McKinsey Global Institute (MGI) found that as of 2020, about 61% of the global population were unable to pay for their basic daily needs and begin to save. Building on the work of development economists, we established the “empowerment line” to measure progress towards a world where everyone’s essential needs are met.
Higher than the international poverty line, the empowerment line varies greatly from country to country. In the lowest income economies, the empowerment line is set at a floor of $12 per day in purchasing power parity terms while in the US or Switzerland, it runs from $55 to $70 per person per day.
The best way to economically empower people differs by the income level of a country. For people living in lower- and middle-income countries (LMICs), economic growth is the most powerful force for progress. Yet, GDP growth alone isn’t the answer – especially for the one-fifth of the population that is not economically empowered in higher-income countries. The costs of essential goods and services often rise faster than overall inflation in many places, keeping empowerment frustratingly out of reach.
Putting the empowerment concept to work
Since MGI’s 2023 report From poverty to empowerment: Raising the bar for sustainable and inclusive growth, we’ve been trying to put the concept into practice with a series of articles. A better life everyone can afford: Lifting a quarter billion people to economic empowerment tackled the issue from the perspective of the affordability of basic costs. In the latest, we offer a practical guide for businesses looking to customize initiatives, “made to measure,” to improve empowerment outcomes.
Empowerment challenges across 120 countries
What are the top barriers to economic empowerment across countries? It depends where you look. In our analysis across 120 countries, we found that even within economies of similar GDP levels, the share of people living below our empowerment line varies widely, as do the biggest barriers to economic empowerment.
Consider a few examples from different income groups in the chart below (Exhibit 1). As we compare countries with similar GDP levels, we might have expected Germany’s housing costs, the US’s healthcare costs, or Japan’s food costs to pose less of a problem for the economic empowerment of local populations than they actually do. If these highlighted costs were more in line with their peers, many more people could make ends meet. Initiatives that target these three elements may be more effective to empower local populations economically.
Targeting that works for the private sector
As the employers of most of the global workforce, companies have a natural role in empowering employees, customers, suppliers, and communities. Our analysis of the initiatives of 100 large and global companies across industries finds about 70 different types of initiatives for empowerment – from food bank donations to low-cost housing projects.
Mapping the initiatives, three overlapping areas for creating initiatives that have the maximum impact for investment come into focus: connections, contexts, and capabilities. We call these initiatives that are more targeted and effective at increasing economic empowerment “made-to-measure”
- Connections: The first step is targeting stakeholders in need. Use direct knowledge of – and ties to – employees, suppliers, customers, and communities to select your empowerment initiatives. For example, a discount retailer could aim to help its hourly workers. Meanwhile, a luxury retailer might look to suppliers or relevant communities at risk.
- Contexts: Focus on the main barriers to empowerment at the country level or more locally, as needs can vary. At the country level, in Vietnam, for example, consider initiatives that address the problem of high food costs.
- Capabilities: Identify your company’s core strengths and align them with the needs and opportunities from the first two steps above. Building on your company’s competencies, operations, and assets will boost efficiency. For example, banks can offer targeted loans and tech companies might offer skill-enhancing training.
After designing made-to-measure initiatives, companies can assess and compare their benefits. This is one advantage of having a single metric against which to evaluate the impact of social initiatives. Initiatives can be ranked from highest to lowest efficiency – how many people are empowered for each dollar of cost to a company – along an empowerment cost curve that also considers how much of the empowerment gap is closed or how many people, in total, are lifted into empowerment by each initiative. Consider two initiatives with cost-to-impact ratios of 1.0 and 0.1: to reach the same impact, the first initiative would require 10 times the investment of the second.
For companies that are investing in social impact, adopting a more cost-efficient approach could drive more empowerment impact – even at the same levels of investment. The role that companies play in economic inclusion is critical and greater efficiency can increase positive impact for the individuals and families, for society, and for the companies investing.
This article originally appeared in World Economic Forum.
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