How turning capitalism into equality can mean profit for all
By C. K. Prahalad

The private sector has yet to join the effort to alleviate poverty for the majority, explains C. K. Prahalad.

I believe the challenge for the 21st century will be how to democratise commerce. If you think about it carefully, 80 per cent of humanity, or five billion people, have been below the radar screen of organised business, especially large businesses, be they domestic or global companies. At the same time, with the democratising of various countries, people want to join and get the benefits of globalisation. They want to be both global consumers and producers. They are certainly micro-consumers because they are not rich. That is the reason why they have been excluded from the opportunities of being a good consumer.

At the same time, they have also been excluded from participating in the global marketplace because they are micro-producers. They produce in very small quantities, mostly in villages and in difficult-to- access markets. Therefore, I think the next generation of opportunity is how to mobilise business for this majority -how to create inclusive capitalism that is both fair and socially equitable and, at the same time, profitable. If you look at what has happened in the past 50 years, poverty alleviation has become a contested ideological market, with public sector aid agencies and multilaterals trying to seek universal solutions, civil society organisations focused on social justice and not necessarily economic empowerment or economic growth, and philanthropy focusing on personal agendas. The one institutional player that has been absent from this is the private sector.

Every person has the right to have access to the benefits of the global economy. That means that we have to treat every person as a consumer and make available to that person world-class products and services at affordable prices. More importantly, allow them to shape their own experiences, not impose solutions from Washington or London. Second, each person should be treated fairly as a producer and have access to global markets and be paid fair wages.

I believe that there are five key industries that are critical for poverty alleviation, the first of which is connectivity, especially connectivity of information. If you want to eliminate poverty, you have to eliminate the opportunities for information arbitrage. That is the reason that the wireless market is growing so rapidly in every poor country around the world. India alone is adding six million new consumers every month.

So there is a huge opportunity to create economic value for the companies and, at the same time, getting people to be connected. This connectivity has changed the lives of ordinary people, from taxi drivers to small corner shops to people who are plumbers and carpenters. All of their business models have changed. Now they can use the cellphone to increase their yields, to increase their productivity.

The second key industry is microfinance. It was invented and sponsored by civil society organisations, but the private sector has been quite active. Increasingly, large banks, such as ICICI, have been at the forefront of creating microfinance, not just access to credit but access to microinsurance, access to other insurance, crop insurance and life insurance, so that this can provide not only P&L but balance sheet protection for the poor. It is a very critical part for them to become more productive, reduce poverty and become consumers.

The three other industries where not much progress has been made, even though some early stage revival of these industries is obvious, are healthcare, energy and education. The question is whether healthcare, energy and education can also be supported by private sector initiatives at the bottom of the pyramid.

The second challenge is: if you want to create the capacity to consume, you must have new and novel business models. There are several ways in which people have tried to do it. One is easy payments, access to credit so that people can buy the goods and services that they want on the basis of easier monthly or quarterly payments. Another thing I think is very interesting is, instead of asking people to pay a bulk sum at the beginning of consumption, only allow them to pay on the basis of use. Therefore the focus is on access and not on ownership. This is why cellphones have taken off, because people can buy a card with the amount of money that they have and they pay only for use. And the same thing is true in the Western world on coin-operated laundromats. If you can have coin-operated laundromats, why not coin-operated PCs, why not coin-operated cellphones, why not coin-operated anything that people want access to?

A more interesting innovation has been what has today come to be termed as single serve. This has become a revolutionary idea in most parts of the world, especially in poor countries. For example, 60 per cent of all the shampoo sold in India is sold in single serve. So is aspirin or ketchup. This is another way of creating the capacity to consume. People consume only when they have the cash, when they can afford it, and they don't mind the difficulty of frequent trips.

And, finally, how do we dramatically alter the cost? If you look at cataract surgery, it costs about $3,000 in the United States. Aravind Eye Care System, in India, operates one of the largest eyecare facilities in the world. They see 1.5 million outpatients, do 250,000 surgeries per year -but they charge 60 per cent of the people nothing at all. And 40 per cent pay anywhere between $30 and $50, depending on what facilities they use, and most of the payment beyond $30 or $50 is for the quality of room, the air-conditioned rooms or special services which are more like living in a hotel rather than in a hospital.

So, how do we reduce costs from $3,000 in the United States to $30 to $50 in India? That, I think, becomes the critical question. This is about fundamentally rethinking how the businesses operate -what are the business processes, how to de-skill the work, how to reduce the capital intensity of the business, how to get specialisation so that you become world experts at doing one thing at a time. What people are asking us to do is give them a chance and give them the freedom to decide how they will want to lift themselves out of poverty.

We also need to reflect on what the implications are. If, for the first time, five billion people can be part of the global marketplace, it is going to create the next engine of growth for everybody. This engine is almost unstoppable, because these five billion people have to be moved from the unorganised inefficient sector to the more organised and efficient sector, but in fundamentally a new way.

So we have the opportunity to build new business models that are very different and distinct from what we have known. So not only is it the engine of great growth, profitable growth, but it is also the engine of innovation and change and I believe that when we start innovating at the bottom of the pyramid, many of the innovations will flow back to the developed world as well.

BUSINESS GURU

* C. K. Prahalad is the Paul and Ruth McCracken Distinguished University Professor at the Ross School of Business, University of Michigan

* He is an expert in corporate strategy and has consulted with companies such as AT&T, Phillips, Kodak, Oracle and Unilever

* He was born in Coimbatore in Tamil Nadu, India, in 1941. After studying physics at the University of Madras, he joined Union Carbide. He left four years later to study at the Indian Institute of Management and later gained his PhD at Harvard Business School

Return to In the News

Back to Top^

About | Services | Expertise | Publications | News | Partners