Executive Summary:
Most of us are familiar with the old adage, "the rich get richer and the poor get poorer," and the truth is that this will never change as long as current business models, particularly regarding affordable housing and the provision of basic necessities, remain in place. Money is siphoned from communities into the hands of a few, such as investors and developers, instead of circulating within local communities to create growth and self-reliance. Poverty cannot be eradicated, and a middle class cannot emerge, unless the rate of return on capital is lower than the growth rate of the local economy. This case study examines various technologies that can be combined to help redefine the current economic model for housing in general and social housing in particular. Renewable waste streams such as glass can be used to create glass foam, which offers a low-cost solution for safe and functional housing. Toilets waste precious drinking water, and the sheer volume of diapers we currently use contributes to approximately 8% of a city's waste, destroying one of the best resources along with it. A solution like dry toilets would save massive amounts of drinking water, and adopting a locally produced, biodegradable diaper to keep costs down could provide nutrients for 1,000 fruit trees per child. Shifting our current electricity generation methods from alternating current to direct current could save us from our current power crises and provide affordable electricity,
as well as better health for the poor. This case study
places innovations within the context of a community.
Transforming the corridors of poverty through new housing models
Anyone who walks through a slum feels the lack of dignity in this desolate world. As soon as there is poverty without dignity, we enter the world of misery. Citizens confined to this living space have the right to be impatient and frustrated. There are many options for implementing innovative business models to meet basic needs; we must make a choice and decide which direction to take. Instead of analyzing and rehashing analyses, we must resolutely move towards implementation. This case study focuses on a business model that requires a fundamental shift in the provision of affordable housing and the creation of communities based on the local social fabric. Consider South Africa, a young democracy with a young population and a rapidly expanding urban lifestyle; it faces a growing demand for housing. The government has a long waiting list for housing and acknowledges that it must deliver at least 2.3 million homes if it is to eradicate the existing backlog.
There is no doubt that the South African government is eager to keep its promises, but it has fallen short of the public's expectations. After a thorough assessment of the situation, it is clear that the government is not to blame; we should blame the dominant business model. As soon as a housing project is conceived, investors (capital) extract all the capital gains before the first house is built and leave debt-ridden developers to construct shacks cheaply and quickly. The deal can be summed up as: rezone, resell, and cash twice. It is necessary to expose the logic of this money-making machine, which in no way shares its massive financial gains with people who are in urgent need of shelter and who hope to get a glimpse of what it means to live in a
community.
How does it work? Early investors acquire control of land through options, preferably on farmland that has been depleted of soil by decades of monoculture and has lost all productivity. Because the land requires significant chemical input to grow anything, it generates no income. The plot can be acquired for almost nothing. The option agreement means that investors don't actually buy the land, but only promise to buy it at a later date at a (low) price agreed upon in advance. The investor pays a fee for this right and nothing more. When the property is eventually rezoned by a political decision, the land is acquired and, most of the time, is instantly resold by the option holder to a real estate developer. The land that was worth one dollar is now easily worth four to ten times more. Without investing the full value, since only the option fee is paid, billions are made from a political decision.
According to the current economic model, the bad news for future homeowners is that the capital gains are (legitimately) diverted from the project to enrich those who managed to consolidate the options and push through the political decision. None of these capital gains are used to make the housing affordable. Worse still, the property development company will take out a loan secured by 60 to 80 percent of the new value, created solely by the rezoning. This means the loan will be repaid with future profits from the sale of the homes. So who pays for the billions that enrich a minority? This is just the beginning of a money-making scheme. The barren land is then developed, often with public funds, by a new group of investors who will handle the urban planning. The main investment is in drawing up the plans. Once the water, electricity, and sewage infrastructure is in place and housing construction can begin, the project, now ready to deliver buildings as varied as shopping centers, schools, hospitals, sports facilities, and affordable housing, is sold to a property developer. This sale generates profit by creating additional capital gains for those who delivered the rezoned land for development, now serviced and ready for construction. This is the second profit-taking before the first house is even built. Unfortunately, this newly added real value, just like the first, is withdrawn from the project by taking out additional loans to be repaid through the sale of mortgaged (low-cost) homes. The fresh cash accumulates in bank accounts (offshore) completely separate from the housing initiative, where the money can earn even more by speculating on future transactions through hedge funds or instant currency swaps. An informed assessment has calculated that 20 years of social housing development in South Africa have generated enough capital gains in the hands of a few to have halved the cost of all the social housing units already delivered.
The housing development company must now deliver the house. Since all the capital gains have been extracted from the project, there is no capital left. Worse still, the capital gains were extracted by taking on massive debt for the project, and these loans must be repaid. The housing development company is therefore extremely indebted and depends on mortgage financing from the end consumer to repay its debt and realize its profit. It is consumer financing by the first-time homeowner, who now has affordable housing, that will repay the developer's debt and the capital gains paid to speculators, which have already been extracted.
The housing development company makes money on a margin of the house, and its profitability depends on its ability to squeeze every last penny from suppliers. The buildings delivered are certainly not comfortable homes. They are shelters
that fail to meet the necessary conditions for building a community. Materials are purchased from the cheapest bidders to achieve the lowest possible cost. This leads to the typical global sourcing of all building materials, equipment, and facilities. While this aligns with the logic of low-cost housing, it deprives the community of the full value of this once-in-a-lifetime capital investment. It is impossible for a housing construction program implemented according to this logic to ever lift people out of poverty, because the poor bear the debt used to pay for the capital gains extracted from the project and the community long before their homes are even delivered. What if the principle of meeting local housing needs were primarily about growing a local economy, starting with what is locally available and the capital generated by the repurposing of the land? Imagine that the added value isn't diverted from the project but becomes an integral part of it. This means that instead of having to squeeze every supplier for every last penny, assets and resources are available to pay local suppliers at reasonable prices. Thus, the $25,000 investment in a first home is also a $25,000 injection into the local economy. This represents a livelihood for five breadwinners who can now aspire to own a home themselves. This is the beginning of a positive cycle that improves even further if materials are sourced locally and money circulates locally, strengthening the finances of this housing initiative. The homes can then be sold at an even lower price to the first homeowner, freeing up more money for other urgent expenses like healthcare, food, and education. This is a new economic model.
This business model is not against the return on capital; He favors posing the following open question to capital providers and speculators: “How much is enough?” Instead of making two billion dollars or more on a hot deal, would the investors who signed the options and assembled the land be willing to make only 200 million on the deal and dedicate the remaining 800 million to providing affordable healthcare,
affordable housing, and infrastructure services that are now being operated locally with the original investors still partners? And most importantly, are the investors who remain from start to finish willing to earn a multiple of the amount spent on affordable housing in additional income generated by the new revenue streams from the growth of a new economy as described below? It is always legitimate to speculate, to meddle in political influence, and to extract paper profits while shifting the responsibility of paying onto the poor. But it is also a matter of morality and an act of leadership to build a local economy and invest in its growth with available funds, which will ultimately be financed by the urban poor aspiring to join the middle class.
The decision to transfer agricultural land outside the city limits to developable land within the city limits is a political one. Can we agree that if and when a political decision of this magnitude (and profit) is made, then the benefits should primarily go to the people represented by these officials? Can we agree that instead of earning 300 to 500 times the value of the initial land options, a return of 5 or even 10 times is sufficient? Would investors be satisfied with earning up to 10 times their initial investment? This compelling argument will not be welcomed with open arms by traditional real estate developers who have amassed wealth for themselves and their shareholders for decades. The approach we propose keeps capital gains within reasonable limits and constitutes a fundamental first component of this new economic model. We must rethink each component and generate income for both investors and the poor simultaneously, addressing every need we can meet locally.
Buy local or buy global?
How much steel and cement does it take to build a house? A representative of the light steel and cement manufacturers would say that the house cannot stand the test of time without their materials. Sometimes, we need to take inspiration from the greatest architects of modern times who have changed the rules of the game. American architect Frank Gehry is certainly one of these exceptional creators of form and beauty. Few people know that foam glass is at the heart of his structures (see case 103). Foam glass could be virgin material or recycled glass heated and injected with CO2 to create carbon-neutral, lightweight, inexpensive, acid-resistant, fire-resistant, structural building materials that are part of a prefabricated building system.
These "poverty corridors" have waste management problems, and there is an abundance of glass to recycle. Today, recycling is low-paying work. If the core structure of affordable homes could incorporate glass foam, then this construction technique creates value out of thin air, generates jobs, sequesters CO2, and diverts glass from local landfills or overseas exports. This isn't about recycling waste as we've envisioned it over the past few decades; it's about generating the value necessary to create jobs that will provide income to cover mortgage payments. Glass foam offers higher-quality housing, with insulation against cold winters and hot summers at a lower cost, and generates additional jobs that circulate extra money in the local economy. It eliminates the use of fireproofing materials (which are expensive, toxic, and imported) and introduces temperature controls that have never been part of affordable housing standards. This is not what Frank Gehry had in mind when he designed the Guggenheim Museum in Bilbao, which has drawn millions of visitors to the Basque Country, a region plagued by decades of terrorism that has claimed over 1,000 lives. Local recycling of waste into building materials is one of many industrial initiatives that communities could launch to make their housing programs one of the many drivers of growth.
Moving from an agreement to a flow
Let's compare how much money can be made from selling a house and paying off a mortgage. Then, let's compare that income with the potential revenue generated over the next 25 years from selling water, food, energy, waste management, transportation, and many other things that this same community needs. If the community buys electricity from a national monopoly, the money spent on electricity leaves the community. The alternative would be a new local direct current (DC) grid that could eliminate transmission losses and electricity theft, ensuring that all electricity is local and renewable. Surplus electricity production is stored in water that is pumped and stored locally, recovering energy through gravity-fed turbines and heat pumps in pipes that receive water at 90°C and return it at 40°C, feeding the grid at low cost. This continuous flow system now circulates energy and money within a growing local economy.
The state (for example, South Africa) typically requires electricity companies to provide a minimum supply of electricity to the poor at a marginal cost or even free of charge. Monopolies, whether state-controlled or privatized, struggle to profit from these "poverty corridors." Non-payment of utility bills is high, and electricity piracy on transmission lines drains up to 30% of revenue. Supplying electricity to the bottom of the pyramid is therefore done at a loss. Providing even a minimum amount of electricity requires subsidies from the central government and/or cross-subsidies from the higher tariffs charged to industry and wealthier households. Given that the current distribution mechanism is neither efficient nor cost-effective, and that the poor do not benefit from the service, the best way to solve this problem is for the poor to produce their own energy.
While energy is essential, water is equally important. Installing and operating each resource separately is expensive. Combining the delivery mechanisms for both offers a portfolio of solutions. This combination of water and electricity is not only a financially viable delivery system, but also an ideal platform for creating a network of emerging micro, small, and medium-sized enterprises. Unfortunately, governments and businesses are organized and operate in silos. Water is dealt with by water experts, and electricity is the domain of electricity experts. Corporate strategists are convinced that success is a matter of "core business." They fail to grasp that combining water and electricity offers additional growth to the local economy and makes bundling basic services profitable beyond today's standard returns on investment. In other words, electricity and water are not only essential services, but the combination of the two stimulates investments that enable growth within poverty corridors.
Meeting essential needs: From alternating current to direct current
The power lines that transmit alternating current (AC) throughout a district are operated by local citizens who do not pay the city; they pay criminals who possess the expertise to exploit the power lines and charge 250 ZAR for a connection and a flat fee of 50 ZAR per month for electricity. This electricity theft deprives the community of its income, while individuals risk their lives. The city of Johannesburg loses $260 million annually due to electricity theft. Social conditions are such that holding ordinary people responsible for electricity theft is not a politically viable solution. Furthermore, those who have meters often fail to pay their bills. No city can afford to lose over $1 billion in stolen and unpaid electricity over five years. If policymakers or developers wish to improve the situation, a fundamental shift in the economic model is necessary.
Technologies and the economic model must be improved without neglecting the people who need legitimate access to electricity to sustain their livelihoods. Privatization is not the solution. While engineers may not appreciate these proposals, we strongly support the creation of hundreds, even thousands, of smart local DC grids in the "poverty corridors." Although this smart grid is very different from the concept promoted in international forums, this DC-based power distribution system is safe from piracy.
Containing piracy and involving the local community in energy conservation are not the only reasons for switching from AC to DC. Eighty percent of the electrical appliances used in slums run on DC, powering phones, radios, and LED lights. This is not only the most energy-efficient option on the market but also the cheapest once industry is no longer required to convert AC to DC
. LEDs, for example, could be enhanced by enabling them to act as an internet medium. Light-source internet, known as LiFi (instead of WiFi), provides broadband internet access at the speed of
light. These innovations appear to be the kind that guarantee everyone affordable access to electricity and the internet. While emerging economies like South Africa don't yet have an approved standard for LiFi, cities have invested heavily in building fiber optic networks to create the data superhighway, often neglecting the last mile. LiFi and DC-powered LED lamps could soon offer a low-cost solution.
DC power grid skills are widely available in townships. All cars, with repair shops on every corner of the urban fabric, run on 12V DC. This means that all devices, which are currently designed with inverters and transformers, can be simplified. This reduces costs and could even be produced locally. Thanks to local skills and local manufacturing, a new energy strategy is emerging. Money lost due to piracy and non-payment could be partially reinvested in local DC grids powered by renewable energy sources like the Solarus system, uniquely tailored to the diverse needs of impoverished populations. The Solarus combined electrical and thermal energy device provides hot water and electricity in a single unit. This approach facilitates the building of a local community based on low-cost energy and water provision, offering economic benefits beyond eliminating negative aspects such as piracy, electrocution, and non-payment. It transforms the negative spiral into virtuous growth.
To stimulate double-digit growth, a necessary condition for eradicating poverty and unemployment, there must be multiple benefits, as briefly described in the case of glass foam, solar energy, and the clean water solution. The technology must be converted into a business model that generates multiple cash flows and offers a range of non-financial benefits that are equally important to the community. The health aspect quickly comes to the forefront. The added benefit includes providing clean water by continuously maintaining the water temperature in the geysers above 70°C. The geysers automatically stop heating at 55 or 60°C, but bacteria multiply at this temperature. Unfortunately, the 70°C water temperature would place excessive strain on the national power grid, leading to further outages. Only through local solutions can these urgent health challenges be addressed.
From water and electricity to health
The new economic model based on "smart local direct current grids" operates with the national electricity grid as a backup. Local direct current grids form the basis of local supply, with decentralized production relying primarily on solar and water energy storage (gravity and heat exchange) by harnessing the abundance of sunlight. For every 10 to 50 households, there is a trained "DC Lady," as proposed by Harry Stokman, an expert in the field. The "DC Lady" would be responsible for overseeing the delivery of water and electricity and ensuring bill payments while guaranteeing the provision of services derived from clean water and abundant electricity. If one of the smaller grids fails, the rest of the DC network remains uninterrupted. Since the water will be stored at +70°C, heat pumps will compensate for any power shortfall by lowering the temperature to 40°C, thus generating the necessary additional energy without the need for battery investment.
This generates thousands of jobs for community development projects around major cities, while simultaneously creating the local social capital needed to build trust through a reliable supply of clean water and electricity. The deployment of this locally overseen distribution mechanism empowers citizens, while generating and circulating locally the income that would otherwise be lost. Thus, this solution is launched with the money "lost" in the system that never reached the energy provider and was never deployed for the benefit of the population. There are fortunes at the bottom of the pyramid, and it is necessary to find a way to redirect them into a global economy and instead ensure that these fortunes contribute to improving the living conditions of the poor. When communities switch to this smart DC system, the first benefit is the elimination of gastrointestinal diseases. It will provide cheap heating in winter, which will help combat influenza and tuberculosis by creating better living conditions in an insulated home (remember the foamed glass). Improved health increases worker productivity and ensures better academic performance. Furthermore, the entire new value chain—from solar panels for water and electricity to direct current grids, simplified appliances and lighting, complemented by high-speed internet—could be manufactured locally. This strengthens local primary and secondary industries and ensures that affordable housing develops into communities with an emerging local economy that grows at double-digit rates with rapidly circulating funds. These urban design elements are basic and easy to implement, yet they have never been considered in the current electric company's cost-cutting and revenue-generating agenda.
Stimulating the local economy through multiple cash flows
At least 70% of Solarus and DC systems can be manufactured locally, creating jobs. This virtuous cycle of increased employment and income, and increased local spending in local hands, works as follows: the production of Solarus systems will require a heat-resistant plastic frame. This supports a new recycling program. Today's heat-resistant plastics are recycled with all other plastics, and recyclers sell them for $50
per ton to intermediaries, who then resell them to Chinese buyers for $150. When Solarus units are assembled locally with locally molded frames made from locally recycled plastics collected from the regional landfill, then waste is (once again) transformed into value, and more money circulates in the economy. Fortunately, all plastics today are properly labeled,
and these new components are managing to outperform globally sourced aluminum, thus generating more jobs and income. This only strengthens the argument that we can create growth in the "poverty corridors."
Building new industries from scratch is a monumental task. Such industrial initiatives require a strong but modest start, with the vision of expanding as demand increases. The Solarus assembly is simplified to the point of breaking even, with only 200 units assembled per month. This contrasts sharply with the 1,300 units per day of standardized panels needed to turn a profit on a photovoltaic solar panel. This extremely low volume, which is the result of an ingenious assembly design and the exploitation of global supply chain concepts, reduces the risk of launching a business.
It is possible to include at least one plant in every medium-sized real estate development project, thereby distributing wealth and fostering greater local engagement. These local opportunities will help people understand innovations in water and electricity, using the language that resonates: the experience of workers who have jobs and the experience of users who have electricity, purified water, hot water, and perhaps even heating in winter and air conditioning in summer. Even those who are not literate can fully grasp this new reality and explain it to their neighbors. Beyond health and employment, this new economic model will inspire people, offering a message of hope in very practical terms. We are giving hope a future.
Sources of funding
A potential market of millions of units to address existing housing development backlogs, and an estimated billion-dollar budget that has been siphoned off the grid over the years, can now be reclaimed and reinvested in the community, adding revenue to the city and its residents. This cash flow, with all the listed benefits, should not be handed over to a savvy investor (even one based abroad) in an attempt to attract foreign capital. It is not so much the capital that is needed, but the need to redirect existing financial flows. These local units offer multiple advantages, providing electricity at a lower rate than coal or nuclear options. This means the homeowner will have greater purchasing power for essential expenses like education, enabling the whole family to move into the middle class. This new decentralized distribution of water and electricity, combined with local generation and quality control, is part of the process of inclusive real estate growth. It underpins the logic of shifting from a culture of bargaining to participation in the endless flow of money that forms the core of the economy: food, electricity, water, healthcare, and education. The positive impact on the community will reinforce this emerging vision of a better future within reach. This will reduce violence and the need to turn to illicit trade for daily survival. Instead of policing society, we can now build community.
We have only just begun to describe the vast portfolio of initiatives. The details of all these opportunities would be beyond the scope of this article. The impact, when dozens or even hundreds of comparable opportunities unfold in parallel, will be considerable. This is why any development project committed to inclusive growth should begin by building a portfolio of opportunities and using it as a powerful springboard to mobilize capital beyond real estate, with the aim of building affordable housing and communities. Ultimately, it's not about building a cheap house, but about growing a new community. If we can see the potential impact of a simple discussion about electricity and water, what about when we include food, nutrition, health, culture, education, mobility, and jobs? Let's examine some of the readily available benefits.
Food, nutrition, sanitation and health
Fruits, vegetables, grains, and meat have become global commodities. Seeds and animal sperm are controlled by a few dominant companies; the harvest is traded by a few; grains are processed by a few and imported by a few; and this trade benefits a few. While the will to eradicate world hunger should be applauded, and the determination of the many organizations undertaking this initiative deserves admiration, it must not become an opportunity for a few to profit further from poverty and misery. In recent years, Africa has seen an absolute increase in undernourishment, while Asia has seen a slight decrease in the number of food-insecure families. The difference between the two continents is that the poor populations of Asia have increasingly become net food producers, ensuring their own self-sufficiency while selling their surpluses in the local market. We must often ask ourselves what the priority is: promoting free trade or promoting livelihoods and food security. It is time to accept that free trade cannot guarantee food security, especially not for the urban poor.
This is what Africa needs. The continent has a growing number of urban poor crammed into slums with densities exceeding 20,000 people per hectare, leaving little or no space for agriculture. The demand for social services, from preschool to hospital, including sanitation and clean water, is so high that most municipalities cannot afford it. If food security is not addressed alongside sanitation and health, urban areas will experience hunger and malnutrition alongside water and electricity. Isolated strategies for isolated goals are doomed to failure. The solution to providing food, nutrition, sanitation and health to the poor
poor succeeds when integrated business models prevail.
Food security plan
New real estate development within city limits must provide 90% food security. This is achievable if open spaces are secured with a robust system of soil enrichment. All food production, such as bakeries and butcher shops, must be local. This is not just a matter of nutrition, but a strategy to ensure that money circulates and remains within the community through local food processing and delivery. High population density offers unique opportunities to reduce distribution, logistics, and packaging costs. Established programs for cultivating edible mushrooms on coffee and tea waste provide an initial platform that guarantees a variety of proteins for human and animal consumption. Transforming used coffee grounds and tea leaves into mushroom substrates utilizes a tiny stream of household biowaste, yet it is converted into a rapid and efficient catalyst for the local economy. Each kilogram of used, moist coffee or tea leaves can produce another kilogram of edible mushrooms, converted into a wide range of essential amino acids, while the leftover mushrooms after harvesting are ideal for feeding chickens or goats. Growing mushrooms is quick and easy, yielding results in a matter of weeks. Urban vegetable gardens, edible bushes, and parks can all be part of comprehensive urban planning. The key is the continuous flow of nutrients and energy. Human waste is one such critical resource. Many view it as a cost, requiring expensive development, but for others, it is an opportunity. Few are aware of the economic models that could emerge from a waste management process aimed at ensuring health, food security, and long-term employment, while simultaneously replenishing topsoil that relies heavily on a continuous supply of fertilizers, which are beyond the reach of most slum dwellers.
Wasting water by flushing the toilet
The modern standard is to use water to flush toilets. Dry toilets are an anachronism for most people. As a result, a third of the drinking water in urban areas is used for toilet flushing—arguably one of the most inefficient uses of this scarce resource.
Infants are the only family members exempt from using the toilet and flushing. Diapers have become the standard method of disposal, and while this saves a little water, it exacerbates the waste management problem in cities. Landfill managers worldwide predict that up to 8% of solid waste will be diapers. These artifacts of modern life were invented in Sweden before World War II and quickly became a symbol of modernity. Each child will need to use between 8,000 and 10,000 diapers before being potty trained.
Children who are not yet toilet trained should never be considered a problem. Plastic diapers that cannot be composted should be considered a problem. Biodegradable plastics could be used, but while these plastics are currently more expensive, locally produced and distributed diapers are much cheaper. Compostable diapers represent the beginning of a process that replenishes the soil while generating income and jobs. Ms. Ayumi Matsuzaka, an artist turned experimental scientist working with the Berlin Botanical Gardens, has shown how a daily service for producing, supplying, and collecting diapers, which are then composted in combination with charcoal to produce terra preta, provides a fast, healthy, and safe way to replenish topsoil. The diaper economy is a monetary economy. The 10,000 diapers a child soils in their first years of life produce approximately 3 tons of high-quality soil, which can be used to plant fruit trees on depleted land. In fact, diapers shouldn't be a cost to the family, but rather an investment that pays off in the form of fruit. By the time the baby grows into a teenager, approximately a thousand fruit trees will bear fruit, providing abundant harvests for decades to come. Why limit ourselves to planting one tree at birth, since the baby produces enough food for over a thousand trees? This requires urban planning with urban agriculture and edible gardens, combined with urban industries, creating a market for bioplastics that can only become profitable if the economic model evolves from selling locally produced diapers made with biodegradable plastics to a system that generates arable land on depleted soils and provides long-term food security while sequestering carbon dioxide.
When we consider the size and scope of activities in emerging communities, and know that fruit trees will be planted across the region at a rate of 1,000 per newborn for social and economic development, then another opportunity arises: bread. Breadmaking has become so industrialized that local bakeries have disappeared or been reduced to reheating pre-baked, pre-mixed frozen dough. Various initiatives have been undertaken to revive local bakeries, but almost all have failed. The reason is that if a small bakery competes with a miniature version of an industrial bakery, it will lose the competitive battle. For a local bakery to be competitive, it must change its business model, starting with the dough itself.
Recent
successes of local bakeries in Mexico and Algeria demonstrate that locally produced dough and bread can be cheaper and more nutritious. To achieve this, agreements have been made with fruit processing companies (for example, guacamole in Mexico or grape seeds in Algeria). All the seeds are dried, ground, and blended to make up 25% of the bread's composition. The logic of local economic development remains the same: use what you have and ensure that the money spent daily on bread circulates within the local economy. It has been calculated that for every 50 to 100 households, there could be a bakery powered by the local solar-generated DC grid, delivering fresh bread every morning. This is an ideal platform for micro-enterprises. A housing program aiming to provide homes for 100,000 families can include at least 1,000 bakeries, creating approximately 3,000 direct jobs and up to 10,000 indirect jobs. The industrial version of this same supply chain will generate a maximum of 100 jobs and dedicate a third to transportation, packaging, marketing, and distribution. By replacing 25% of the dough with ground fruit seed flour, using peels to enhance flavor, and eliminating associated expenses like plastic packaging, fungal controls, warehousing, and logistics, the local bakery becomes competitive, generating 30 times more local jobs while selling at the same price as an industrial bakery. If, in addition, the housing developments are located near wheat or corn production areas, then the value generated by small community bakeries can surpass that of any industrial factory, while this bread, enriched with seeds and fruit peels and rich in minerals, has a quality that surpasses the capabilities of industrial bakers. The number of jobs generated, based on available cash flow, capital, materials, human resources, and even waste, offers a glimpse into how a local economy can outperform a global one. This overview of these opportunities confirms that demand can be met by local supply, generating local value, jobs that allow for savings, and the building of social capital. There are many more opportunities, and a few more in the following pages, which will support the slogan with which I conclude each fable, "...and this is just the beginning!"
Waste management and energy
The organic component of solid waste streams is estimated at 50% on average. However, waste streams from slums have a much higher organic content. Biodegradable, renewable, and organic waste should never end up in a landfill or be incinerated. The best approach is to utilize the additional organic matter in the waste at the bottom of the pyramid to generate more value. Health is always a primary concern, and therefore, all waste, with the exception of coffee and tea which have been sterilized by their use, must be treated. The ideal treatment is anaerobic digestion, where methanogenic bacteria mineralize the contents, rendering them inert to produce biogas, which is composed of two-thirds methane and one-third CO2. This bacterial digestion requires a stable, solid, and diverse supply of organic matter, which is blended using intelligent chemistry.<sup>8</sup> Wastewater sludge can be intelligently combined with organic waste from households, food markets, and small local agri-food processing plants. This smart chemistry generates up to four times more biogas than if the sludge or organic waste were digested separately or mixed without considering the enhanced reactions.
If local economic development considers glass as a raw material for the construction industry, it requires CO2. This gas molecule can be extracted from the biogas of digesters. Instead of requiring external supply, glass foam can now be produced entirely locally. Production engineers must study the predictability of the supply chain for goods and materials. The digestion process will always function because sewage sludge or household biomass waste is abundant, as long as there is a community. This is key to establishing new industries that rely on secure and predictable material flows, so that we can use mathematical models to forecast the amount of revenue and the number of jobs to expect, while also meeting the immediate needs of the local community.
Animal husbandry and fast consumer goods
Goats and chickens should be raised in and around urban developments. While avian flu taught the world some hygiene lessons, integrating locally produced animal protein ensures food security and is another catalyst for local economic growth. Goat farmers in the Canary Islands own small farms with up to 50 animals and enjoy the highest productivity in milk production. Goat's milk is considered healthier than cow's milk because it contains less lactose and its chemical structure is similar to that of breast milk. Goats also provide leaner meat. Every small urban goat farm
needs a cluster of businesses to generate maximum value. Goat's milk has the greatest value when used in ice cream. If local farmers partner with a chain of local cooperatives to process goat's milk into cheese, yogurt, and ice cream, based on a business model where the farmer receives a 10% share of the final price paid by the consumer, this could be a significant advantage.
Based on the final price paid by the consumer, local farmers will earn more money than was considered viable, and this without any form of subsidy.
When goats and chickens are slaughtered at a local butcher shop, the offal can be converted into protein by raising black soldier fly larvae, the most productive protein producers. The South African company AgriProtein, based in Cape Town, has proven this method viable in urban and peri-urban areas, confirming previous experiments conducted by the Songhai Centre in Porto Novo, Benin.<sup>9</sup> Hygiene, animal husbandry, food production, and nutrition go hand in hand with economic growth aimed at uplifting impoverished populations. These same black soldier flies can effectively process human waste (black water and raw human waste) and help address another costly expense in every city's budget. This process has passed all health tests to the point that the European Union has approved it.
The portfolio of opportunities for organizing food security in the urban periphery is vast. It cannot be ignored that all productive industries require investment. All projects can mobilize funds, provided they can demonstrate demand, predictable cash flow, a known initial investment, a transparent break-even point, and clarity regarding their social impact. If we cannot agree on the benefits of economic development on a case-by-case basis and using a common methodology, we will not be able to accelerate inclusive growth. The implementation of these initiatives cannot be subjected to a rigid plan or the manipulation of Excel spreadsheets. Inclusive blue growth is driven instead by strong motivation, a focus on local resources, the generation of greater added value, the response to basic needs, and the assurance that the money generated circulates primarily within the local economy. Remember the challenge we proposed regarding the fact that the rate of return on capital is lower than the growth rate of the local economy (r.
Mobility and jobs
The standard model is that the poor live in slums and, every morning, embark on their odyssey to find a job or get to work. Informal settlements and slums do not generate employment. Millions of people make a two- to three-hour commute, spending more than a third of their meager income just to get to work. Not only is this a waste of time, energy, and resources, but it makes no sense. The logic of employment in industrial zones is partly due to the traditional zoning of cities, where
residential, commercial, and industrial areas are arbitrarily divided according to a master plan drawn up by urban planners with limited experience in creating a high-growth local economy. The result is that poor people sleep on the streets or
occupy open spaces and are forced to organize themselves to get to work.
The potential for growth to lift people out of poverty is once again demonstrated by misdirected financial resources. It is common for a single mother to live with her mother, who is the most reliable babysitter in the area. She spends about five hours a day commuting between her home and her workplace, where she is a cleaner. The cost of commuting accounts for nearly 40% of her monthly salary of 1,900 ZAR ($190). She leaves home at 5:00 a.m. to be at the office by 7:30 a.m., starting with a two-kilometer walk to the taxi stand that takes her to the train station. After arriving at the central station, she takes another taxi.
After leaving work at 4:00 p.m., she may not get home until 7:00 p.m. because trains are often delayed. She spends over 700 ZAR a month on transportation and nearly 100 hours commuting. The inefficiencies that a private domestic economy must tolerate would be completely unacceptable to any business owner. However, industry in general, and employers in particular, "externalize" the
cost of mobility and expect marginalized workers to bear it by imposing severe penalties for lateness or absenteeism.
Those with the lowest incomes working in the informal economy currently spend over 30% of their earnings on transportation. In the South African context, a third of income can be converted into a bond, meaning that the cost of transportation (700 ZAR/month) is equal to the value of the bond (210,000 ZAR) against which a house could be purchased. If jobs were not "over there" but "here," then the money spent commuting would be converted from a cost into an asset. The total amount of money that could be diverted over 25 years from expenditure to capital for a 100,000-unit housing project reaches 20 billion ZAR (approximately 2 billion USD).<sup>11</sup> If this demonstrates the "wealth at the bottom of the pyramid", it also confirms the concept that the poor have the potential to create their "City of Joy" 12. It is difficult to realize the power of small numbers and even more difficult to grasp that this number can facilitate the arrival of new members of the middle class, through an affordable housing initiative combined with the creation of local jobs.
An inspiration from the United States
If local economic jobs depend on inclusive growth, then connecting the region is essential. This requires feeder transportation—transportation between the new development area and the main public transit arteries. In the 1990s, John Thomas “Jack” Lupton, heir to the Coca-Cola bottling fortune, wanted to put his hometown of Chattanooga on the map. He wanted to revitalize the city's run-down downtown in an innovative way. Mr. Lupton championed the idea of local electric bus transportation for a city of approximately 170,000 people. The city forged ahead against the advice of all the leading public transportation experts and made the Chattanooga Area Regional Transportation Authority (CARTA) the first U.S. public authority to offer free shuttle service with electric buses. There was no expertise in the region, and without the leadership of a few city pioneers, including David Crockett, the technical, political, and organizational hurdles would never have been overcome.
CARTA now has a history spanning more than 20 years. The electric bus system was the first to rapidly replace batteries in the bus depot and garage, and it is now transitioning to roadside inductive charging: an underground coil wirelessly charges the bus in the parking lot or at a curbside stop. The charge can be generated by solar power or connected to the grid. While traditional charging methods provide enough battery power to run a bus for 65 km, this inductive charging system extends the buses' range to 160 km per day. Energy and maintenance costs are only one-fifth of a traditional bus's operating costs (with fuel at US prices). Since the minimum partial charge takes only one minute, the buses can operate all day, reducing the capital investment in the vehicles. When operating costs are reduced to a fraction of the cost and the living laboratory has proven itself over 20 years, the city becomes a research center and manufacturer of cutting-edge transportation technologies. Mr. Lupton achieved his goal, and Chattanooga is on the map.
The battery-powered bus system offers an additional advantage. Any renewable energy-based power grid needs a backup. The traditional solution is a battery pack. While technically sound, this option is also expensive. Batteries have a relatively short lifespan, and this added cost to stabilize the grid often makes solar and wind power uncompetitive, unless a solution is chosen that combines powering public transportation with bus batteries as a supplementary source of electricity when the wind isn't blowing, the water is cold, and the sun isn't shining. Although these backup batteries are not intended to provide power for more than a few hours, they are a necessary installation when the traditional backup of diesel generators is to be avoided. The smart grid of the new inclusive development ensures that the 12V DC bus batteries are charged overnight using excess energy accumulated during the day. At the same time, the bus batteries provide a powerful and inexpensive component for a resilient community at half the cost.
The construction, operation, and maintenance of a 20-seat passenger bus creates employment opportunities. Public transit buses are managed at the metropolitan level, while local buses are managed at the local level. Because the scale is smaller, the window for innovation is larger. This system brings practical engineering into contact with new skills not available in large scientific centers; it therefore presents an opportunity to position the academic platform for this new inclusive development. While others focus on information and communication technologies (ICT), nanotechnology, sophisticated sensors, and biotechnology, this new development zone is built on practical experience, bringing together dozens of inclusive growth projects and their financial models as a foundation for teaching and inspiring a student audience. This ensures that this living laboratory of inclusive growth delivers all the benefits to the community, including learning.
Culture and education
Building a community requires more than just water, food, housing, energy, mobility, and jobs. One of the most prolific industries is the arts, rooted in culture and tradition. This sector must be an integral part of any local economic development, as it draws upon skills people have possessed for generations. Some may be illiterate, but over centuries, they have benefited from the knowledge and wisdom of their ancestors. It is therefore essential that the emerging community receives respect and appreciation for the diversity that characterizes human settlements. Unfortunately, in the recent past, culture has been
viewed as a necessary expense. The inclusive growth model sees it as an opportunity to generate income and jobs, and to celebrate the identity and diversity of these emerging communities.
African arts, crafts, music, and dance are internationally recognized. However, just as nature has been seen as threatened and therefore needed protection, culture is also seen as threatened and needs to be subsidized and protected. Protection costs money and will face many obstacles to success. It is important to go beyond preservation and engage in the active promotion of the arts by creating masterclasses inspired by the German apprenticeship system, which has successfully identified a child's innate abilities from a young age and provided them with technical training, thus preventing many from pursuing an academic path that does not suit their strengths. Exposure to the arts and crafts strengthens creative, practical, and technical minds so that they can find their professional path.
This reflection on culture and the arts puts education at the forefront. Any community that wants to offer a better future for future generations does not need schools where children learn to memorize what the teacher already knows. These communities need a learning environment where children can use their imaginations from an early age. They must understand that they can do better than their parents and believe they can succeed despite all the limitations they face. Children must have the opportunity to escape their poverty, not as victims of globalization, but rather as agents of change who will make a difference in their local economy. If young people have this attitude toward life, then these communities will thrive.
If community schools emerge in an environment that offers a new approach to urban design and development, as we have described, and implements a wide range of innovative business models that meet needs, then children can witness the potential for economic growth. This is the ideal environment for an educational platform. This learning environment will not only meet the needs of the local community, but it will also attract national and international students, from high school to university. This is one of the most powerful catalysts for local economic growth, and the presence of international students significantly boosts self-esteem, which is essential for building a strong social fabric.
As soon as parents have some additional financial resources, education expenses are among the fastest-growing budget items, whether it's for learning English (the largest education expense worldwide today) or for science. Many parents know all too well that not starting school, or not finishing due to early pregnancy, is one of the most predictable ways to remain in poverty. Not obtaining a high school diploma and having a single-parent family ensures that the next generation will be unable to escape the poverty trap. Parents who have walked this path are often the most dedicated to ensuring their children don't fall into the same trap. It is therefore essential that children feel the potential for progress as they grow up and that they envision their future.
Children need challenges and must be inspired. This is why inclusive growth, along with all the new models that have proven successful elsewhere, offers a learning environment that allows children to imagine more than parents and teachers know. It starts with the design of the school itself. Most schools are designed to meet tight budgets. Since the early 1960s, Anders Nyquist has designed highly ecological and functional buildings. He has applied his science, experience, and wisdom to schools to ensure children have a healthy and stimulating environment. This may cost more in capital and building materials, but it will reduce operating expenses. The biggest benefit is that healthy children will learn better; they can go to a local school where natural filters purify the air so that no one sneezes after someone else has sneezed, and where these filters are clusters of broadleaf plants grown in locally produced terra preta from their siblings' diapers. It has been shown that when innovations are widespread, they become a way of life. Children will first inspire their parents, then modify their behavior based on the solutions they have experienced at school.
Focus on creating value rather than reducing costs
The critical shift in the economic model of housing and community development is financial. It's not about cost, it's about value. If there's a school or network of schools where children are known to be healthier and achieve better academic results than elsewhere, what would parents do if it were a public school where enrollment is on a first-come, first-served basis, with locals having absolute priority? Parents would want to live closer to the school. What happens then when more parents want to live in the immediate vicinity of a school to guarantee a place for their child? Property values would increase. When assets increase, the people living in that neighborhood become bankable beyond their jobs and existing mortgages. They can benefit from an asset that represents a lifetime investment, because the area fosters health and education, which ultimately translates into local economic growth. Tuition fees are local, capital gains are local, and the community now has a chance to move from discrimination to inclusion. The rate of return on capital is outpaced by the rate of social, environmental, and economic growth that forms the basis for a future for an entire generation.
This vision becomes reality when real estate and local development aim for inclusive growth, building assets that lift people out of poverty within a generation and eliminate unemployment. It takes land speculators a few years to earn 500 times their investment. It takes a generation of double-digit growth to deploy those funds and move an entire society from poverty to the middle class with sustainable growth parameters, while ensuring investors a solid return on investment.
From vision to reality
This article posed the question: “Is it possible to create economic growth that exceeds the rate of return on capital?” The working hypothesis follows the logic that the poor will get richer, provided that the return on capital is lower than the rate of economic growth. The answer is clearly yes, provided that the focus is on double-digit growth in the “poverty corridors,” characterized by high youth unemployment; that goods and services are initially created using locally available resources; and that the value generated transforms existing public markets and purchasing power into a golden stimulus that circulates money within the local economy.
The double-digit growth proposition is viable through the design of new business models for real estate development, where the economy is built first, and then housing is rebuilt. It rethinks the trade in building materials, electricity, water, food, healthcare, mobility, waste management, culture, and education. It guarantees the highest standards of resource efficiency. This outline is brief, and the cases are concise, but they are described in detail in the Cluster Cases presented on [website address missing]. This case study is not intended as a plan to be copied verbatim. This synopsis demonstrates that new business models are not only viable when clustered for inclusive local economic growth; this system will have a greater impact than anticipated. This method is applicable everywhere and has inspired policymakers and private developers.
Since the current economic system is failing to deliver and the expected economic growth will not create additional jobs, I suggest that there is no need to analyze why the market economy and the dominant business model are failing to reach the excluded. Today's reality offers a window of opportunity to create local pockets of double-digit growth in the "corridors of poverty." Once local supply is taken into account and people are no longer forced to commute for hours and dedicate a large portion of their meager income to transportation, local jobs can lift people out of the poverty trap. The increased availability of cash allows for micro-investments in productive businesses, which increases risk appetite and provides the confidence needed to embark on larger ventures. Even without prior experience, there is always a parent's desire to see their children acquire the capacity to act and do better than previous generations.
We have already seen communities realize the value of such unprecedented innovations in business models, and we have had the privilege of supporting them for decades. Las Gaviotas in Colombia and the island of El Hierro in Spain are a couple of inspiring examples. The time has come to build on these cases and create new benchmarks on a different scale in Africa for Africa, in Asia for Asia, and beyond. I think the bold initiatives of Parks Tau, the executive mayor of Johannesburg, are exemplary and allow for the creation of jobs in a few months, thus pulling society out of the poverty trap that characterizes too many cities in the world.
For more information
While this article refers to a dozen technologies, hundreds are described on the Blue Economy website. Many additional technologies have been identified, tested, and proven, contributing to the redesign of business models. These grouped business models will be published regularly throughout 2015 on the following website:
www.TheBlueEconomy.org
The blue economy is ZERI's philosophy in action. ZERI was founded in 1994 after the author concluded that his biodegradable cleaning products and the green factory he had just created were insufficient to run a sustainable business. His cleaning products were palm oil-based, and his success had led to the destruction of at least one million hectares of rainforest—the orangutan's habitat. While the philosophy was called "zero emissions and zero waste," the research initiative, sponsored by the Japanese government and the United Nations University, focused on designing a concept where everything is used and nothing is wasted. The author of this article and all the other case studies has focused on implementing this philosophy since 1994.
www.zeri.org
The author has 40 years of experience, has traveled extensively around the world, undertaken projects, and published books and articles.
www.gunterpauli.com
