Post on 06-Apr-2018
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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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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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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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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