Mirage at the Base of the Pyramid

For six decades now, various institutions have been addressing the challenges of reducing poverty: local governments, developed-country governments, international organizations (such as the World Bank and the United Nations), aid agencies, and civil society.[1] So far, the intellectual discourse on poverty reduction has been largely in the fields of public policy and development economics. More recently, large companies, management experts, and business schools have entered this arena, arguing that business should play the leading role in reducing poverty.

As noted earlier, C.K. Prahalad was one of the pioneers of this movement, and his 2005 book The Fortune at the Bottom of the Pyramid has received much acclaim.[2] Prahalad was instrumental in developing a set of ideas often referred to as the “bottom (or base) of the pyramid” (BOP) proposition, which can be summarized as follows:

  • 2. By selling to the poor, private companies can bring prosperity to the poor, and thus can help eradicate poverty.
  • 3. Large multinational companies (MNCs) should play the leading role in this process of selling to the poor.

Thus, the BOP proposition is that selling to the poor can simultaneously be profitable and eradicate poverty: There is both glory and fortune at the base of the pyramid. This is, of course, a very appealing proposition, and it has attracted the attention of senior managers, large companies, business schools, and the development community.

The United Nations, for example, launched the Growing Inclusive Markets (GIM) initiative in 2006; the tagline on its website is “Business works for development. Development works for business.” The GIM is a “global multi-stakeholder research and advocacy initiative that seeks to understand, enable and inspire the development of more inclusive business models around the globe that will help to create new opportunities and better lives for many of the world’s poor.”3 The United Nations also hosts the “Business Call to Action,” a program designed to challenge companies to adapt their core business models to support poverty eradication. The World Bank promotes “private sector development,” as do many other aid agencies. Finally, the think tank World Resources Institute (WRI) emphasizes “development through enterprise.”

The international business community seems excited by the BOP proposition and about helping to reduce poverty. Top CEOs have discussed this topic at recent sessions of the World Economic Forum. MNCs Unilever, Hewlett Packard, and SC Johnson have undertaken BOP initiatives. Several business schools, such as IESE Barcelona, University of North Carolina, Cornell University, Harvard University, and University of Michigan, have set up BOP centers and/or offer MBA courses in this area.

Conferences on this topic include Eradicating Poverty through Profit, organized by the WRI (December 2004); Global Poverty: Business Solutions and Approaches, organized by the Harvard

Business School (December 2005); and Business as an Agent of World Benefit, hosted by Case Western Reserve University (October 2006). Many books have been published on the subject, too, including Alleviating Poverty through Profitable Partnerships; Make Poverty Business; Untapped: Creating Value in Underserved Markets; The Next 4 Billion; and Business Solutions for the Global Poor.

Given the number and diversity of organizations and experts in this domain, there is, of course, no consensus about what the precise role of business in poverty reduction should be. However, there is enough commonality of viewpoints to group them together for the purpose of analysis. Prahalad has certainly been the most visible and prolific writer in this field. Therefore, the analysis here will focus on the BOP proposition as outlined in The Fortune at the Bottom of the Pyramid, which Stuart Hart, an early BOP proponent, calls “central to the BOP canon.”4

The BOP proposition sounds too good to be true, and this chapter argues that it is. It is riddled with unrealistic expectations and false hopes for both businesses and the poor, empirically false, logically flawed, and morally problematic. It is empirically false because the BOP market is just too small, providing only very limited opportunities for firms to make profits. It is logically flawed because the best way to alleviate poverty is to raise the income of the poor by focusing on them not as consumers but as producers. The BOP proposition is morally problematic because it leads to exploitation of the poor, even if unintentionally.

  • [1] There is much untapped purchasing power at the bottom of
  • [2] the pyramid. Private companies can make significant profitsby selling to the poor.
 
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