In 2004, Professor C.K. Prahalad wrote a book that was to become an international bestseller, climb into The Economist magazine’s list of the year’s 25 best books and be quoted endlessly for years to come, spawning a sub-genre of management literature and consulting opportunities for its pioneers.

Prahalad and his original partner in the thesis’ development, Professor Stuart Hall, had jointly written a paper on the subject six years earlier and then went on to write their separate books; Prahalad was first off the block followed by Professor Hall’s own contribution grandly but enigmatically titled Capitalism at the Crossroads , in 2006.

Prof. Prahalad’s bestseller was regarded as seminal for its apparent mindset-changing perspectives. Using the World Bank’s 1998 data on poverty lines — 1.2 billion living on or less than one dollar a day per person and 2.8 billion on less than $2 a day —Prahalad exhorted the world’s rich and powerful, those at the top of the “pyramid”, to stop thinking of the poor — those at the bottom — with pity, as helpless souls worthy of the state’s welfare programmes or dole-outs, and of private charities.

Prahalad counted the BoP poor variously. In his preface he estimated them in one sentence at 4 billion and immediately after as between four and five billion. But no matter. His concern was that the total of that daily income constituted a huge market for the world’s multinationals and an opportunity for NGOs, governments, to assemble under the banner of those firms to rid the world of poverty.

The Gold Rush!

Working to create markets for appropriate goods and services for the BoP, the numbers of which the best-selling author bandied about rather carelessly — 2.8 billion? Four billion or up to five billion? — could confuse firms. What was to be the size of the market, of purchasing power they were looking at? But the big picture was in the title.

This way of looking skipped around the messy road of altruism, of charities endowed with tax breaks and laden with guilt. Global firms who had hitherto stuck to the top of the pyramid with high value goods and services would benefit from the demographic dividend as it were, making profits through volumes while poverty would be effaced through the agencies of the market: A win-win for all.

All this was summed up in the title, more evocative than Hall’s: TheFortune at the Bottom of the Pyramid: Eradicating Poverty throughProfits spoke volumes: it denies the uncomfortable history of capitalism itself as a system built on the dialectic of capital and labour.

The first half of the title held the promise of an El Dorado, the hidden lodes of wealth to be found in the nether world. The second half offered, through an exquisite alliterative phrasing, the option of redemption for that ‘Gold Rush’ — the chance to reverse historical memory of profit as the cause of poverty. Why carry the burden of guilt, of all those values of giving and sharing, of compassion, that created so much anxiety, hatred, contempt for the world’s poor? Here was the opportunity to banish fears of wild-haired radicalism or dewy-eyed welfarism; now multinationals could rewrite the future.

The pyramid, Prahalad prophesied, could turn on its head, turn into a diamond.

The context for BoP

Prahalad’s faith in multinationals and markets as liberating agencies drew immense support because of an unprecedented growth in both deregulated capitalism after the 1980s (despite periodic crises) and world inequalities and poverty. Both extremes owed in some measure to the collapse of communism in former Soviet Russia, East Europe, China, and the retreat in social democracy in western democracies, particularly the US and the UK and the decline in mass movements in much of the developing world.

But the BoP was flawed from the start. In his preface the four to five billion he thinks can “help redefine “good business practice” of “large private firms” also include the 1.2 billion living on or less than a dollar; one is not sure how such income poverty can contribute to the firms’ sense of itself and help a family meet its basic needs, the absence of which presumably keeps it poor.

Like most management experts foretelling the future (think Tom Peters) he uses the case study to substantiate his hypothesis about the possibilities of profit eradicating poverty. But that is a convoluted and clumsy way of drawing a blueprint as grandiose as the eradication of world poverty.

Prahalad’s attempts at valourising the experiences he showcases, in fact, weaken his case to the point where the reader is no longer with the central thesis of his project.

In fact there may be no central thesis at all.

In a detailed critique of the book, Andrew Crabtree found Prahalad had seven theses, with “huge differences” between them ( EvaluatingThe Bottom of the Pyramid from a Fundamental Capabilities Perspective Copenhagen Business School. Working Paper No.1 2007).

Crabtree suggests locating one “minimum hypothesis” to get Prahalad’s ideas off the ground. He finds it in the title: “Income poverty ($2 a day or less) can be substantially reduced by profit-seeking businesses taking the leading role …in serving the BoP consumers and working together with the poor and a variety of institutions.

Investing the book with this single hypothesis, Crabtree turns to the case studies, many of which Indian readers should be familiar with.

They would also know that the Jaipur Foot began as an NGO initiative, that Aravind Eye Care System is a trust largely self-financed and that Andhra Pradesh government’s e-governance efforts would meet the Prahalad criterion only by a huge stretch of imagination.

In fact only three of the 12 cases cited by Prahalad can be “directly related to increased income” the yardstick Prahalad, “wishes to be judged on…”

The statist variant

Around the time of Prahalad’s best selling book, another idea was firing the imagination of policymakers. From 2004 on, both the RBI and then Finance Minister P. Chidambaram introduced the idea of inclusive growth and, more specifically, financial inclusion. For policymakers it had a more appropriate and legitimising ring than the BoP model for it reasserted the primacy of government and state organisations, the RBI, for instance, in the alleviation of poverty.

Inclusive growth more or less put paid to the notion of the BoP already suffering the worst consequences of its severe internal inconsistencies. It is one thing to talk of profit but firms have an eye on shareholder value. Listed micro-credit firms in Andhra Pradesh were answerable to the equity markets as are global firms; profits are subsumed within that larger driving force and it took the state authorities to stop usurious practices by such firms.

Despite its recognition of a universality of deprivations, unlike the naïve BoP model, social inclusion is a long way off; exclusion still rules; the bottom gets wider.

Eradicating poverty…there must be a third way.

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