Medium shot of a food bank being run by volunteers at a community church in the North East of … [+]
Despite progress in reducing extreme poverty, about 60 percent of the global population—4.7 billion people, including an estimated 70 million in the United States and 200 million in other high-income countries—live below the economic empowerment line. This yardstick, developed by the McKinsey Global Institute, measures if individuals’ essential needs are being met. It defines a standard basket of basic goods and services for a frugal yet decent quality of life —including country-specific costs for adequate housing, food, healthcare, education, transportation, and a small amount of emergency savings.
Different populations face different combinations of empowerment challenges.
The cost of economic empowerment differs significantly from country to country. Economic empowerment in Egypt, India, or Indonesia, for example, requires just $4 to $5 per person per day. Meanwhile, in the United States or Switzerland, it is $55 to $70 per person per day. Even in economies at similar GDP levels, the share of people living below the line varies widely, because costs and income opportunities vary. The limiting factor holding most people back from economic empowerment also differs around the globe. In some places, it is the price of housing. In others, it is the cost of food or the availability of stable jobs with sufficient wages.
The private sector is pivotal to achieving empowerment and has a wide array of options.
What can companies do? As employers of most of the world’s workforce and providers of essential goods and services, companies are already making contributions. But they could do more by tailoring their social initiatives to tackle context-specific barriers to empowerment. Given that companies are already big players in economic empowerment globally, even modest increases in their positive impact would make a big difference. Here’s what companies are doing now and what they could do to have even more impact—even maintaining the same level of investment seen today.
My colleagues and I at the McKinsey Global Institute examined the initiatives of 100 global and large companies. Looking across this group of 100 companies that span both regions and industries, we found at least 70 different types of initiatives that were being pursued to contribute to economic empowerment. These actions or investments increase empowerment as part of their core businesses serving customers, employing workers, and doing business with suppliers, or through their budgets for social initiatives.
On the income front, a growing number of companies are committing to paying their workers a living wage and helping to ensure fair wages in their supply chains. They are implementing reskilling programs to help employees transition into higher-productivity and higher-wage roles. Some companies are even financing higher education for low-wage employees and providing pathways for hourly workers to move into salaried positions. Efforts are also being made to create work opportunities for women in rural areas. Beyond their employees, companies are engaging in community upskilling initiatives, such as training programs that equip individuals with digital skills like software development and data-platform management.
With numerous initiatives underway and the often-significant investments they require, how can companies effectively prioritize whom they serve and how they do so? In the environmental domain, greenhouse gas (GHG) emissions have become a unifying metric, offering a standardized way to assess and compare the impact of various GHG abatement actions. However, in the social domain, no widely accepted standardized metric is used to evaluate the impact of different initiatives. So we created one: an “empowerment impact” metric that enables consistent comparisons across a broad range of social initiatives to better allocate resources and empower more individuals.
We define the empowerment impact metric as the increase in spending power reaching individuals below the empowerment line relative to the investment required to make it happen. By applying this metric, a company can measure the benefits of an initiative relative to its price tag, enabling a clear assessment of its cost efficiency. Given the significant resources these efforts require, companies looking to drive greater empowerment impact can prioritize efficient initiatives for better results.
Connections, contexts, and capabilities can guide initiatives.
Companies could design made-to-measure initiatives with three considerations.
1. Connections to stakeholder groups below the empowerment line allow companies to better focus their efforts. The first step for companies is to use their direct knowledge of stakeholders to identify which groups are most likely to fall under the empowerment line. For example, a company might look no further than its own workforce to find people struggling to make ends meet, through reviewing wages and benefits and gathering data on factors affecting the local cost of living, such as commuting times and scheduling challenges. Companies can also use their ties to other stakeholder groups, including suppliers, customers, and communities.
2. Individual context can guide which empowerment challenges to focus on. Once companies identify who within their reach is most in need of support, the next step is to understand the specific challenges holding them back. As noted, empowerment challenges vary by country. Within a country, at a regional or even city-specific level, barriers to empowerment can vary as well. Understanding the most pressing challenges that impede economic inclusion will help focus the investment.
3. Capabilities enable companies to implement certain initiatives more efficiently than others. Guided by the principle of leveraging their comparative advantages—or “superpowers”—companies can generate more value by investing in initiatives that play to these strengths. Comparative advantages include a company’s core capabilities as well as its operations and assets.
Companies can use “empowerment impact” as a unifying metric to measure benefits to people in need. By assessing the impact relative to the costs borne by the company, initiatives can be ranked from highest to lowest efficiency along an empowerment cost curve. To guide their actions, companies can then assess and prioritize initiatives that are otherwise difficult to compare. Tracking the number of people empowered can be an effective tool to communicate their efforts and impact.
The role that companies play in economic empowerment around the world is critical—and by investing in a more cost-efficient way to drive empowerment through better prioritization, they can have even more impact. To empower even larger populations, companies can also combine their capabilities and expertise with those of other private actors, governments, and nonprofits. Efficient investments and bolder innovation in finance, technology, industry, and policy—alongside robust economic growth—could help lift more people globally to experience economic empowerment.
