eradicating poverty through enterprise.karnani

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Eradicating Povertythrough Enterprise

ANEEL KARNANIThe University of Michigan

November 2007


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Poverty Eradication

Increasing role for the private sector

Development through Enterprise

World Economic Forum

World Bank: Private Sector Development

United Nations: Inclusive Markets

Bottom of the Pyramid (BOP) strategies

World Resources Institute

World Business Council for Sustainable Development

Business as an Agent of World benefit


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Poverty Eradication

Private Sector

Poor as Consumers

Poor as Producers

Public Sector

Civil Society

Color Coding

BOP emphasis

My emphasis


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Bottom of Pyramid Proposition

Low-income markets present a prodigiousopportunity for the worlds wealthiest companies to

seek their fortunes and bring prosperity to the aspiringpoor.

C.K. Prahalad and Stuart L. Hart,

The Fortune at the Bottom of the Pyramid,

Strategy + Business, January 2002


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Role of Private Sector

Poor as Consumers

Facilitate purchase

Marginal impact

Market is very small

Potential for exploitation

Lower price without lowering quality

Lower price and lower quality


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Exploiting the Poor

The poor often make choices that are not in theirown self interest.

The poor are vulnerable: lack of education (often

illiterate), ill informed, victims of social and culturaldeprivations

Amartya Sen: A persons utility preferences aremalleable and shaped by his background and

experience, especially so if he has beendisadvantaged. We need to look beyond theexpressed preferences and focus on peoplescapabilities to choose the lives they have reason tovalue.


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Alcohol and Poverty

The poorer people spend a greater fraction of theirincome on alcohol than the less poor.

Alcohol abuse exacerbates poverty: impact on workperformance, health, accidents, domestic violence

and child neglect.


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Fair & Lovely

A poor woman using Fair &

Lovely has a choice andfeels empowered becauseof an affordable consumerproduct formulated for herneeds.

Hammond and Prahalad (2004)


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Fair & Lovely package


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Fair & Lovely Advertisement

A young, dark-skinned girls father laments he has noson to provide for him, as his daughters salary wasnot high enough the suggestion being that she could

not get a better job or get married because of her darkskin.

The girl then uses the cream, becomes fairer, and gets

a better-paid job as an air hostess and makes herfather happy.


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Empowerment or

Entrenching Disempowerment?

Fair & Lovely cannot be supported because the

advertising is demeaning to women and womensmovement

Ravi Shankar Prasad, Minister of Information and Broadcasting

A poor woman using Fair & Lovely has a choice andfeels empowered because of an affordable consumer

product formulated for her needs.Hammond and Prahalad (2004)


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Market Failure

Need for legal, regulatory, and social mechanismsfor protecting consumers.

Particularly difficult in the context of the poor in

developing countries.


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Poor as Consumers

Facilitate purchase

Marginal impact

Market is very small

Potential for exploitation

Lower price without lowering quality

Good idea, but too rare in practice

Lower price and lower quality

Appropriate price-quality trade-off

Transparency


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Poor as Producers Microentrepreneurs

Positive social impact

Minimal economic impact

Poor are not entrepreneurs; low value added enterprises

Increase productivity

Goods/services to increase productivity

Increase market access and efficiency

Cooperatives

Employment


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Romanticizing the Poor Harms the Poor

We should recognize the poor as resilient andcreative entrepreneurs and value-conscious

consumers.

C.K. Prahalad,

The Fortune at the Bottom of the Pyramid,

2005.


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Increasing Employment

Create jobs Labor intensive, low-skill sectors

SMEs are the primary engine of job creation

Pro-business (especially pro-SMEs) policies and environment

Increase employability

Education

Vocational training

Reduce friction in labor markets

Motivation

Labor mobility

Information; enabling transition


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Job Creation and Productivity

Employment/Population

Late 1980s

Employment/Population

Late 1990s

China 51.0% 58.7%

India 29.5% 35.8%

Africa 33.4% 30.1%

Working Poor/Employment

Late 1980s

Working Poor/Employment

Late 1990s

China 79.6% 35.2%

India 75.0% 62.0%

Africa 63.4% 65.4%


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Role of Public Sector

The BOP approach relies on the invisible hand of free markets toeradicate poverty. We should instead require the state to extend avery visible hand to the poor to help them climb out of poverty.

Public Sector

Public Services and Infrastructure

Regulation

Equity


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Role of the Public Sector

The poor have suffered because of a massive failureof the state to fulfill its traditional functions ofproviding

Literacy and basic education

Basic health care and public health

Safe drinking water

Sanitation

Basic infrastructure (transportation, electricity)

Public safety and security


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BOP: Dangerous Delusion

Failure of the state can not be remedied byincreasing the role of the private sector. We need toenhance the agency and the voice of the poor.

Discussing the residents of the slums of Dharavi (inMumbai), Prahalad and Hammond say that gettingaccess to running water is not a realistic option.The poor accept that reality and they spend theirmoney on things they can get now, such as

televisions.

Even if the poor accept this reality, we should not.


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Dislodging sludge to keep water flowing in a sewer canal in the Janata Colonysection of New Delhi.


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Poverty Eradication:Role of Private Sector

Help generate employment by creating (orfacilitating) low skill jobs.

Focus on the poor as producers, and help increasetheir productivity and income potential.

Sell products/services appropriately targeted at thepoor at prices they can afford, even (and usually) at

the expense of quality.

Respect the vulnerabilities of the poor, even in theabsence of other protective mechanisms

eradicating poverty through enterprise.karnani

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