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Poverty Reduction for Profit? A Critical Examination of Business Opportunities at the Bottom of the Pyramid

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  • Jean-Louis Warnholz (QEH)
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    Abstract

    Leading management thinker C.K. Prahalad argues that selling consumer goods to four billion poor people at the bottom of the economic pyramid (BoP) both generates sizeable profits for large businesses and eliminates poverty. A welcome, innovative and influential perspective, but an opportunity missed, I argue here. First, selling to the poor may do little to eradicate poverty, but potentially hurts small businesses and threatens local jobs and incomes. Second, a more precise analysis using household surveys shows a much smaller BoP market size, less than 5% of previous estimates. Third, virtually everyone in developing countries is classified as a 'poor' consumer in much of the BoP literature. The focus and the bulk of Prahalad's new purchasing power rests with the emerging middle class in India, China and Brazil, while the 2 billion people below $2 a day, especially those in Sub-Saharan Africa, are marginalised in this debate. Data for consumer prices confirms that the true challenge is to serve the latter group, those that are completely cut off from the global marketplace. This paper concludes that big businesses have a central role in shaping and expanding these future markets by generating employment and incomes.

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    File URL: http://www3.qeh.ox.ac.uk/RePEc/qeh/qehwps/qehwps160.pdf
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    Paper provided by Queen Elizabeth House, University of Oxford in its series QEH Working Papers with number qehwps160.

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    Handle: RePEc:qeh:qehwps:qehwps160

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    1. Dennis D. Kimko & Eric A. Hanushek, 2000. "Schooling, Labor-Force Quality, and the Growth of Nations," American Economic Review, American Economic Association, vol. 90(5), pages 1184-1208, December.
    2. Sanjay G. Reddy & Camelia Minoiu, 2006. "Chinese Poverty: Assessing the Impact of Alternative Assumptions," Working Papers 25, International Policy Centre for Inclusive Growth.
    3. Kiminori Matsuyama, 2000. "The Rise of Mass Consumption Societies," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 23, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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    5. Honohan, Patrick, 1998. "Does PPP-Adjusted Data Exaggerate the Relative Size of Poor Economies," CEPR Discussion Papers 1865, C.E.P.R. Discussion Papers.
    6. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1988. "Industrialization and the Big Push," NBER Working Papers 2708, National Bureau of Economic Research, Inc.
    7. Rao, Vijayendra, 2000. "Price Heterogeneity and "Real" Inequality: A Case Study of Prices and Poverty in Rural South India," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(2), pages 201-11, June.
    8. T.N. Srinivasan & Jessica Seddon Wallack, 2004. "Globalization, Growth, and the Poor," De Economist, Springer, vol. 152(2), pages 251-272, 06.
    9. World Bank, 2006. "World Development Indicators 2006," World Bank Publications, The World Bank, number 8151, October.
    10. Kunreuther, Howard, 1973. "Why the Poor May Pay More for Food: Theoretical and Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 46(3), pages 368-83, July.
    11. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
    12. Maloney, William F., 2004. "Informality Revisited," World Development, Elsevier, vol. 32(7), pages 1159-1178, July.
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