The Prosperity Dilemma

A ‘weary’ review of The Prosperity Paradox

I just finished reading “The Prosperity Paradox” coauthored by Clayton M Christensen, Efosa Ojomo & Karen Dillon. I must say this is the most radical book on innovation I have read in a long while, not because of the ideas in the book itself, but because it challenged almost every fundamental logic I had in my mind about how to make Nigeria a better place and the way in which innovation works in moving a country from poor to prosperous.

I have always believed that innovation is the pathway to prosperity for third world countries, especially Nigeria. In fact, I authored a small pamphlet shared by my non profit organisation about a vision for Nigeria by the year 2050, based solely on innovation. You can check that up here.

There just isn’t any way that a country’s economy will continue in the same manner that productivity will increase for its citizens. The companies that provide jobs have to move from simple products to complex, value-added products. Technology has to play a huge role in simplifying tasks and organising society so that people can do things faster and in a more orderly manner. In summary, we have to go from using cutlasses to farm to using machines to farm, opening up opportunities for more people to participate in more productive sectors.

From this fundamental premise, comes my next deduction. Innovation thrives only in certain environments. I believed that entrepreneurs — the only group of people in society capable of taking the risks of innovation — will only engage in this risky endeavour when certain fundamentals exist in such society — property rights, public goods like electric power, transportation network, an independent justice system that can settle disputes and enforce contracts, healthcare for workers and chutzpah. I am sure you also will conclude with me thus — if innovation is what turns a poor country into a prosperous one, and innovation only thrives in societies where certain fundamentals exist, therefore, poor countries need to tweak their societies by enshrining these fundamentals, then innovation will thrive and prosperity will follow.

What’s more? When I pursued a Masters Degree in Public Policy at the United Nations University in the Netherlands and chose to specialise in Innovation, Institutions and Development, this is what I learnt. Prof Clayton Christensen (may God rest his soul)- someone I consider the last generation’s Joseph Schumpeter whose theories of innovation are the most popular, even today- and his co-authors turned this logic on its head. The Prosperity Paradox disagrees with this our logic and instead proposes the direct opposite. While they agree that prosperity follows right after innovation, they disagree that innovation follows after a society has already established the fundamentals that ensure innovation can thrive. Innovation they say is what pulls in those fundamentals that we said earlier that is required for innovation to thrive.

The many examples the authors share in the book show how the most innovative products and services that we refer to started when these fundamentals were not in place — from South Korea to Japan, from Mexico to India and most of all, the United States of America. Innovators like Henry Ford they argue, had to integrate all the other parts of their business model that they needed for their innovation to thrive. Mo Ibrahim, they showed, had to build his telecommunications company in Africa where towers were non existent and even had to use helicopters to travel to sites because there were no roads to where towers needed to be sited.

The journey to prosperity therefore is to get as many innovators who would identify nonconsumption in certain markets ( read poor countries) and usher in their market creating innovations which will then democratise access to nonconsumers in a way that is affordable for them and makes their lives better. In so doing, jobs will be created, economies will open up, infrastructure will be built, at first by the entrepreneurs to ensure their product can get to the nonconsumers and then taken over by the state. Then, this newly created market will then sustain the need and the maintenance of such infrastructure through consistent demand.

It will not be Uhuru immediately, they argue. This process will have to repeat itself in different industries and in different sectors and then we will arrive at a prosperous society.

The book is divided into three parts and each part into sections. At the end of each part, I usually drop my green highlighter, pick a pen and write down a few questions on the blank part of the page. At the end of the book, I find that I have more questions than answers. This should not be surprising.

First of all, it is easy to say that there is a three stage process to going from poverty to prosperity i.e (i) Poor country A should set up policies and strengthen institutions that ensure innovation can thrive (ii) Good innovation policies and strong institutions will attract investors who will innovate (iii) innovation will bring prosperity. This is simple and straightforward, right?

Now let’s consider an alternative proposal from The Prosperity Paradox. (i) Innovators have to identify nonconsumption in poor countries (ii) The innovator then establishes a market creating innovation to turn nonconsumers into consumers (iii) The innovator then has to integrate all the external needs of the company to ensure this product can reach the populace, adopt pull strategies to ensure institutions do not hinder the objective and then scale their product to profitability (iv) This process will then create jobs, open up other industries (v) prosperity then becomes the norm.

It’s easy to see why the first path proposal to prosperity from poverty is easily mainstream in innovation academic circles — it’s simple and puts the Job To Be Done ( another concept the authors shared ) on society’s political leaders before entrepreneurs can then move in. The authors showed that this model has not worked and quote the many proofs that it has not worked — reports from the world bank on official development assistance and the millions of dollars spent on strengthening institutions without anything to show for it. I am inclined to agree, but …

Of all the questions I have, there’s one I cannot seem to throw away.

1. On page 70, the authors state as a matter of fact that Foreign Direct Investment flows have been to the rich countries stating that in 2016, 73% of all FDI went to already rich countries where the owners of capital are guaranteed of a return on investment (ROI)
2. On page 38, the authors introduce Lant Pritchett’s categorisation of the primary entities in a country’s economy — the workhorses, power brokers, magicians and rentiers. In most poor countries the richest people are the rentiers and the power brokers who necessarily don’t have to be politically elected but with much access to power. It is for this reason that I wasn’t surprised that Tolaram (the producers of Indomie noodles — they are not Nigerians by the way) was an example of a market creating innovation and Dangote Cement was not used as an example. One could argue that Dangote also created a market for cement in Nigeria even though, like Feyi Fawehimi would argue, the same way cement has been made since it was invented is still the same way Dangote makes it — making a case for zero innovation.
3. If poor countries are not likely to receive an influx of FDI, especially against the backdrop of COVID19 and rentiers and power brokers have no incentive to engage in market creating innovation, How exactly can poor countries find market creating innovators like Mo Ibrahim, especially because market creating innovation seems like an expensive enterprise.
4. As an addendum, how many market creating innovators does a country like Nigeria need in each sector to be able to move from poverty capital of the world to maybe even a second world country in the next 30 years so we can repeat the miracle that South Korea and the Asians made happen? And then, how can a country’s leaders seek to find these number of high risk innovators in their country.

I still have a lot of questions as relating to the central argument of the book and how it specifically applies to a policymaker trying to think about how best to create an ecosystem of innovators who will create jobs, improve people’s living standards and usher in prosperity for the people. For a capitalist looking to make profit, it is easier to see how the ideas are applicable. For

If you have read the book, and have some thoughts on this question, I will be glad if you shared your thoughts.

For country,

JFK