The Prosperity Paradox

The starting point of the book The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty is expressed by this statement in the initial page of the first chapter:

According to the World Bank, more than 750 million people still live in extreme poverty, surviving on less than $1.90 a day. We all want to help. But what might seem to be the most obvious solution to these problems—directly assisting poor countries by investing to fix these visible signs of poverty—has not been as successful as many of us would like. You only have to look at the billions of dollars that have been channeled to these problems over the years with relatively slow progress to conclude that something is not quite right. With these efforts, we may be temporarily easing poverty for some—but we’re not moving the needle enough.

What is needed is a different approach. The problem needs to be considered through different lenses. Instead of trying to fix the visible signs of poverty, we should focus on creating lasting prosperity.

How can we do this? Christensen, Ojomo and Dillon believe that the solution is innovation. But what type of innovation? Sustaining innovation? Efficiency innovation?

Clayton Christensen
Clayton Christensen

In The Prosperity Paradox, the authors argue that while sustaining and efficiency innovations have an important place in the economic development of nations, more market-creating innovation is what is really needed to help raise nations from poverty.

Global poverty is one of the world’s most vexing problems. From education to healthcare, infrastructure to eradicating corruption, the vast majority of solutions rely on trial and error. Essentially, the plan is often to identify areas that need help, flood them with resources, and hope to see change over time.

But this is a mistake, because these solutions are not producing consistent results. “At least twenty countries that have received billions of dollars’ worth of aid are poorer now.”

Christensen and his co-authors offer a new framework for economic growth based on entrepreneurship and market-creating innovation. They use successful examples from the US, including Ford, Eastman Kodak, and Singer Sewing Machines, and others from countries like Japan, South Korea, Nigeria, India, Mexico, and more.

The Prosperity Paradox is not simply a business book for companies who are looking for long-term growth and sustainable progress, but it’s also “a call to action for anyone who wants a fresh take for making the world a better and more prosperous place.

This book is a must read for those who are interested in innovation and for those who work in the development space. It is another masterpiece from Clayton Christensen and colleagues.

25 of My Favorite Quotes

“Innovation is not only about high-tech solutions; it is the change in the processes by which an organization transforms labor, capital, materials, and information into products and services of greater value. That doesn’t necessarily involve cutting-edge technology.”

“It may sound counterintuitive, but our research suggests that enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries”

“Market creating innovations do exactly what the name implies, they create new markets. But not just any new markets, new markets that serve people for whom, either no products existed or existing products were neither affordable nor accessible for a variety of reasons. These innovations transform complicated and expensive products into ones that are so much more affordable and accessible that many more people are able to buy and use them.”

“This struggle often presents itself as “non consumption” where would-be consumers are desperate to make progress in a particular aspect of their lives, but there is no affordable and accessible solution to their problem.”

“As a culture of innovation began to emerge in America, one in which entrepreneurs looked to serve more and more nonconsumers, a virtuous cycle of prosperity creation was set in motion.”

“At the core of any market-creating innovation is a business model that profitably democratizes an innovation so that many more people nonconsumers who can benefit from using the innovation—gain access to it. That’s where the transformative power comes into play.”

“Not all innovations are created equal.”

Efosa Ojomo
Efosa Ojomo

“What we learn from these nations is that prosperity is a process, not an event, one that requires a continuous commitment to innovation.”

“The real voyage of discovery consists not in seeking new landscapes but in having new eyes. – Marcel Proust”

“When I come across a Sony product these days, I don’t just see a cool innovation, I see something much more powerful and enduring: the process by which one of the most prosperous nations in the world developed.”

“Eiji Toyoda summarized Toyota’s attitude toward training and providing relevant education for its workforce: “It is people who make things. So we must first make people before we make things.”

“The problem is, it is very difficult to “see” what you are not looking for. Many of our economic forecasts don’t necessarily help, they typically focus on what we call the “consumption economy,” the part of the economy that is most visible through conventional metrics.

“When you look at Mexico’s economy not through the lens of investment dollars, but through the lens of innovation, a pattern becomes clear. Many companies in the country—domestic and international—have invested heavily in efficiency innovations. But in what should be a vibrant economy, flush with resources, there is a disappointing lack of market-creating innovations. And as Mexico painfully illustrates, an overreliance on efficiency innovations can only take an economy so far.”

“People are nonconsumers because they are struggling to accomplish something, but none of the available solutions are good options for them.”

Karen Dillon
Karen Dillon

“Development and prosperity take root when we develop innovations that pull in necessary resources a society requires.”

“An efficiency innovation–based strategy—which enables companies to squeeze as much as possible from existing and newly acquired assets—typically sells its products into the “consumption economy,” those who can already afford existing products on the market. Because these innovations are not targeted at nonconsumption, they typically do not create new markets.”

“If we create a market that successfully serves a growing population of nonconsumers, that market is likely to pull in many other resources an economy requires.”

“Once a market is created, however, it is difficult to destroy. Markets fundamentally change the way people live their lives, and when you are responsible for creating a market, the rewards can be abundant.”

“Just because a nation is economically poor does not mean that vast market creation opportunities do not exist within its borders.”

“We cannot fix problems with the law, systems, and institutions by simply adding another law, system, or institution. Effective institutions are not just about rules and regulations. Ultimately, institutions are about culture—how people in a region solve problems and make progress. At their core, institutions reflect what people value. And that, it turns out, has to be homegrown. Innovation can play a critical role in this process.”

“In general, poor countries are overwhelmed with bad institutions, while prosperous countries are filled with good ones, or at least much better ones. Conventional wisdom suggests that countries that want to tackle poverty must first establish rule of law, fix their institutions, and adopt Western-style systems before they can make progress toward prosperity.”

“The problem is, the institutions of a society reflect its values rather than create them. So building strong institutions—ones that will shape and hold a country’s values for generations—is not as simple as “export what works elsewhere, add water, and stir.”

“In focusing on adopting “best practices” that seem to work in other parts of the world we often fail to understand the contextual complexities specific to a particular region. As a consequence, we measure success on how much a system resembles another system that works versus on whether it actually solves a particular problem.””

“An institution is really a reflection of the culture”

“If you build it, they may not come.”


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