On today’s show, John speaks with author Paul Polak, who has designed a program to help 100 million $2-a-day customers move out of poverty.
June 13, 2014
JOHN SHEGERIAN: Welcome back to Green is Good, and I’m so honored to have with us today Paul Polak. He’s the CEO and author of Out of Poverty. Welcome to Green is Good, Paul. PAUL POLAK: I’m glad to be here. Thanks for inviting me. JOHN SHEGERIAN: You know, Paul, you have such a fascinating background and I’m going to let you share that in a second but I just want to share with our listeners up front here. Your most recent book is called Out of Poverty: What Works When Traditional Approaches Fail. That’s become a renowned resource around the world for global poverty and your last book, The Business Solution to Poverty, Bill Clinton called it, “one of the most hopeful propositions to come along in a long time”. Paul, you have a fascinating history and journey. Please share with our listeners before we get talking about what you actually have written about, before we get into your story, share your journey with our listeners first. PAUL POLAK: I’d be glad to. I actually was born in what is now the Czech Republic. I’m a true bohemian. My family escaped from the Nazi invasion in 1939. We came as refugees to Canada. I went to medical school in London, the University of Western Ontario in London, Canada, became a psychiatrist and worked for 22 years as a psychiatrist. In my last few years as a psychiatrist, I ran a complete mental health center in southwest Denver and one of the things that became very clear quickly was that in treating the chronically mentally ill people who lived in the community, including homeless mentally ill clients, the most important variable in determining their adjustment was their extreme poverty so we started doing poverty strategies, which included decent housing, access to jobs with self-esteem, and helped people’s poverty and we found that the readmission rate dropped radically. Then I got interested in how people who lived on $30 a month instead of the $300 to $800 a month that they earned in southwest Denver, I was curious about how the world’s poorest people survived and so I went to Bangladesh and talked to some farmers who made their living, which amounted to about a dollar a day, from one acre farms and that’s how IDE was born. IDE is a nonprofit development organization that works as a business and the first step was talking to some $3,000-a-day families all over the world. What they told me was they were poor because they didn’t have enough money and they needed affordable irrigation so that they could grow crops in the dry season when vegetables were three times as high in price as in the rainy season, when everybody else could grow them so long story short, we basically invented or found radically affordable irrigation devices for poor farmers and mass marketed them without any subsidy. That is, we treated poor people as customers instead of as recipients of charity. That effort ultimately raised some $20-million-a-day people out of poverty and I took what we learned from that, which is that market forces and creating new markets are the most powerful tool to end poverty. I moved that to a larger scale and now I’ve started four global multinational companies. Each one of them is designed to help 100 million $2-a-day customers move out of poverty and generate the revenues of $10 billion and most of these are environmentally sustainable companies so one of them uses solar energy to replace diesel pumps. One of them turns waste biomass into a green form of coal to replace coal and charcoal, and one of them sells safe drinking water to people who need it. JOHN SHEGERIAN: Got it. And, for our listeners that just joined us, we’re so honored to have Paul Polak on. You can buy his books and learn more about Paul at www.paulpolak.com. This is your business solution, these three businesses that you just outlined is the business solution to poverty being people, planet, and profit. PAUL POLAK: Yes, and I see those as representatives of a whole new generation of frontier multinational companies I see $2-a-day customers — there’s some 2.7 billion of them, 40% of the people in the world- as a virgin market that has not been tapped by existing businesses. JOHN SHEGERIAN: What did you mean in your book though by, “zero base design”? What does that mean and what does that mean for us in terms of the future of the planet and sustainability? PAUL POLAK: In order to effectively reach the bypassed 40% of the world’s customers, we need nothing less than a revolution in how we design products and services and how we market them and to make that revolution real, zero base design basically is the equivalent of zero base budgeting. In zero base budgeting in business, companies instead of tweaking categories like R&D, Operations, and Personnel, start from scratch and say, ‘What would we do, how would we spend money, if we started from scratch to design a business to meet the mission that our current business is meeting?’ and so in zero base design, you make no assumptions and you start from scratch. A perfect example is there are 26 million diesel pump sets in India pumping irrigation water now, mostly in the Gangetic Delta. A perfect alternative that is green is using photovoltaic solar energy to make electricity driven irrigation pumps but a two kilowatt solar powered pump costs in the range of $7,000 in India now, which is far too expensive to be competitive with diesel pumps so I gave a group of rocket scientists at Ball Aerospace the following challenge: I said, “Design me a solar photovoltaic pump that does the same as a two kilowatt existing pump and competes with a five horsepower diesel pump but cut the price from $7,000 to $1,500, which now makes it economically competitive.” They did that but they did that by making no assumptions and starting from scratch so for example, when you put a solar panel on your roof in this country, it’s fixed, but the optimal electricity output from a solar panel comes when it’s exactly at right angles to the sun so in big photovoltaic systems, they incorporate computer controlled tracking, which follow the sun on its east to west route every day but the cost of that fancy equipment is so high that it almost doesn’t make an attractive difference. Now when you adapt that problem to the situation in India, labor is about $2 a day and the farmer who is pumping irrigation water to his crops is in the fields most of the day anyway directing the water from one field to another so we designed a simple hand cranking tracking system. The engineers learned that 90% of the efficiency of continuous tracking can be attained by only moving it to three positions so the farmer uses a hand crank and moves the solar panel into three positions during the day. That increases the efficiency of the solar system by 30%, but more importantly, it increases the hours of operation from five hours a day to nine to 10 hours a day so a simple thing like that makes a huge impact on lowering the cost of a photovoltaic system customized for developing countries but it requires starting from scratch and making no assumptions. Does that give you an idea of how zero base design works? JOHN SHEGERIAN: That is a great idea, and for those listeners who have just joined us, we’re honored to have Paul Polak on with us today CEO and author of Wind Horse International. We’re talking a little bit about his book, Out of Poverty, which Businessweek called, “offers optimism, not just for those fighting poverty and for those fighting to get out of it, but for any company interested in basically an untapped one billion person market”. You can buy his books on his website, PaulPolak.com or Amazon.com, Barnes and Nobel, other great bookstores. Paul, we talked a little bit about people, planet, and profit. We hear those terms a lot in terms of the triple bottom line. Does one take precedence over the other when you’re trying to drive sustainability initiatives forward or are they all equal in the equation? PAUL POLAK: Well, from my practical experience, neither of those options. I think the solution is to build a social mission that is a mission that incorporates what’s commonly described as the triple bottom line into the DNA and the overall mission of the organization so for instance, if your mission is to sell safe drinking water, at an affordable price that is a price that the $2-a-day customers deem affordable, if you’re successful at selling safe drinking water at an affordable price to customers who are getting sick from drinking bad water, the social objective is built in and will be accomplished. The real challenge is how to make that into a profitable business because if you can make it into a business with attractive profits, then there is no ceiling to the amount of investment funds you can attract so you can rescale. The key unmet challenge is how to achieve these social goals in a way that is a cost-effective profitable business and that’s what we’re focusing on in these three or four frontier multinationals. JOHN SHEGERIAN: Let’s talk a little bit about one of your basic tenets of ending poverty. Is that beneficial to sustainable growth and environment in the future or is making society stronger and bigger more beneficial to ending poverty or vice versa? How does this work? What comes first, the chicken or the egg when it comes to ending poverty? Which way do we pull on that equation? PAUL POLAK: Well, I think from my point of view, it doesn’t really matter. If you help half of the 2.7 billion people living under $2 a day out of poverty, you make a huge impact on the positive environmental balance of the planet for the following reasons: One of the biggest contributors to reduce carrying capacity of the planet is population growth. The single biggest factor creating population growth is poverty. The data is very clear that once you reach a certain income level, a nation’s population growth rate goes down to zero so the first issue is that poor people need large families to survive so if you help hundreds of millions of poor people move out of poverty, you help lower population and the major population growth of planet earth is contributing to environmental imbalance. The second thing is that really poor populations need food donated to them and there are huge amounts of carbon expended in growing the extra food to feed people who are starving and transporting it to the people who are starving. The third thing is that most of the global conflict, extreme poverty is a huge factor and when you have wars, that creates a huge part of environmental imbalance so I could examples like this so ending poverty and environmental sustainability go hand in hand and you can help people end poverty in an environmentally sustainable way. That is not to say that when you help people pump irrigation water through green methods, there aren’t some negative consequences. Everything you do has negative and positive environmental consequences but if you do it in a way that is the most effective way, the positive environmental consequences far outweigh the negative. JOHN SHEGERIAN: Got it. Speaking of such, there’s a cost benefit analysis to all of corporate action when we green them. Is that appropriate still or is that counter to their profit and their bottom line? PAUL POLAK: Well first of all, a lot of the so-called greening is, in my view, sort of cosmetic so there’s a lot of publicity about greening of corporations but it needs to be substantially contributing to actual greening. Secondly, most of the data we have indicates that corporations who are oriented towards the common good are more profitable actually than the corporations who aren’t so there’s a lot of data about socially responsible businesses outperforming the businesses that are not classified as socially responsible in terms of long term profitability. JOHN SHEGERIAN: So, businesses could do well and do good at the same time? PAUL POLAK: Absolutely. JOHN SHEGERIAN: We’re down to the last three minutes or so. Talk a little bit about the business opportunities. Are they there? Are they real or are they not? PAUL POLAK: The recycling opportunities are real. In the West, we think of recycling as taking plastics, paper, and other recyclable goods and making something useful out of them. One of the problems in that arena is that there still remains a lot of recycled goods that there isn’t any market use for so there’s a big pile of plastics that still go into the dumps but if you look at this on a global scale, not from the western developed countries, one of the huge opportunities for recycling is agricultural waste. Coal represents some 40% of carbon emissions. We burn 6 billion tons of coal and we produce as a planet 4 billion tons of agricultural waste, things like cotton stocks left in the field after the cotton is picked, but it’s possible to recycle that agricultural waste, much of it, into a green competitor for coal. JOHN SHEGERIAN: I want you to talk about that. We’re down to a minute-and-a-half. Talk about your two big green initiatives, Sudden Water and Green Biocoal. PAUL POLAK: Let’s talk about green biocoal. Sudden Water, as I mentioned before, is a company that produces a radical form of electricity for poor people. Green Coal takes agricultural waste and, through a process called torrefaction, which is heating it to 300 degrees in the absence of oxygen for about three hours, it transforms it into a blackened substance. When it’s compressed into briquettes, you can substitute it for coal, for example, coal-fired utility plants, and lower carbon emissions by doing that and it’s a potential $250 billion market but it requires a radically affordable decentralized processing plant located in villages close to the waste and so we’re building those plants for 25,000 compared with existing torrefaction plants that start at $10 million and that will create a global network capable of recycling agricultural waste into a coal. JOHN SHEGERIAN: Got it. Paul, thank you for coming on Green is Good today and for our listeners out there that want to learn more about Paul and his great work or buy his books, go to www.paulpolak.com. His two great books, The Business Solution to Poverty or Out of Poverty are available on his website or on Amazon.com or at other great bookstores. Thank you, Paul for being a visionary brave thinker and a hopeful sustainability evangelist. You are truly living proof that green is goo