
national issues, such as education, health, hospitals and public welfare. Jung et all (2013) evaluated
the impact on poverty rates when education, health and public welfare were allocated to poverty
reduction. Although this study was in high poverty areas of the United States, it concluded that with
government investment and increased spending on education that poverty rates would decrease.
This, perhaps, is why Nelson’s Mandela’s quote, ‘Education is the most powerful weapon which you
can use to change the world’ rings so true. Although the study was conducted in a developed
country, unless governments spend money on educating those that need it most, in new
technologies, different ways of farming food or how to be more entrepreneurial - the poverty cycle
is hard to break.

Saleem and Donaldson (2016) discuss 15 case studies of demonstrated poverty reduction and
investigate how policy approaches have helped reduce poverty. Concluding that in the cases of
Japan, South Korea, Taiwan and Thailand there was a structural shift to labour intensive
manufacturing supported by education and housing polices. Furthermore, this was underpinned by
rural development. The key to the success of these approaches is an active government. In Indonesia
and Peru the governments implemented a strategy that incorporated different parts including land
reform, agricultural policies and improved rural infrastructure (Saleem and Donaldson 2016). These
places included development in high yielding rice, better post roads and irrigation systems alongside
the provision of basic education to improve population skills and enhance chances of obtaining non-
farm related income.

Can a national government, that follows a centralised budget and expenditure process, impact at a
small rural level, and is this the right model to tackle poverty? Over the last few years, more
emphasis has been made to decentralise government budgets and increase district councils and
assemblies to empower communities and bridge the gap between national and local poverty targets.
Ellis and Freeman (2004) concludes that for poverty reduction strategies to work local solutions such
as spreading technical advice to famers, ensure that local tax revenue is spent on rural incomes and
enterprise. In turn, this means that local decentralised governments might have a greater impact
than those at a national level.

Another key stakeholder in the quest to alleviate poverty are NGO’s (non-governmental
organisations). However, debates are questioning if NGO’s are becoming a substitute for
government funding due to their impact on communities, livelihoods and poverty. NGOs have
rapidly increased over the last past few years and are operational on a local, national and
international stage. With increasing advances in technology do they provide a solution to assisting in
the fight against poverty, or do they dilute the governments spending? Torpey-Saboe (2015) looks at
a particular case study in Brazil where the number of NGO’s has grown exponentially over the last 10
years. His study examines the presence of NGO’s decreased government spending and concluded
that higher concentrations of NGO’s are negatively associated with government spending for social
goods in a particular area. This means that in areas with more NGO’s, social spending is lower per
capita. Torpey-Saboe also concludes that more research data is needed on NGO’s in developing
countries as to what their main activities are, how they are funded, and how to ensure that the
beneficiaries are the poorest in society. The broader implications to those questions might explain
who, or if NGO’s are changing the relationship between citizens and the state.

An example of an NGO assisting with the challenge to end extreme poverty is Trickle Up - an NGO
based in the USA that has been working to lift more than one million of the poorest vulnerable
people out of poverty for nearly 40 years. Trickle Up has projects in the very poorest parts of rural
India, Africa and Latin American and uses a community-based selection process to identify the
poorest in the village. They then educate these people on how to run micro-business and how to
save for when climate change and other issues affect crops and livelihood.

Poverty and the impact on Business – Solutions for the Future

Poverty, sustainability and business are interlinked and to be able to tackle poverty other factors,
which effect sustainability and poverty and business, also need to be identified and looked at. In
order to eradicate poverty and ensure rural produces are getting fair trade prices for their goods, a
number of fair trade initiatives have been implemented. But how is the business world ensuring that
these initiatives are working? And that the poor are really able to get fair prices for goods whilst
ensuring that they are sustainable?
We must also consider the sustainable supply chain management and ensuring that buying firms and
suppliers implement and evaluate a sustainable supplier development programmes (Lui et all 2018).
These development programmes need to involve different organisations that cross-deliver across
diverse regions, countries and cultures. This in itself provides a challenging environment to conduct
business in and the impact on the poorest in the supplier programme, usually positioned at the
bottom of the supplier chain.

Historically those living in poverty have been a potentially large market to multinational businesses
to sell a variety of goods and services to. However, Burton et all (2013) looks at entrepreneurship
and how, instead of focusing on the poor as a market for firms from mature economies,
entrepreneurship can offer a potential solution by which those in poverty can break the cycle of
poverty. Although research in this area is limited, there is an argument to encourage market-based
solutions such as entrepreneurship which could offer the best opportunity to create positive change
within poverty settings. Backing up this theory is Djankiv et all (2018) who suggest that the conduit
for poverty reduction is business creation, both as a source of new jobs and as a manifestation of
thriving entrepreneurship.

Private sustainability standards (PSS) labels such as organic and Fairtrade and are becoming more
and more common. Consumers want to know where their food is coming from to reduce issues such
as carbon footprints. They also want to ensure that their food is ethically produced, but are Fairtrade
labels fair on famers? The World Fairtrade Organisation defines fair trade as:

‘Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater
equity in international trade. It contributes to sustainable development by offering better trading
conditions to, and securing the rights of, marginalized producers and workers’

Many multi-national companies now have Fairtrade product lines, including Nestle, Tesco, and
Cadbury, is this just a company’s attempt at corporate/social responsibility or are they really
responding to the challenge of poverty and ensuring that the supply chain can be traced and is fair?
Blowfield et all (2010) challenges this and looks at the significant differences that lie between what
ethically driven initiatives seek to achieve and the benefit to the community. Further investigation
questions this business case and if it can be better integrated with poverty than the Fairtrade label
and ethics will be of greater benefit to the poor.

Beuchelt and Zeller (2011), studied Nicaragua’s Organic and Fairtrade coffee producers and while it
is assumed that having these certified schemes for coffee producers can ensure poverty reduction
small holders should be offered higher prices and better incomes. However, to produce Fairtrade,
Organic coffee, it is more labour intensive than conventional coffee producers. Instead the
suggestion is for policies to focus on investing in the famer and the business management skills of
the poor as well as the establishment of production support systems. This could enable better
business practices and skills, therefore enabling Organic and Fairtrade coffee producers to be lifted
off the poverty line.

A further study by Mitiku et all (2016) which looks at the effects of various PSS standards in the
coffee sector in Ethiopia, concludes that the influence of these schemes wholly depends on the
cooperatives that run these schemes. Whilst some schemes including the rainforest alliance resulted
in higher incomes and lower poverty, other schemes such as Fairtrade had no effect on household
income or poverty.

Brown (2013) concludes that whilst Fairtrade certification in banana production in Urabá, Colombia
has assisted in improving wage structures and ensuring growers and exporters have a secure place in
what is a volatile market. Fairtrade funds are then dedicated to housing and education to ensure
that all workers and their children had access to education, a home and clean water. This enables
them to lift themselves out of extreme poverty in a country that has suffered a history of conflict
over the years.

Finally, studying fair trade and poverty in three remote villages in Indonesia Mudyiddin and Miskiyah
(2017) conclude that using a fairtrade system reduces poverty and has proven to be successful. Also,
in an effort to reduce poverty suggests that the Village Fund is long-term and that local governments
should also help open up access to credit, especially to the government bank with low interest rates
and easy terms. Again, building on entrepreneurship and the need to share resources across borders
and cultures.
Conclusion

There are many views on poverty, the causes of poverty, how to address poverty and the way that
stakeholders, including Governments, NGO’s and business can impact on reducing poverty and
ensuring that communities, cultures and countries are sustainably.
Tackling poverty cannot be done in isolation. And only with different organisations and businesses
working together will the UNs development goal of no poverty by 2030 be achieved. The business
world has a vital role to play in reaching this target, whether that means the creation of more jobs,
improving infrastructure, entrepreneurship, empowering people and communities or ensuring that
trade is fair. Academics can help with the research into this and many have suggestions and
arguments for various schemes and polices. However, what is evident is that knowledge needs to be
turned into impact in the real world and therefore research needs to be driving and impacting on
policy and business decisions to make the world a fairer place, particularly for those that are in
extreme poverty.

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Appendices
Appendix 1 – United Nation Sustainability Goals