30 May 2011

Development is not a matter of business

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A friend of me has lent me the book « The fortune at the bottom of the pyramid » [1], as he thought it might provide some answers to my on-going reflections on how to launch the virtuous cycle of material prosperity among the poor.
When reading through this book published by the Wharton School and praised by so prominent people like Bill Gates or Madeleine K. Albright , I get a little bit cautious – even mistrusted – in the respect of the ideas exposed.

Starting with the Preface, I have got some kind of suspicion when reading : “What are we doing about the poorest people around the world ? … Why can’t we create inclusive capitalism ?”. Nevertheless, some sentences later I start dreaming of having definitely found out the right approach : “Why can’t we mobilize the investment capacity of large firms with the knowledge and commitment of NGOs and the communities that need help ?”. Would the business world suddenly be ready to help the poor ? Good news apparently…

Serving the business or the poor ?

It continues with : “Large business can bring efficiency. NGOs can bring creativity to solve the problems that face us all”, concluding that “NGOs, large domestic firms, MNCs (multinational corporations), government agencies, and most importantly, the poor themselves [have to come] together to solve very complex problems that we face as we enter the 21st century”.

Eventually, it looks like just being a dream. Indeed, the reflection of the author remains severely embedded in a pure economic approach where prosperity is dependant to the capacity of the poor to become consumers : “We should commence talking about underserved consumers and markets. The process must start with respect for Bottom of Pyramid (BOP) consumers as individuals… New and creative approaches are needed to convert poverty into an opportunity for all concerned. That is the challenge”. Any doubt that the intentions are business oriented, not focussed on human development.

The first chapter of the Part I is titled :”The market at the Bottom of the Pyramid”. A few sentences later, it is written in a bold police : “What is needed is a better approach to help the poor, an approach that involves partnering with them to innovate and achieve sustainable win-win scenarios where the poor are actively engaged and, at the same time, the companies providing products and services to them are profitable”.

I am quite outraged by such a simple way to address a long-lasting and complex issue. Will a market where the poor can produce, buy and sell products specifically adapted to their needs pull them out of poverty ?

The author sets out “some basic assumptions” putting the framework of all what will be elaborated in his book : “First, while cases certainly can be found of large firms and multinational corporations (MNCs) that may have undermined the efforts of the poor to build their livelihoods, the greatest harm they might have done to the poor is to ignore them altogether”. It sounds to me as being a major hypocrisy ! Indeed the poor have been ignored because large companies haven’t yet found out the opportunity to make profit with these part of the population.

“The poor represent a “latent market” for goods and services … It will create choices for them. They do not have to depend only on what is available in their villages”. Do they need specific products and services, as if they were part of a “second class” of the population and doomed to remain so ? It can certainly not be the responsibility of the private sector to address the eradication of poverty.

If large firms approach this market with the BOP consumers’interests at heart, it can also lead to significant growth and profits for them”. Still a dangerous sign of hypocrisy.

Free and transparent private-sector competition, unlike local village and shanty-town monopolies controlled by local slum lords, can transform the “poor” into consumers”. Fighting against monopolies is right but it must not be conducted with the sole objective of developing the market. It should first allow everyone to access their entitlements. A change in the rules of the society is needed.

Illiterate consumers

The last basic assumption exposed states that : “BOP markets must become an integral part of the work of the private sector. They must become part of the firm’s core business; they cannot merely be relegated to the realm of corporate social responsibility (CSR) initiatives. Successfully creating BOP markets involves change in the functioning of MNCs as much as it changes the functioning of developing countries. BOP markets must become integral to the success of the firm in order to command senior management attention and sustained resource allocation”.

Certainly large companies can provide jobs for poor. Poverty can not be addressed through CSR initiatives while “business as usual” still remains unquestioned. Giving the private sector some role to play in this area would require that the companies are ready to develop a long-term partnership with the local actors. It means for instance, supporting part of the costs for basic infrastructures, education and health.

In the following pages of this book, the author draws a picture of the BOP market with relevant observations outlining that the poor are paying proportionally more than the rich for some basic expenses such as water, mobile phone, rent for a house, etc … mainly due to traditional structures ruling the society that favour monopolies and the concentration of the power of decision among a few people who obviously put a strong resistance to change this state of facts.

Some observations are nevertheless quite chocking like the following ones : “Create the capacity to consume : to convert the BOP into a consumer market, we have to create the capacity to consume. Cash-poor and with a low level of income, the BOP consumer has to be accessed differently”. It should not be an objective if it is not coupled with a strong motivation to give the poor the capacity to govern themselves their development trajectories (what I fear is absolutely not the focus of the private sector …).

Dignity and choice : when the poor are converted into consumers, they get more than access to products and services. They acquire the dignity of attention and choices from the private sector that were previously reserved for the middle-class and rich”. Absolutely wrong ! Access to the consumption market does not bring freedom, just addiction to material needs, getting aside the real demand for personal development and self-empowerment.

Education : the right path to development

As a conclusion, erasing poverty will not come from offering the poor customised products and services in line with their power of purchasing, because it will just get them more dependant to some existing factors : long established business-men controlling the market, credit lenders encouraging indebtness, etc …

The other two parts of the book are dedicated to business cases showing innovative practices that have succeeded. It is hardly not mentioned the need for education of the populations – when tackled, it is only question of educating the customers ! – although it is certainly the most efficient leverage to alleviate poverty. Educated people are in a stance to challenge their environment of living and to engage the appropriate debate with all the stakeholders to introduce the necessary institutional changes in the society.

Among the innovative practices presented, one is about microfinance in Andhra Pradesh, India. It is one of the most dramatic failures (see my reports about SKS on the 8th August 2010 and about the Indian microfinance crackdown on the 17th March 2011), leading to lots of cases of overindebtness among the credit beneficiaries. Why so ? Many unscrupulous privately-run MFIs (microfinance institutions) have put priority to shareholders profits instead of looking for getting their clients develop income generating activities. It is a real example on how the poor communities can be jeopardised when they are in the radar of private actors looking for doing business first, without being regulated by powerful authorities.

It is pretty sure that fundamental education is of few interest for the private sector as it generates no profit, just costs. Moreover while acquiring knowledge, people grow up their capacity to think and challenge what they are said. Does it really is what the business wish ?

[1] « The fortune at the bottom of the pyramid – Eradicating poverty through profits » – C.K. Prahalad, Wharton School Publishing, 2005

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