KGOU

How Paul Polak Uses Economic Principles To Fight Poverty

Sep 18, 2014

When Paul Polak visited Bangladesh for the first time he did what he says people with humanitarian aims don’t do enough. He asked the residents what they needed.

“They quickly told me in Bangladesh that they were poor because they made most of their money from farming on small one-acre farms,” Polack says. “And what they needed most to earn more income was affordable irrigation.”

Using this need as the basis of his work, Polak put his efforts toward providing the farmers of Bangladesh with simple irrigation pumps. The pumps he developed used a treadle, like the kind used in old-fashioned sewing machines, to pump the water without the need for electricity. When it came to getting this pump to the people who needed it, he adopted a different approach than the humanitarians around him.

“They usually subsidized either the drilling of the well or the cost of the treadle pump and the strategy was, ‘Poor people are really poor so they need to have something cheaper’," Polak says. “But the mechanism by which you could mass disseminate rower pumps and treadle pumps involved local workshops that made them, dealers who sold them and the well drillers who drilled the well.”

Polak realized whenever the non-governmental organizations offered a good or a service for free; they were taking away business from potential local providers. Instead, Polak trained 3,000 people to do jobs like drilling wells and encouraged them to do what made sense for their business.

Village children in Bangladesh
Credit Nasir Khan

“In the many experiences I have had, when you give things away they don't get used properly,” Polak says. “I consider the most effective way of changing people's lives to be through access to affordable technologies and strategies. It’s far more effective than trying to donate people out of poverty.”

The strategy worked. Polak’s organization International Development Enterprises helped 20 million people move out of poverty by operating like a business would. But he says that isn’t enough.

“Compared with 2.7 billion people who live on less than 2 dollars a day, which is 40 percent of the world's population, that's a drop in the bucket,” Polak says. “So now I'm moving to the next level of scale.”

That level of scale is massive.

“I'm now, in the last four years creating global companies, each of which can transform the livelihoods of one hundred million 2 dollar a day customers,” Polak says. “And if the company is successful, generate $10 billion in revenues and earn enough profits to attract international commercial investment.”

The four companies Polak is starting himself take on four of the biggest issues facing the global community. The first, called the Sunwater Project, has the goal of providing electricity to people who have never had the luxury of a connection to the electric grid. The goal is to reduce the cost of solar panels by 80 percent so people in rural areas can use the electricity produced to power solar water pumps. This would allow them to grow cash crops and raise their income.

Another project of Polak’s intends to transform agricultural waste and invasive plants species into a green competitor to coal and charcoal.

“We produce four billion tons of agricultural waste and about a quarter of that is transformable into a thermally competitive alternative to coal,” Polak says. “And those ag wastes are located right where the poor people are.”

Polak is confident that at least two or three of his ventures will be successful and lead to further investment and innovation.

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INTERVIEW HIGHLIGHTS:

On his beginnings in social entrepreneurship

I went to Bangladesh and talked to those people and they quickly told me that they didn't have enough money and they made most of their money from farming on small one acre farms and what they needed most to earn more income was affordable irrigation. So I talked to a bunch of people all over the place, found that, first a rower pump (which was pumped by a rowing motion) and then a treadle pump was a very effective, affordable irrigation. I never looked back. That was so interesting for me so that led to starting a project to mass-market treadle pumps in Bangladesh, which started me on the path of mass marketing affordable irrigation using market creation strategies. We ended up helping 20 million people move out of poverty and that got me interested in the whole thing about market solutions and business solutions to poverty.

On the superiority of using market economics to fight poverty

If you subsidized the cost of the rower pump or the treadle pump you put manufacturers out of business and while that was an advantage to the few people you could subsidize, in the big picture it really limited the number of people that could get pumps. So the question is, do you want to help a few people by paying for their equipment or do you want to help a million people by activating local entrepreneurial networks to act in their own self-interest to manufacture markets and install treadle pumps. In the many experiences I have had, when you give things away they don't get used properly so it ended up, based on practical experience being what I consider to be the most effective way of changing people's lives through access to affordable technologies and strategies. It’s far more effective than trying to donate people out of poverty.

On Western misconceptions about global farming

We started with farmers because that's where that population is. In fact when you look at the big picture, 85 % of all the farms in the world are less than five acres so we get a very distorted view of farming because in the West we think of the kind of farms that exist in the west. They are not typical. On the global scene farms are small and getting smaller in the west they are big and getting bigger.

On his new projects

I'm now, in the last four years creating global companies, each of which can transform the livelihoods of one hundred million 2 dollar a day customers and if the company is successful generate 10 billion in revenues and earn enough profits to attract international commercial investment. I'm starting four of those companies, the first is drinking water, the second is affordable electricity for villages. There are more than a billion people without access to safe drinking water, more than a billion people who will never connect to the electric grid so what we've done there is we activated a global design team led by space engineers at Ball Aerospace to cut the cost of photovoltaics by 80% because photovoltaics are divisible and so that's a big advantage when dealing with small and large villages and different uses for electricity.  A third company that I'm starting creates a green, low carbon emission competitor to coal and charcoal by transforming agricultural waste and invasive species of plants through a process called torrefaction which is sort of early pyrolysis. That is a potential 250 billion dollar market, and those ag wastes are located right where the poor people are, so that's very much relevant to poor people. Those are the kinds of companies that I'm starting now and a group of us are exploring setting up an investment fund. I'm creating four of those companies. I think there is a fairly high risk that at least 2 or 3 of them will be successful and then we're exploring setting up an investment fund of about 130 million dollars that will create 20 more of those companies.

FULL TRANSCRIPT

SUZETTE GRILLOT, HOST: Paul Polak, welcome to World Views.

PAUL POLAK:  Thank you for having me here.

GRILLOT: You started your career as a psychiatrist and spent a number of years, a couple of decades, as a psychiatrist and this somehow influenced the work that you did then with the poor. How did you make that connection between your work with mentally ill and homeless veterans and people in need of psychiatric treatment to then working with the poor?

POLAK: The reason I got into this space is as a psychiatrist I was working with major mental illness, the kind of people that normally go to the state hospital and what we learned very quickly is that their adjustment depended more on their extreme poverty, that is, the members of the population that were chronically mentally ill, some of them were homeless and some of them were chronically mentally ill living in the community. Their poverty was a bigger determinant of their adjustment than their symptoms of mental illness. Some people would have active hallucinations while they were working and they were excellent workers, some people who weren't as flagrantly psychotic seemed to be better adjusted but they couldn't work worth a lick. So, we started doing poverty strategies for the chronically mentally ill living in the community. Things like opening access to section 8 housing by becoming a housing authority. The state mental health authority could, under a loophole in the law, become a housing authority and that applied for section 8 rent subsidies. So we made section 8 rent subsidies available to chronically mentally ill people so they could now, under section 8, they could contribute a quarter of their income and the HUD subsidy provides the rest. So they were eligible for nice apartment houses with swimming pools and they had never had anything like that before in their life. We used that as a lever to help them move out of poverty because in order to gain entry into that program they had to agree to move their butt off the sofa watching TV and come in for some kind of work. So we set up a whole system of semi-sheltered work settings, a system of residential settings and access to work and self esteem and income was the most powerful factor in decreasing readmission rates for instance. So, I became interested in poverty strategies and quickly realized that people who were poor in southwest Denver were living on five or six hundred bucks a month and there were people in Bangladesh living on 30 dollars a month, so I have a lot of curiosity. I went to Bangladesh and talked to those people much like I did to people who were patients in the mental health system and they quickly told me in Bangladesh that they were poor because they didn't have enough money and they made most of their money from farming on small one acre farms and what they needed most to earn more income is affordable irrigation. So I talked to a bunch of people all over the place, found that this first a rower pump which was pumped by a rowing motion and then a treadle pump was a very effective, affordable irrigation so I never looked back. That was so interesting for me so that led to starting a project to mass-market treadle pumps in Bangladesh, which started me on the path of mass marketing affordable irrigation using market creation strategies. We ended up helping 20 million people move out of poverty and that got me interested in the whole thing about market solutions and business solutions to poverty.

GRILLOT: So your background and this trip to Bangladesh really changed that trajectory but it's interesting that you started out saying you were a pioneer in social entrepreneurship. I mean that concept didn't exist at the time but you chose, after this trip to Bangladesh, you chose to employ business and market strategies to fight poverty whereas many people choose aid and assistance and other types of strategies to fight poverty. Why is it that a business model and a market strategy is preferable or somehow superior to other models?

POLAK:I didn't start out with that mindset. I was open to anything, but it simply that the charity models didn't work with treadle pumps specifically. We started with a simple rower pump with a two-inch plastic tube and a plunger and there were seven or eight NGOs promoting rower pumps. They usually subsidized either the drilling of the well or the cost of the treadle pump and the strategy was "poor people are really poor so they need to have something cheaper," but the mechanism by which you could mass disseminate rower pumps and treadle pumps involved local workshops that made them, dealers who sold them and the well drillers who drilled the well. If you paid for the cost of drilling the well, you put well drillers out of business and there are about 3 thousand of them that we trained in Bangladesh acting in their own self interest are much more powerful marketing strategy than paying for the cost of well drilling. If you subsidized the cost of the rower pump or the treadle pump you put manufacturers out of business and while that was an advantage to the few people you could subsidize, in the big picture it really limited the number of people that could get pumps. So the question is, do you want to help a few people by paying for their equipment or do you want to help a million people by activating local entrepreneurial networks to act in their own self-interest to manufacture markets and install treadle pumps. In the many experiences I have had, when you give things away they don't get used properly so it ended up, based on practical experience being what I consider to be the most effective way of changing people's lives through access to affordable technologies and strategies. Far more effective than trying to donate people out of poverty.

GRILLOT: So providing affordable access and technologies and providing this access you've largely focused on farmers and farming practices in your work. Is there a particular reason why? Is this just where you got your start? Water in general is where you focus--safe drinking water, safe use of water--but largely so they can farm and enhance their productivity and your work has allowed farmers to increase their income by hundreds of millions of dollars if you collectively added it all together. So why farming? Why is that the key area?

POLAK:  IDE (International Development Enterprises), which is the organization, I started. It's mission was to increase the income of people who live on a dollar a day. At that time there were 1.1 billion of those, about 75 or 80% lived on farms. They are primarily rural and if you look at the 2.7 billion people who live on less than 2 dollars a day they are primarily rural, not urban. So it simply started with farmers because that's where that population is. In fact when you look at the big picture, 85 % of all the farms in the world are less than 5 acres so we get a very distorted view of farming because in the West we think of the kind of farms that exist in the west. They are not typical. On the global scene farms are small and getting smaller in the west they are big and getting bigger. By the way, that was the focus of IDE so I founded that organization, led it for 25 years. I handed it over and then now I'm going to the next scale level because my view is that 20 million people who we helped move out of poverty were primarily one acre farmers. That might be a laudable achievement in some eyes but compared with 2.7 billion people who live on less than 2 dollars a day, which is 40 percent of the world's population, that's a drop in the bucket, so now I'm moving to the next level of scale. IDE was a nonprofit operating as a business. I'm now, in the last four years creating global companies, each of which can transform the livelihoods of one hundred million 2 dollar a day customers and if the company is successful generate 10 billion in revenues and earn enough profits to attract international commercial investment. I'm starting four of those companies, the first is drinking water, the second is affordable electricity for villages. There are more than a billion people without access to safe drinking water, more than a billion people who will never connect to the electric grid so what we've done there is we activated a global design team led by space engineers at Ball Aerospace to cut the cost of photovoltaics by 80% because photovoltaics are divisible and so that's a big advantage when dealing with small and large villages and different uses for electricity.  A third company that I'm starting creates a green, low carbon emission competitor to coal and charcoal by transforming agricultural waste and invasive species of plants through a process called torrefaction which is sort of early pyrolysis. That is a potential 250 billion dollar market. Coal is responsible for 40 percent of global carbon emissions. We burn 6 billion tons of coal every year on the planet; we produce 4 billion tons of agricultural waste about a quarter of that is transformable into a thermally competitive alternative to coal. So I think there is a billion tons of ag waste and at least another billion tons of invasive species of plants that could be transformed into a product that competes with coal and charcoal. In the process, that's a 250 billion dollar market and those ag wastes are located right where the poor people are, so that's very much relevant to poor people. Those are the kinds of companies that I'm starting now and a group of us are exploring setting up an investment fund. I'm creating four of those companies. I think there is a fairly high risk that at least 2 or 3 of them will be successful and then we're exploring setting up an investment fund of about 130 million dollars that will create 20 more of those companies.

GRILLOT: Well my goodness there is still an awful lot of work to do. You've taken 20 million people out of poverty, yet unfortunately there are still a lot of people there and you've got a lot of work to do. Thank you so much, Paul Polak for being with us today and sharing with us the important work that you are doing. It's very interesting

POLAK: This is one of the quickest 15 minutes I've experienced. Thank you for inviting me.

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