The Book that Targets the Poor

December 30, 2010 § 7 Comments


The Fortune at the Bottom of the Pyramid ( Prahalad, C. K.)

Back in the nineties, when I was in the process of acquiring a diploma in management studies, C. K. Prahalad‘s was a much revered name, and the words “core competence” buzzed around the  circles I moved in like busy little bumblebees. None of us had actually read the HBR article that spawned the term, but that wasn’t deemed necessary, and ever so often, someone would drop the c-words, nonchalantly, into casual conversation, and the rest of us would nod solemnly, and agree with whatever was being said.

Then we sallied forth into the real world, and very soon, we forgot much of what we had learnt, and we certainly forgot all about core competence and C. K. Prahalad. About the only thing we retained was an obsessive competitiveness, which now translated into making more money than anyone else, for ourselves and for the firms we represented – and the somewhat pathetic need to appear clued in with the management jargon du jour.

And so, when Prahalad reappeared in 2005, this time with a new buzz phrase, it was hailed as the Second Coming, specially by those of us who had neither the intention of reading the book, nor the slightest interest in poverty eradication. The world is becoming a better place, we said confidently, having mastered the book’s blurb and read its synopsis along with that of Thomas Friedman‘s The World is Flat; it’s the internet revolution, don’t you know. Banking the unbanked. The rise of the BRICs. The bridging of the digital divide. Illiterate farmers accessing the Chicago Board of Trade website and whatnot. India is shining and all’s right with the world.

As for those of us who, like me,  do have a passing interest (but zero expertise) in developmental economics, we did read the book eventually, and we felt relieved at first, even less guilty, because if market economics is indeed the answer to the world’s problems, we feel we have not been immoral in what we have been doing all these years; in indirect ways, we have been doing our bit as corporate executives, contributing, as it were, to the overall solution.

 

The thing is, corporate executives are notoriously “big picture” people.  This “big picture” concept is as misunderstood as “core competence”: we use it as an excuse for not having much patience with ambiguity or with the details, especially annoying ones that don’t confirm the most convenient and reassuring theory. This is why executives are treated like kindergarten toddlers. They are given things to read with the important bits highlighted in big, bold fonts, and the same bits are also depicted pictorially alongside with lots of boxes and arrows. Also, their inability to process full sentences without dozing off is handled by the simple expedient of using bullet-pointed lists consisting exclusively of sentence fragments.

Prahalad clearly knows his readers: he uses all three strategies in his book. My style, on the other hand, runs into no pictures and over a thousand words. And so, if you, gentle reader, are still with me, I congratulate you – and hope you understand that my main beef is not really with Prahalad’s ideas. I am only worried about the dangers of unleashing a book like this on the shallow and self-absorbed bunch of sociopaths who constitute the modern corporate executive class, whom I know well and detest cordially,  and who form a big part of the book’s intended audience.

What are Prahalad’s big ideas? First, that markets create value, and poverty exists because the poor are automatically excluded from the world’s markets. Second, that the private sector is wrong in assuming that the poor are not an economically viable target segment for their goods and services. Collectively, because of their vast numbers, the poor do command assets, but need help in converting them into capital. Third, that the private sector can access this segment – and these assets  – but not by conventional means; they will have to innovate, educate, adapt, and partner with governments, NGO’s and with the consumers themselves. Finally, that when all this occurs, the corporations make more money, and the poor are better off, too. All of this largely makes sense, and the detailed case studies that Prahalad attaches are inspiring and appear to be well-researched.

But then why do I consider the book dangerous? Allow me to count the ways.

First, almost all of Prahalad’s examples (with the exception of ITC’s e-Choupal) emphasize the role of the poor as consumers. Yes, it is necessary to prove to corporations that selling to this segment is profitable. But that is just half the battle won. Unless a corresponding effort is made to encourage the profitable provision of goods and services by this segment, the relationship can become as monopolistic and exploitative  as that between a drug-pusher and a new user. I don’t believe Prahalad had that end in mind; but we all know of corporations, which when allowed to go after this pot of gold at the bottom of the pyramid in an unregulated manner, will not only dispense with all scruples, but will color themselves altruistic even as they rip off the poorest of the poor. They will squeeze every drop of the positive publicity that urban society bestows upon responsible corporate citizens; but out there in the wilderness, when things get in the way of their profitability, they will cut throats just as ruthlessly as the local moneylenders and middlemen do today, only with fewer actual bloodstains on their Armani suits and better dental plans.

Second, most of Prahalad’s cases involve people who are not really at the true bottom of the pyramid. Well, OK, they are somewhere near the bottom, but they are at the top of the bottom of the pyramid (ToBoP: consider it coined, and remember that you saw it first here). The true denizens of the bottom are the 1.4 billion people who live on less than $1.25 a day. Most of them have no electricity, no access to sanitation or clean water, no schools and no hospitals. A few hundred million of them live in India. If, like me, you grew up in the cities, you’d have seen quite a bit of poverty, but you wouldn’t  have come in contact with these people. You can live your entire life in India and not even hear about them. They inhabit eco-systems that have nothing in common with ours. No resources are shared between us. No roads or phone lines exist that connect our worlds. Our prosperity does not trickle down to them, their plight does not bubble up to us, unless we read P. Sainath‘s Everybody Loves a Good Drought, and there we hear about these places – Nuapada, Surguja, Malkangiri, Palamau, Godda, Jhabua… in these places, no farmers access the Chicago Board of Trade. No bank officials queue up to give them loans. They don’t travel to Madurai for cataract operations. They don’t build cement houses. They have not heard of branded iodized salt. Corporations – even ethical, well-meaning ones – that hope to sell to the BoP segment, cannot be faulted for targeting the cream, such as it is, of that segment –  the richer farmers, the educated housewives, the schoolchildren, resourceful families that own land, a cell-phone, a motor-cycle: households earning $3 to $5 per person per day, that is. Of course it is a good thing to expand the market to include these people; I worry, however, that by doing so, we will further isolate and effectively abandon the laborer toiling for $1 a day in the boiling summer sun of Orissa, whom the corporations will want to have nothing to do with. I worry he and his billion brothers and sisters around the world will be left to die unnoticed, their death rattles drowned out by our noisy celebration of the successful elimination of poverty by the big corporations. I would prefer an approach that starts at the very bottom, and works its way upwards, than one that started at the least inconvenient point and pretended nothing exists below it.

Finally, I worry that people (and therefore, the government) will use these economic growth stories as a sign that the war against poverty has been won and that there is nothing left to be done. Consequently, governmental and NGO programs may see a drop in funding, and that can be disastrous. The private sector can only engage people in economic intercourse – but for this to be a robust and irreversible process, social and political dialogues have to take place at the same time.ITC E-Choupals can go only so far, if the daughters-in-law of the village are not allowed anywhere near the computer room; an HUL Shakti amma will only be influential across the entire district if her words is heeded by people of all castes and communities; the ICICI Self Help Group wishing to set up a petrol station needs to be kept safe from the goons of her local MLA who owns a competing station. I worry that the development will not be sustainable if it is purely economic.

In conclusion, then: yes, Prahalad’s plan is part of the solution, but not all of it. It can shave some inches off the top of the bottom layer, and merge them with the market above. But it will leave the rest of the bottom layer in as bad a state as before, and like every other market mechanism, can be misused. In order to be effective, it will have to be regulated and supplemented by other strategies and players. There, that’s my opinion in a nutshell. If you’re a corporate executive, you’d be pleased to note the summary in bold letters. I don’t do sentence fragments, but do let me know if you’d like me to paint you a picture.

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§ 7 Responses to The Book that Targets the Poor

  • ravi says:

    The questions that come to my mind are these: are Prahlad and others under the assumption that businessmen and corporations have not, thus far, tried to sell stuff to the bottom of the pyramid (or if you are Marxist: appropriate the surplus value of the labour of this segment)? Or are they suggesting that this process has not been efficient? Or perhaps the point is that these people (or at least the ToBoP) are only being sold umbrellas and grains, not iPods?

    On the other hand, the point may be that liberal capitalism is subversive in that casting each human as a consumer uber alles upends age-old divisions and discriminations on the basis of race, caste, gender and such!

    • psriblog says:

      I think his assumption is that most large firms do not try to sell stuff to the BoP, or if they did try, that they failed because they attempted to sell in the same way that they would sell to the rich. Broadly his point is that one needs to innovate in order to reach this segment.
      In re: the other point you make, of course I agree liberal capitalism will upend those divisions and discriminations (though I don’t think he makes the point in the book) – but liberal capitalism involves political freedom, social development AND economic growth, and am not sure economics alone can bootstrap the process. Look at Saudi Arabia…
      I don’t disagree with the response that once supplied with electricity, drinking water and education, today’s bottomers can reach ToBoP levels and become part of the market. All i am saying is, that work still needs to be done, and by govts and NGOs, not by MNCs. And until it is done, don’t be celebrating!

  • ravi says:

    I found what might possibly be an article that was the germ of the book: http://www.cs.berkeley.edu/~brewer/ict4b/Fortune-BoP.pdf. Assuming that the book hews broadly to the article, the points being made seem to be addressed specifically (if not exclusively) at MNCs. Additionally, by formalising the informal economy inefficiencies, corruption and exclusion can be eliminated. This, the authors hope/advise, should be done in an environmentally sensitive manner (a tall order given that MNCs have been at the forefront of polluting and pillaging the environment while informal economies offer the one saving grace of resource conservation and reutilisation).

    Prahlad might address your concern (which I share) by suggesting that once you bring electricity and Internet to the starving masses of Sainath’s solitary reportage, they will enter the lower middle class: in essence, you are creating new consumers out of those, the very bottom, who were not worthy targets at all in earlier models.

    Marxists wouldn’t, I think, find all this disagreeable. Capitalism (or market economies of this sort) is to them a natural progression in the evolution of the politico-economic life of humankind, if I understand them right. Only when each human can work can s/he be a worker who can find solidarity with other workers and avoid exploitation.

    I am with you on the analysis… and the characterisation of the executive class. 🙂

  • ravi says:

    And then there is this recent bit of news:

    India’s Poor Reel Under Microfinance Debt Burden
    http://l.ravi.be/eTjqHD

    • psriblog says:

      Good grief. Thanks for passing that along. This is exactly what I mean. Of course there is a fortune at the bottom of the pyramid. It can be insanely profitable! Firms are getting away with ‘micro-lending’ at 25% interest rates because guess what – at the bottom of the pyramid, the corporation has far better leverage with its customers than higher up. And in a country like India, where the legal infrastructure is crumbling, can you imagine the plight of a village dude trying to take an MNC to court to enforce a contractual obligation?
      The ideas are good and the intention is noble, but unless this thing is monitored and regulated closely by local elected governments, I wish we could keep this particular fortune a carefully buried secret from the large corporations.

  • […] by a management consulting guru (CK Prahalad’s Fortune at the Bottom of the Pyramid, reviewed here) and the third, the book under review, by an economist and academic. All three authors were […]

  • […] ‘paradigm shift’. As with all consultese (I’ve written about ‘core competence’ in these pages), it is a much abused phrase, and its pretentious users have only vaguely been aware of its […]

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