The Inextricable Link Between Market-Creating Innovation And Sustainable Infrastructure By: Efosa Ojomo
On the surface, transferring resources to poor countries makes sense. Unfortunately, it’s not always a sustainable strategy.
Resources are a community or an organization’s most tangible assets. They include things such as products, equipment, buildings, and even people. Every year, with good intentions, many development organizations transfer billions of dollars worth of resources into poor communities—but they often don’t last. Products that are donated such as tablets or laptops for schools, and medical equipment for hospitals, break over time. Food and vaccines spoil, while community resources such as roads and rail break down. Virtually every single resource deteriorates, perpetuating a system in which poor communities are dependent on the wealthy.
Though development organizations may tout the importance of sustainability, few pay attention to how the resources they provide can be maintained. Regrettably, this means that even after spending billions of dollars building schools, water wells, and even providing toilets, the impact isn’t transformative.
The fact that resources are vulnerable to depreciation doesn’t mean they’re not a critical component of the economic development puzzle—it just means that in order for resources to be effective, development program managers must consider how communities can sustain them. This is where market-creating innovations have tremendous power and potential.
From the US to Japan: A time-tested remedy for making resources sustainable
Market-creating innovations transform complicated and expensive products into simple and affordable ones, making them available to a larger segment of society. These new markets pack a serious punch not only because they provide valuable resources to people who historically didn’t have access, but they also provide enough cash—often by way of taxes for governments or profits for organizations—to maintain the resources.
To see how this has played out in the US and Japan, let’s go back to the humble beginnings of two of the world’s most powerful automotive companies: Ford and Toyota.
In 1806 the US federal government began one of its most ambitious projects, the construction of the National Road. Barely 25 years after construction began, not only did revenues dry up causing the federal government to hand over road construction to states, but most roads were in such bad condition that states had no interest in building new roads or fixing broken ones.
But things changed in the early 1900s, as cars were becoming ubiquitous. Triggered in large part by the successful Ford Model T—a market-creating innovation that made cars affordable enough for everyday people, major roads and highways soon followed. By 1929, as cars became more mainstream, virtually every state had imposed a gasoline tax, and by 1932, the federal government enacted the first national gas tax which was placed in a dedicated trust for the building and maintenance of US highways. What made this initiative different from the federal government’s first attempt to build roads was the fact that the revenue was tied to a thriving market. Because access to cars vastly improved the lives of most Americans, they now had a vested interest in seeing the automobile market succeed—making the revenue, and associated projects—sustainable.
Across the globe, a similar phenomenon was taking place.
In late 1930s roughly 80% of Japan’s roads were unpaved, which made driving both expensive and risky, as the few cars on the roads broke down often. With a GDP per capita of just $2,300, the government struggled to improve the safety of its roads. The United States, even at the tail end of the Great Depression, was still almost three times richer than Japan.
That began to change in 1937 when Toyota emerged, creating a new market of affordable vehicles for the people of East Asia. Hardly luxury vehicles, Toyotas were built for the masses as practical, economical cars that could withstand poor roads. Sales soared, and by the 1950s the government had secured a new source of revenue to improve its roads: gasoline and car acquisition taxes, earmarked for road financing.
As was the case in the United States, access to affordable cars greatly improved the lives of Japanese consumers, many of whom previously relied on horse- and ox-drawn vehicles to navigate the unpaved roads. This not only ensured the growth of the new market, but also ensured that the government’s new fund for road financing would be sustainable.
One thing is for sure: most resources won’t last. Rather than simply provide a community with food, or take on ambitious infrastructure projects with little consideration of their maintenance, development organizations and governments should ask themselves how they can create a market that will generate enough revenues to fund these important initiatives. If they figure that out, they just might succeed in creating enduring prosperity for the billions trapped in poverty.
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