Business - an effective vehicle for creating social transformation and prosperity

Legatum Limited

We believe that aid plays an important but limited role in development. Communities grow through economic opportunity which comes about through an alchemy of good governance, cultural transformation, education and an enabling business environment. Achieving this requires long-term thinking and a concentration on creating, or supporting, initiatives that will become self-sustainable.

As investors we use The Prosperity Ladder to guide our capital allocation. The Ladder is a simple framework illustrating how to allocate financial, intellectual and human capital in order to help others prosper. At the bottom of the Ladder are hundreds of millions of people around the world who live below the poverty line and are caught in subsistence living, who are unable to generate surplus capital, improve their skills through education or access credit. It is hard to believe that any society can function without access to capital, as it is essential for development and prosperity.

Well-directed aid (public and private) can provide the capital required to break this poverty cycle and provide the means for progress. If we invest capital at the bottom of the Ladder, we are providing an opportunity for people to better their own circumstances and over the years we have seen first-hand how people can in fact create sustainable lives when given this opportunity.

As markets and societies become increasingly developed, surplus capital is created, reducing financing costs and improving access to credit and equity. This enables households to invest in housing and education, and entrepreneurs to start and grow businesses. Often, entrepreneurship alone is the engine of growth and development and a catalyst for improved governance and social transformation. This in turn fuels the growth of larger enterprises, helping to create jobs, providing consumers with better access to services, increasing competition, improving the legal and regulatory environment and delivering many other social benefits. In addition, in vibrant free markets, surplus capital generated at the top of the ladder is recycled as seed capital to support new entrepreneurial ventures and as philanthropic grant aid to help those beneath the poverty line.

This virtuous circle is the reason many use the phrase business is development, as business is the most effective vehicle for creating social transformation and prosperity. When bottom-up solutions developed by an organised community are combined with a flourishing private sector enabled by a supportive government, millions of people living in poverty can enjoy better lives.

Download The Prosperity Ladder here.