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ANEEL KARNANI The University of Michigan November 2007. Eradicating Poverty through Enterprise. Increasing role for the private sector Development through Enterprise World Economic Forum World Bank: Private Sector Development United Nations: Inclusive Markets

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eradicating poverty through enterprise
ANEEL KARNANI

The University of Michigan

November 2007

Eradicating Poverty through Enterprise
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

Poverty Eradication
poverty eradication3
Private Sector

Poor as Consumers

Poor as Producers

Public Sector

Civil Society

Poverty Eradication
  • Color Coding
    • BOP emphasis
    • My emphasis
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.”Bottom of Pyramid Proposition

C.K. Prahalad and Stuart L. Hart,

The Fortune at the Bottom of the Pyramid,

Strategy + Business, January 2002

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

Role of Private Sector
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. ”

Exploiting the Poor
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.

Alcohol and Poverty
fair lovely
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)

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.

‘Fair & Lovely’ Advertisement
empowerment or entrenching disempowerment
“Fair & Lovely cannot be supported because the advertising is demeaning to women and women’s movement”

Ravi Shankar Prasad, Minister of Information and Broadcasting

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)

market failure
Need for legal, regulatory, and social mechanisms for protecting consumers.

Particularly difficult in the context of the poor in developing countries.

Market Failure
role of private sector13
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

Role of Private Sector
role of private sector14
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

Role of Private Sector
romanticizing the poor harms the poor
We should recognize the poor as “resilient and creative entrepreneurs and value-conscious consumers.”Romanticizing the Poor Harms the Poor

C.K. Prahalad,

The Fortune at the Bottom of the Pyramid,

2005.

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

Increasing Employment
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

Role of Public Sector
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

Role of the Public Sector
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.

BOP: Dangerous Delusion
slide21

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

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

Poverty Eradication:Role of Private Sector