Abstract
Flattening the World
“Honey, I think the World is flat!” is how Tom Friedman (2005, p. 5), the modern-day Columbus, recounts the epiphany he whispered in confidence to his wife following his 2004 passage to India. Even as Friedman's narrative finds a place on most contemporary reading lists, there are two other major works, also published in 2005, that provide critical research-based insights into the forces flattening the contemporary world. These books demand the attention of Journal of Public Policy & Marketing (JPP&M) readers—academics, practitioners, and policy makers alike. This is because the issues raised in these two books span some of the most challenging research questions, the most attractive business opportunities, and the most vexing regulatory concerns for the twenty-first century.
The Fortune at the Bottom of the Pyramid, by C.K. Prahalad
C.K. Prahalad, a prolific scholar and management guru, has made seminal contributions (e.g., Hamel and Prahalad 1994) to the study of corporate strategy and competition and is no stranger to students of these topics. In private conversation, he nimbly sidesteps the suggestion that he also may have important things to say about consumers and marketing. Yet even in the preface of The Fortune, he comes through as a perceptive student of consumer behavior and marketing action. The book develops his thesis on how to build the “marketing ecosystems” that will help poor communities transform the “bottom of the pyramid” (BOP) into a vibrant market. There are four to five billion people around the world who earn less than $2 a day. Prahalad estimates that these underserved consumers represent an annual global economic opportunity of approximately $13 trillion, and he argues that the private sector must participate in developing this opportunity as part of contemporary strategy.
In making the case for entrepreneurial activity as a curative potion for the poverty malaise, Prahalad stresses two core points that will resonate with the JPP&M readership. First, he says (p. xiii), “the process must start with respect for [BOP] consumers as individuals. The process of co-creation assumes that consumers are equally important joint problem solvers.” Second, he argues (p. xiii), “the conversion of the BOP into an active market is essentially a developmental activity. It is not about serving an existing market more efficiently. New and creative approaches are needed to convert poverty into an opportunity for all concerned.” The proposition reaches beyond the popular rhetoric of philanthropy and corporate social responsibility. In essence, it portrays a customer perspective on “good business practice.” As controversial as Prahalad's ideas are, most marketers will readily agree that starting with the consumer is a pretty sound idea.
A remarkable investment of scholarly energy and managerial perspective anchors the book's mantra that there is indeed a fortune at the BOP. The arguments have depth, so the takeaway is not merely a set of preachy concepts and simplistic examples. Rather, as the jacket endorsement from Microsoft chief executive officer, Bill Gates, says, the book provides a compelling and coherent three-part “blueprint for how to fight poverty with profitability.” The first part presents a framework for how the private sector might engage in the BOP enterprise. The second part illustrates in depth the implementation process, using a dozen diverse global case studies to show how the process delivers real consumer benefits (“far beyond just products”). The third and final part is a video CD that contains visual narratives that bring alive the case studies. The videos include accounts of this transformative story from the perspective of its beneficiaries, namely, the BOP consumers.
The conceptual core of the book is in the first six chapters. The opening chapter is a canonical market definition exercise, but it demolishes much conventional wisdom about the BOP market. Readers may be skeptical as Prahalad argues that BOP consumers are both brand conscious and sophisticated about value. They may be surprised as Prahalad also portrays BOP consumers as increasingly better networked and eager adopters of advanced technologies. His discussion of the business actions needed to create the capacity to consume may appear intuitive to marketing readers. However, he makes the telling points that such transformations (1) create dignity and choice in place of neglect and (2) build mutual trust between firms and consumers where none existed. Prahalad's observations are consistent with Amartya Sen's (1992) arguments that such transformations are essential to secure and maintain freedom.
The second chapter lays out 12 principles of innovation for BOP markets. Readers of JPP&M with marketing backgrounds will not be surprised by the stress on customer understanding and education. They will also detect a familiar ring to the points that reaching customers and providing access must be paramount concerns. Readers may disapprove as they initially interpret Prahalad's call for a new price-performance envelope and “de-skilling” of processes as the traditional compromise of a low-quality/low-cost positioning. However, as the case examples in the second part of the book show, this is far from Prahalad's intent. The third chapter stresses the global character of the BOP opportunity and associated scaling needs and conveys the promise of these markets as major laboratories for entrepreneurial experiments in sustainable development.
The fourth chapter describes the cast of stakeholders and the relationships that must be built and nurtured in the “market-based ecosystem” that is envisioned. Prahalad illustrates the corporate role in this process, describing how ITC organized “e-Choupals” (go ahead, Google it!) in Indian villages to help farmers reduce the contract inequities that stem from asymmetries in marketplace information. The fifth chapter contains a pragmatic assessment and some ideas for grappling with the corruption that is inevitably encountered in BOP markets. Prahalad recounts how technology-enabled e-governance in an Indian state created transparency and consistent enforcement, empowering the citizenry to battle bribery and extortion. In the sixth chapter, Prahalad sets forth the compelling proposition that BOP market development is a workable social transformation process in which the private sector must participate proactively. In this vision, creating the capacity to consume at the BOP will unleash economic mobility that will transform the global socioeconomic profile from the traditional pyramid into a diamond, reflecting an increasingly larger and more prosperous middle class.
The second part of the book provides 12 case studies of what Prahalad terms (p. 113) “innovative practices at the bottom of the pyramid.” Two case studies, from Brazil (Casa Bahia) and Mexico (CEMEX) illustrate the sheer size of the market opportunity available at the BOP. Tapping this potential involves careful research and analysis of unmet consumer needs and values and then the use of targeted incentives and empowerment to create the capacity to consume. Two Indian case studies based on Hindustan Lever's experiences show how business opportunities may be developed by matching known solutions to known problems. Consumer research has pointed to customer education programs and associated distribution systems that profitably addressed major public health concerns stemming from iodine deficiency (marketing fortified salt) and diarrhea (marketing antibacterial soap). Given my personal early career experience in the markets in India, these examples ring true. As the soap case study notes with disarming simplicity, “the promise of health is relevant universally” (p. 229).
The next two case studies document how innovation can offer unique solutions and opportunities to the BOP. The Jaipur Foot (prosthesis products) and the Aravinda Eyecare System cases show how focusing on cost and scale in manufacturing and service processes can drive dramatically different levels of price performance. In both cases, superior functionality was attained at a fraction of the cost and created immeasurable quality-of-life impact at the BOP. These are not isolated or rare instances, and they match accounts of emerging competitiveness available in other contemporary chronicles of Indian entrepreneurship (e.g., Roy 2005). Another set of three case studies describes how three companies: EID-Parry (sugarcane procurement), ITC (soybean procurement), and the ICICI bank (credit access) researched and pinpointed inefficiencies in the relevant agricultural procurement chains and financing systems. By identifying and empowering key players in the respective networks, the companies created better systems that productively released the trapped value.
Next, the reader accompanies Prahalad and his students to Peru to examine a case study in scaling innovations. The Voxiva story describes a start-up that pioneered the surveillance of emerging public health crises in remote rural areas of Peru. Within this BOP environment, the company developed a core competence in transforming inputs from various communication devices (e.g., village pay phones) into realtime monitoring systems. This opened up application opportunities in other parts of the world and in other health sectors. The case describes how an entrepreneurial effort created elegant new solutions to traditional BOP market problems. Prahalad proposes that the capital constraints faced by such small entrepreneurial firms represent investment opportunities for larger firms and multinational corporations. The latter can provide the resources needed to scale up such pioneering efforts to become global business opportunities.
The book comes with a bonus video CD that illustrates each of the preceding case studies. The video excerpts in this “third part of the book” are not comprehensive ethnographies, but they provide a vivid sense of the people and contexts that constitute the BOP. The images may speak to JPP&M readers in idiosyncratic ways, but the participants’ faces tell an important, unifying story. There is no denying the sense of consumer benefits generated by these entrepreneurial efforts to serve unmet needs in BOP markets. For example, one video documentary contains citizen narratives describing how the e-governance system freed common people from pervasive corruption and exploitation in routine transactions with the government. It is not necessary to understand Portuguese to recognize the emotion lighting up the face of a BOP consumer beneficiary of Casas Bahia in Brazil. Together, these case studies (each created as a student project) provide a rich, illustrative basis for Prahalad's thesis. The CD embeds another important point for academics. There is enormous value added in stimulating students to take ownership of a problem and unleash their creative potential to find solutions. The book is characteristically generous in profiling these people and in praising and acknowledging their contributions.
In summary, Prahalad's vision is important. However, there are possible critiques. For example, the case studies are somewhat India-centric and mainly illustrate successes (rarely failures) and may leave readers with an incomplete sense of the boundary conditions for successful transformative BOP actions. Development experts with a “bigproblem” perspective may wonder whether individual entrepreneurship has sufficient scale and motive power to sustain a large and fragmented development effort. Finally, readers who perceive development interventions as insidious intrusion into the lives of people may react negatively to Prahalad's unabashed advocacy of change at the BOP. However, the promise of dignity, choice, and trust in civil society is attractive, compelling, and difficult to ignore.
All in all, this is a pathbreaking book. It has attracted significant attention, plaudits, and controversy. Readers of JPP&M would be remiss if they did not participate in the conversation.
The End of Poverty, by Jeffrey D. Sachs
Quoted on the back cover, Dr. Manmohan Singh, a distinguished architect of the Indian economic reforms and India's current prime minister, applauds Jeffrey Sachs's book for providing “deep insights” for policy practitioners on how to realize “the hope that chronic poverty need not be the inevitable lot of a majority of the human race.” However, this understated praise does not adequately reflect the book's urgent tone. Sachs says (p. 1), “this book is about ending poverty in our time. … More than eight million people around the world die each year because they are too poor to stay alive [emphasis added]. Our generation can choose to end that extreme poverty by the year 2025.” The imperative is more apparent in Bono's foreword: “We can't say our generation couldn't afford to do it. And we can't say that our generation didn't have reason to do it. It's up to us. We can choose to shift the responsibility, or as the professor proposes here, we can choose to shift the paradigm” (p. xviii).
What paradigm shift does Professor Sachs propose in the 18 chapters of The End of Poverty? A place to start is Bono's unsettling foreword and then Sachs's introduction. This brings readers to an opening chapter with the benevolent title, “A Global Family Portrait.” Here, they will read about the confluence of climatic disaster, impoverishment, and an AIDS pandemic that is producing the perfect storm in Malawi. They will learn about Bangladesh's faltering steps on the first rung of the development ladder and appreciate the prospects and problems with the emerging affluence in India and China. They will find themselves challenged as Sachs lays out the economic possibilities of our time: attaining the Millennium Development Goals (MDGs) by 2015, eradicating extreme poverty by 2025, assuring progress up the development ladder in all the world's poor countries, and accomplishing all this with only modest financial help from the world's richest countries (for more on the MDGs, see also The World Bank 2001, 2003, 2004).
In the next three chapters, Sachs follows with a compact lesson on the 200-year history of modern economic growth, explaining why the uneven spread of prosperity has left a chasm separating a sixth of humanity in the world's richest countries from another sixth that is “barely able to sustain life.” His attributions are evenhanded: colonial exploitation, geographic barriers (e.g., inhibiting limitations in resources, climate, and health), and disastrous policy choices. He explains why the “poverty trap” (the notion that poverty itself causes economic stagnation because resources are insufficient to meet even the survival imperative, let alone invest for the future) is the greatest challenge to development. However, Sachs argues that these problems are correctable if economic action plans are based on a “differentiated diagnosis” of factors that shape national economic conditions. In a chapter he calls “Clinical Economics,” he provides a seven-factor checklist for developing such a differentiated diagnosis.
The next six chapters provide a fascinating analytical, yet personal, account of how this differentiated-diagnosis approach evolved through contextualized applications in different parts of the world. The Bolivian hyperinflation of 1982–1985 is an instructive first case study that describes what was done to stabilize and restore economic growth. The second case study examines the economic reforms following Poland's move to democracy and considers what is needed for sustainable economic development. Both cases identify internal socioeconomic transformation and external connectivity (for Poland, “a return to Europe”) as the essential ingredients. The lessons from Russia's transformation to a market economy strengthen the thesis. Sachs argues that the outcomes were more muddled because even though the country worked on internal economic reforms, internal control failures and insufficient foreign support were major inhibitors.
The lessons continue with a diagnosis that suggests great potential. Sachs highlights structural differences between the Chinese economy and those in Russia and Eastern Europe. These suggest an easier development journey for China but with caveats about China's wavering commitment to social and environmental protection and to political reform. Concerns about China also arise because of uneven growth attributed to regional divides, a coastal concentration of investment, uneven urbanization, and corruption. As Sachs argues, however, the Chinese opportunity is historic, and China may be the first of the poor economies to end poverty in the current century. Similarly, Sachs views India's economic growth as a shining case study in the liberating role of domestic entrepreneurial activity and a global diaspora. The pessimism of a “Hindu rate of growth” has been replaced with a national imperative for economic modernization and aggressive participation in the global economy. This is supported by a free press and an open and vibrant political system. Sachs's macro assessment is consistent with Prahalad's analysis of the changes fueling this economic growth at the firm and consumer levels.
Despite different political philosophies, India and China share similar problems (huge populations, insufficient resources for social and political protection, and uneven growth that creates unrest or unseats governments) but also similar promise (changing internal economic sociology and global access through a far-flung diaspora). However, Africa provides a contrasting case study. The problems are massive, but Sachs provides a diagnosis that departs from the tradition of laying the blame purely on internal bad governance. Rather, he calls for reflection on self-interested Western support of autocratic regimes and also focuses up front on the enormous obstacles posed by poverty, disease, ecological crises, and geopolitical neglect. Africa contains some of the world's worst examples of poverty traps, and Sachs identifies the social problems there involving hunger, rural isolation, and environmental degradation as equal contributors to the misery.
Sachs argues that this diagnosis itself points the way out of the morass. He claims that the problems are solvable through investments attuned to local needs and priorities and through technology and modern medicine. The point is illustrated by an instructive case study of a Kenyan village, where a ground-level needs analysis pointed to specific solutions. The “big-five” interventions included investments in agricultural inputs (e.g., fertilizer); basic health (e.g., anti-malarial bed nets); education (including expanded vocational training); power, transportation, and communication (e.g., electricity, trucks, telephones); and safe drinking water and sanitation. Another case study focusing on the urban poor in Mumbai offers both contrasts and similarities. In Mumbai, there was a similar need for investment in infrastructure and basic amenities, but there was also a sociological need for investments in individual empowerment that could make the population healthier, better educated, and more productive. This implies a need for accountability, and Sachs affirms that the poor are indeed more than ready to be accountable (see also Narayan 2000; Narayan et al. 2000; Narayan and Petesch 2000).
Escaping the poverty trap requires six major types of capital. The human capital needs are perhaps the subtlest because they comprise the skills that engage the other investments. Other, more obvious capital needs are for business and infrastructure investments and also for natural resources. At a societal level, there is a need for capital that sustains public institutions and for knowledge development. Sachs develops a basic capital accumulation model and shows the potential role of official development assistance in this process. He illustrates this with a numerical example and shows how and why there are income-level thresholds that partition growth and decline scenarios. He also notes that development assistance does not involve a single magic bullet investment but that “good investments come in packages.” The interrelationships among types of investment are important not only because the investments support one another but also because they receive an extra boost from increasing returns from scale when ramped up from the local to the national level. This chapter provides inspiring success examples through the preceding decades: the Green Revolution in Asia, the campaign for child survival, malaria eradication, and family planning, among others. More contemporary successes include East Asian export processing zones and the mobile telephone revolution in Bangladesh.
Sachs notes that there is a problem with commitment to the MDGs and that a gap exists between the articulated goals/aspirations and the action plans. He provides an inside look at the “plumbing” through which aid flows and argues that the process often fails to link solutions to the problems they are supposed to address and often works the other way around. He articulates a five-part process that involves a differential diagnosis, an investment plan, a financial plan that funds the investment plan, a donor plan that funds gaps in the financial plan, and a public management plan that develops the governance and administrative mechanisms to get the job done. This is easier said than done, but Sachs provides a careful analysis of each process step, identifying the major priorities (managing the debt crisis, setting global trade policy, creating science for development, and ensuring environmental stewardship) and the roles of various parties, including the UN agencies. Sachs distils 20 years of field experience into a coherent and well-grounded proposal for fostering economic development and well-being in countries around the globe. The roadmap is clear and attracts a back-cover endorsement from the financier and philanthropist George Soros as “a compelling blueprint for eliminating extreme poverty from the world by 2025.”
There is the question whether the plan is indeed affordable. Sachs shows that the aggregate arithmetic is relatively simple and implies rather modest costs. According to his assessment of a package of basic needs and associated interventions, the task of eliminating extreme poverty can be accomplished within the support levels already committed—namely, .7% of the gross national product (GNP) of the high-income world. The core analysis is developed in Chapter 15, along with a set of tables showing regional breakdowns and country-level examples of the needs by investment sector. Sachs estimates the cost of meeting the MDGs in every country at $121 billion in 2006, rising to $189 billion in 2015. Assuming that the high-income countries will meet existing commitments, the gross official development assistance level needed beyond existing commitments was $48 billion in 2006, increasing to $74 billion in 2015. Because these investments will enable much of the world to escape from the poverty trap, Sachs anticipates that the needs beyond 2015 will fall significantly.
The touchier issue is who takes responsibility for providing this support and why? Sachs develops one set of appeals based on the relative insignificance of the numbers. He shows that to go from today's .15% of GNP to a .7% level involves a commitment of less than one-third of a single year's GNP growth. Thus, a billion people around the world can be helped to escape the misery of the poverty trap simply by investing approximately four months of consumption growth in the United States. A second set of appeals is related to a change in mind-set at two levels. First, he argues for abandoning prevailing myths that the world's poor cannot be helped effectively because they are shackled by their cultures, values, and personal behaviors. Second, he argues for a reassessment of the assumed link between global poverty, state failures around the world, and U.S. national security. He cites a Central Intelligence Agency study that shows that state failures are most significantly associated with high infant mortality rates, closed economies, and authoritarian regimes. These failed states often become breeding grounds for terrorism, criminality, and other security threats, which in turn invite downstream military engagement. The alternative is to make an upstream investment in poverty eradication and the associated promise of stability.
Notwithstanding these rational appeals, Sachs is at his most compelling when he sums up his ideas as an opportunity for our generation to help foster political and economic systems that further human well-being. The promise is of international cooperation that secures perpetual peace and the continued prospect of improving the human condition. He concludes (p. 368), “Let the future say of our generation that we sent forth mighty currents of hope and that we worked together to heal the world.” The arguments on which this exhortation rests deserve the JPP&M reader's scrutiny.
Conclusion
Prahalad and Sachs examine the same problem but at different levels and from different perspectives. The former focuses on the opportunity in the BOP market and proposes an entrepreneurial solution and an implementation plan at the grass-roots firm and consumer levels. Sachs takes a more macro perspective on the roles and responsibilities associated with global poverty eradication. In tandem, they give readers an appreciation of the business opportunities and the socioeconomic imperatives surrounding development and the importance of context in planning and implementation. Both provide insights into the tectonic forces that are “flattening the world.” Both books are worthwhile investments for JPP&M readers, who should have no difficulty recognizing the relevant consumer and managerial research issues, business opportunities, and regulatory concerns embedded in these “developments about development.”