Nearly 1 in 5 people in the world lives in poverty. Even in many developed countries such as the U.S., poverty rates exceed 12%. In an age of breathtaking technological progress and dynamic social change, poverty remains stubbornly persistent.
As a professor of entrepreneurship, I’m interested in a critical question: Can people in poverty create their own path to prosperity? In other words, is venture creation a viable poverty alleviation tool?
My work has shown that it can be – with the right kind of support. However, that support is often lacking.
A big part of the problem is ignorance: Most people simply don’t know much about poverty and entrepreneurship. There are plenty of myths when it comes to the ventures of the poor, due in part to the lack of hard data about the businesses of those in poverty.
These misconceptions have influenced public policy officials, economic development professionals and academics. As a result, they tend to undervalue the important economic and social role that these businesses play.
In an attempt to correct the record, here are six facts that people should know about poverty and entrepreneurship.
Fact 1: Poor people start businesses – lots of them
It’s a myth that entrepreneurship is just for the rich. In fact, many ventures across the globe are started by people in disadvantaged circumstances – actually most of them. While hard data is difficult to come by, the evidence we do have is suggestive. For example, in some high-poverty sub-Saharan African countries, as many as two out of three adults operate or are in the process of starting their own business.
Such small businesses are arguably the backbone of many developing economies, where over 50% of the population can be in poverty. Even within developed economies, such ventures can be responsible for a meaningful component of gross domestic product.
Fact 2: Businesses run by poor people create value
Although people in poverty disproportionately create “survival businesses” that generate small profits, it’s wrong to assume that makes these ventures less valuable. Such businesses provide jobs to millions of impoverished people, representing an economic lifeline. They create value in the marketplace, filling niches that aren’t attractive to incumbent firms.
And they create more than just economic value: These businesses are embedded in the fabric of communities, providing a source of social stability. They pay taxes and can produce spillover benefits such as reduced crime, increased school completion rates and community pride.
Fact 3: Entrepreneurship can help alleviate poverty
A growing body of research suggests that higher levels of entrepreneurship are associated with greater reductions in poverty. For example, one analysis found that areas with the highest rates of entrepreneurship among the poor demonstrated the largest reductions in poverty over a six-year period.
This shouldn’t come as a major surprise. After all, while people in poverty often create survival businesses that generate small profits, venture creation represents a critical vehicle for human capital development. People who start businesses learn how to organize production, manage cash, serve customers, set prices and coordinate logistics.
Nearly 1 in 5 people in the world lives in poverty. Even in many developed countries such as the U.S., poverty rates exceed 12%. In an age of breathtaking technological progress and dynamic social change, poverty remains stubbornly persistent.
As a professor of entrepreneurship, I’m interested in a critical question: Can people in poverty create their own path to prosperity? In other words, is venture creation a viable poverty alleviation tool?
My work has shown that it can be – with the right kind of support. However, that support is often lacking.
A big part of the problem is ignorance: Most people simply don’t know much about poverty and entrepreneurship. There are plenty of myths when it comes to the ventures of the poor, due in part to the lack of hard data about the businesses of those in poverty.
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