Eradicating Poverty
through Enterprise
ANEEL KARNANI
The University of Michigan
November 2007
Eradicating Poverty
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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Eradicating Poverty
Poverty Eradication
 Private Sector

Poor as Consumers

Poor as Producers
Color Coding
•
BOP emphasis
•
My emphasis
 Public Sector
 Civil Society
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Eradicating Poverty
Bottom of Pyramid Proposition
“Low-income markets present a prodigious
opportunity for the world’s wealthiest companies – to
seek their fortunes and bring prosperity to the aspiring
poor.”
C.K. Prahalad and Stuart L. Hart,
The Fortune at the Bottom of the Pyramid,
Strategy + Business, January 2002
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Eradicating Poverty
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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Eradicating Poverty
Exploiting the Poor
 The poor often make choices that are not in their
own self interest.
 The poor are vulnerable: lack of education (often
illiterate), ill informed, victims of social and cultural
deprivations
 Amartya Sen: “A person’s utility preferences are
malleable and shaped by his background and
experience, especially so if he has been
disadvantaged. We need to look beyond the
expressed preferences and focus on people’s
capabilities to choose the lives they have reason to
value. ”
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Eradicating Poverty
Alcohol and Poverty
 The poorer people spend a greater fraction of their
income on alcohol than the less poor.
 Alcohol abuse exacerbates poverty: impact on work
performance, health, accidents, domestic violence
and child neglect.
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Eradicating Poverty
Fair & Lovely
A poor woman using Fair &
Lovely “has a choice and
feels empowered because
of an affordable consumer
product formulated for her
needs.”
Hammond and Prahalad (2004)
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Eradicating Poverty
‘Fair & Lovely’ package
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Eradicating Poverty
‘Fair & Lovely’ Advertisement
A young, dark-skinned girl’s father laments he has no
son to provide for him, as his daughter’s salary was
not high enough – the suggestion being that she could
not get a better job or get married because of her dark
skin.
The girl then uses the cream, becomes fairer, and gets
a better-paid job as an air hostess – and makes her
father happy.
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Eradicating Poverty
Empowerment or
Entrenching Disempowerment?
A poor woman using Fair & Lovely “has a choice and
feels empowered because of an affordable consumer
product formulated for her needs.”
Hammond and Prahalad (2004)
“Fair & Lovely cannot be supported because the
advertising is demeaning to women and women’s
movement”
Ravi Shankar Prasad, Minister of Information and Broadcasting
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Eradicating Poverty
Market Failure
 Need for legal, regulatory, and social mechanisms
for protecting consumers.
 Particularly difficult in the context of the poor in
developing countries.
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Eradicating Poverty
Role of Private Sector
 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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Eradicating Poverty
Role of Private Sector
 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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Eradicating Poverty
Romanticizing the Poor Harms the Poor
We should recognize the poor as “resilient and
creative entrepreneurs and value-conscious
consumers.”
C.K. Prahalad,
The Fortune at the Bottom of the Pyramid,
2005.
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Eradicating Poverty
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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Eradicating Poverty
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
Working Poor/Employment
Late 1980s
Late 1990s
China
79.6%
35.2%
India
75.0%
62.0%
Africa
63.4%
65.4%
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Eradicating Poverty
Role of Public Sector
The BOP approach relies on the invisible hand of free markets to
eradicate poverty. We should instead require the state to extend a
very visible hand to the poor to help them climb out of poverty.
 Public Sector

Public Services and Infrastructure

Regulation

Equity
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Eradicating Poverty
Role of the Public Sector
 The poor have suffered because of a massive failure
of the state to fulfill its traditional functions of
providing
 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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Eradicating Poverty
BOP: Dangerous Delusion
 Failure of the state can not be remedied by
increasing the role of the private sector. We need to
enhance the ‘agency’ and the ‘voice’ of the poor.
 Discussing the residents of the slums of Dharavi (in
Mumbai), Prahalad and Hammond say that getting
access to running water is “not a realistic option.”
The poor “accept that reality” and they spend their
money on things they can get now, such as
televisions.
 Even if the poor accept this reality, we should not.
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Eradicating Poverty
Dislodging sludge to keep water flowing in a sewer canal in the Janata Colony
section of New Delhi.
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Eradicating Poverty
Poverty Eradication:
Role of Private Sector
 Help generate employment by creating (or
facilitating) low skill jobs.
 Focus on the poor as producers, and help increase
their productivity and income potential.
 Sell products/services appropriately targeted at the
poor at prices they can afford, even (and usually) at
the expense of quality.
 Respect the vulnerabilities of the poor, even in the
absence of other protective mechanisms
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