Who Wins the Fortune?

In the following pages, I will critique the work of highly esteemed economics professor C. K. Prahalad and his 2006 book The Fortune at the Bottom of the Pyramid. Prahalad has a wonderful ability to make one feel hopeful and inspired for the possibilities of cooperative work between MNCs and NGOs as well as other domestic and foreign agencies, and I will be highlighting some of the real value in his thesis. Questions follow, however, and his book raises some real concerns over the nature of development and the powerful role of government and politics as a barrier to his vision. In fact, there are some sinister overtones of economic development that his work does not acknowledge, and I will discuss the possibility that MNC involvement in the lives of the world’s people may have the opposite effect that Prahalad asserts. My conclusion will offer some alternative solutions to the problems Prahalad sincerely hopes to eradicate through free markets and globalization.
Prahalad’s Vision
In The Fortune at the Bottom of the Pyramid Prahalad had the courage to purposely forgo academic objectivity and a balanced perspective in favor of allowing himself to brainstorm in search of a grand new idea of doing well by doing good (p.2). It does not examine globalization, only imagines how globalization can possibly contribute for the good. In the prologue, Prahalad writes:
This book is concerned about what works. This is not a debate about who is right. I am even less concerned about what may go wrong. Plenty can and has. I am focused on the potential for learning from the few experiments that are going right (p. xiv).

In doing this, Prahalad gives himself and his reader the freedom to image new ways of looking at the world. He dreams of “an interdependent world that lives in peace” (video introduction). Unfortunately, in looking at only the success stories, Prahalad leaves out a lot of data, including the situation of Africa, with no formal case studies or mention of positive examples that come from that continent (2005, Zachary, Pascal The New Republic).
The most important contributions that this book brings are Prahalad’s insistence on a change of attitude toward the poor, a vision of cooperative endeavors, and his access and potential to influence the highest powers in globalization institutions. Prahalad gives a clear synopsis of his thesis on p. 1:
If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up (2006, The Fortune at the Bottom of the Pyramid).

He has a real respect for the people suffering from poverty, and trusts that if they have the chance, latent leaders will emerge and will “influence the start of a transparent and commercially viable system” (p. 72). In fact, he claims that rapid social and economic transformation can happen when the “BOP” (the bottom of the pyramid; the four billion people who live on less than $2 per day) are empowered by newfound “access to information, choice and infrastructure” (p.100-101). To illustrate this, Prahalad tells an inspiring story of a bank in Tamil Nadu, India, which set up groups of 20 village women and educated and empowered them to make decisions about local loan distribution. Through their connected relationships they were able to “take charge of their community and protect their newfound access to capital at reasonable rates” (p. 73).
I really enjoyed the ideas in The Fortune at the Bottom of the Pyramid about how different public and private sectors of society can and should work together for the good. Prahalad envisions NGOs, large domestic firms, MNCs, government agencies and the poor themselves sharing their unique capacities and partnering in a variety of projects (2006, p. xv). One example of this kind of PPP (public/private partnership) is the importance of a public health campaign against the spread of disease with hand-washing, coupled with heavy advertising for brand name soap (p. 237-8).
The third contribution of The Fortune at the Bottom of the Pyramid is the extent of C.K. Prahalad’s personal connections, in that this book has been read and studied by people who can actually make a difference. On the first page of the book, praise is given for Prahalad’s ideas from Bill Gates, Madeleine Albright, Mark Malloch Brown (Administrator United Nations Development Programme) and many others. The book’s introduction claims he has been named in the top ten management strategists of the world in every major study for over ten years, and Business Week is quoted as saying, “he may well be the most influential thinker on business strategy today” (p. xxi). With a resume like this, Prahalad’s brainstorms and dreams of a better world have the potential to go farther than the limits of the page.
Questions From the Bottom of the Pyramid
Prahalad gives twelve examples of situations where companies did well by doing good. In the accompanying video, documentaries are filmed on location in India, Peru, Mexico, Brazil, and Venezuela. Each unique story is inspiring and includes stories of how small entrepreneurs are encouraged and financial advanced by investment by MNCs or by large domestic firms. Yet twelve stories are not many stories in a large, flat world. Prahalad admits that these are the exception rather than the norm, and hopes that they can be examples for other projects to follow. I question the likelihood of that, as well as some of the philosophical foundations of the initiatives he describes.
Microcredit is an important aspect of Prahalad’s new vision for the BOP. He uses the example of ICICI bank in India, which gives small loans to the poor. Through the community accountability program of the women’s SGH groups, these loans are paid back with great profit for the ICICI, which is the second largest bank in India, and helps people improve their lives at the same time (2006, The Fortune at the Bottom of the Pyramid, pp. 115-129). This may indeed be a shining example of benevolent investment with a happy ending, but The Nation writer Alexander Cockburn says that “microcredit is becoming a macro-racket” (2006, “A Noble Peace Prize for Neoliberalism; The Myth of Microloans,” National Public Radio“Weekend Edition”). He quotes P. Sainath, “India’s most outstanding journalist on rural destitution and the consequences of economic policy,” saying that no one was ever liberated by being placed in debt.
Sainath points out that the interest rates micro-indebted women are paying in India are far higher than commercial bank lending rates. ‘They are paying between 24 and 36 percent on loans for productive expenditures while an upper class person can finance the purchase of a Mercedes at 6 to 8 percent from the banking system.’

While Cockburn admits that microloans can be a useful tool, he claims that the only way long-term change can happen in development is through social programs and a macro-credit model such as what was used so successfully by Eastern countries such as Taiwan, China and South Korea.
Another question I have with Prahalad’s vision is what exactly he means by “social transformation?” Pralahad writes on page 109, “social transformation is about the number of people who believe that they can aspire to a middle-class lifestyle.” I worry that Pralahad is equating consumerism with social transformation. Prahalad makes no effort to hide his assumption that to help the BOP, we need to make them consumers. He writes, “to convert the BOP into a consumer market, we have to create the capacity to consume” (p. 16), and also defines success as human beings as winning “the chance to consume” (video introduction, The Fortune at the Bottom of the Pyramid). He uses consumerism, self-esteem, and social transformation interchangeably, writing that these marketing projects, “tend to create opportunities for the poor by offering them choices and encouraging self-esteem” (p. 5). When he talks about self esteem and choice, it is in terms of consumerism, such as the example of the Brazilian grocery store Casas Bahia where the video showed proud people talking with tears in their eyes about washing machines and kitchen stoves (pp. 159-167). I can understand how these machines can really make a difference in a person’s life, but when people’s self worth is defined by their ability to consume, where will it end?
In 2005 The New Republic had an article by Pascal Zachary critiquing an earlier printing of The Fortune at the Bottom of the Pyramid. The writer does not equate consumerism with benefit or self-esteem.
First, so long as the poor spend what little money they have, they will remain poor, even if they now benefit from higher quality goods…in fact, they can still be poor even after they pay less for certain essential goods. How? To start with, they can be persuaded (by those aggressive corporations suddenly paying attention to them in pursuit of profit) to purchase things they did not formerly need.

An example of this is the story of Frito-Lay’s advertising campaign for “healthy” chips, which persuaded Thai people to eat foreign junk food rather than their inexpensive, locally produced traditional meals of rice and vegetables. Another example he takes from Prahalad, who celebrates the success of Avon, selling cosmetics through distribution channels of women in rural areas of Brazil (2006, The Fortune at the Bottom of the Pyramid, p. 44). Another well-known example of corporate marketing that has done great harm is the Nestle baby-formula campaign which convinced women in developing countries to stop breast-feeding their babies, instead buying infant formula. The New Republic chastises:
Pralahad’s blasé attitude toward the effects of marketing on poor people is willful blindness. He ought to know better. Members of the middle class are not alone in trying to live beyond their means. Poor people try too. And they can be ensnared even by well-intentioned marketing campaigns.

This is not a problem unique to the BOP. North Americans are constantly barraged with advertising campaigns manipulating us into consuming things we don’t need, even damaging things, and playing on the promise of self-esteem and a better life if only we would spend more money.
All corporations exist to make a profit. Most would make a profit at any cost, with no regard to the welfare of their customers. Pralahad has pulled together several stories of corporations that make money and are motivated by creating benevolent products as well, but I don’t even need to question the motivations of the corporate world in general. Their motivation is one thing, and that is profit. Pascal Zachary gives examples of failed attempts to make a profit off of the BOP in China and in Africa (2005, The New Republic), pointing out that there are many situations where profit simply cannot be generated and the only solution is public service.
The third way I question Pralahad’s work is on the importance of government. Pralahad’s case studies seem to happen seamlessly, almost under the radar of regulation, but his examples provide a simplification of reality. In “Development Economics: The Wealth and Poverty of Nations” (2003, Wheelan, Charles Naked Economics), the author points out that government controls almost every aspect of economics and trade:
Basically, good governance matters. The World Bank rated 150 countries on six broad measures of governance such as accountability, regulatory burden, rule of law, graft (corruption), etc. There was a clear and causal relationship between better governance and better development outcomes…(p.209).

Pralahad doesn’t ignore government’s role altogether. He writes, “we need to make sure that no organization abuses its power and influence, be it corrupt governments or large firms” (p 108). He goes on to explain that the way BOP consumers can do that is by an evolving form of checks and balances that include TV, wireless internet and cell phones, which “make it impossible for any group to abuse its position for long.” This statement unveils the greatest vulnerability of Prahalad’s thesis; a naïve belief that as long as neoliberal economic development is followed, people will have ways to participate in the forces that control their lives, and transform their societies for the better. On page 81 he writes:
Fundamental to the evolution of capital markets and a vibrant private sector is the need for a transparent market for capital, land, labor, commodities and knowledge. Transparency results from widely understood and clearly enforced rules.

This situation of transparent, non-corrupt government to allow the ideal, transforming, free market of Pralahad’s dreams currently does not exist. He describes each country as having its own portfolio of challenges in TGC (transaction governance capacity), and its own road to improvement (p. 82). Giving some more examples of private sector attempts to work for TGC through technology, he still points to the need for democratization of the individual: “There are significant impediments to the entire process, the most important being the education of the citizen” (p. 94). My question is who is going to educate the citizens and how? Will they be educated to think critically about their needs, their political freedoms, and their human rights? Or will the education of the citizen Prahalad endorses be only one more attempt to create consumers at the bottom of the pyramid, not citizens actively engaged in governmental, as well as labor reform?
Sinister Overtones
There is danger in looking at the field of economics without politics. Prahalad writes, “while cases certainly can be found of large firms and MNCs that may have undermined the efforts of the poor to build their livelihoods, the greatest harm they might have done to the poor is to ignore them altogether” (p. 5). The New Republic once again accuses him of “present(ing) a seductive alternative reading of the multinational corporation as an agent of transformation and empowerment, not a force for exploitation and the concentration of wealth” (2005, Zachary, Pascal). Any large corporation is a powerful political entity that has only their own profit on the agenda, and there are examples from around the world that show violence and human rights abuses committed against people who challenge it. According to Andrew Cockburn in his microloan commentary:
The trouble with publically-subsidized credit programs is that they’re public and they’re large and run contrary to the neo-liberal creed. That’s why Younus (an economist who wrote in favor of microcredit) got his Nobel prize, whereas radical land reformers get a bullet in the back of the head (2006, “A Noble Peace Prize for Neoliberalism; The Myth of Microloans,” National Public Radio, “Weekend Edition”).

Human rights are a huge concern in Colombia, the most violent country in the world. In a report she titled “Globalization and ‘Free’ Trade in Colombia”, Anne Montgomery describes the connection between multinational corporations and the paramilitary terrorist forces that are responsible for much of the killing (2001, www.colombiajournal.org). Montgomery claims that the paramilitaries are private armies are hired by wealthy families and foreign corporations who abuse human rights for the benefit of their business interests.
Colombia has resulted in an increased popular resistance to the implementation of neoliberal economic policies. Consequently, there has been a corresponding increase in the levels of violence used against such elements as guerrillas, peasants, union leaders, and human rights activists who challenge a system of economic relations that ships resources needed for survival off to foreign lands under the label of “free trade.”

According to Montgomery, the paramilitaries intimidate and attack rural peasants, and then take control of their abandoned land on behalf of foreign investors. While globalization as a concept can’t be blamed for this kind of political chaos, the situation in Colombia shows a lack of concern for human rights versus the right to profit in any way possible, a globalization priority.
In conclusion, I return to a question Prahalad asks in the introduction to The Fortune at the Bottom of the Pyramid.
Why can’t we mobilize the investment capacity of large firms with the knowledge and commitment of NGOs and the communities that need help? Why can’t we co-create unique solutions (p. xiv)?

Though the solutions of neo-liberalism and global free market economies are not the answers Prahalad claims, his question is still essential to solving the problem of poverty in the world. If large scale corporations and governments are too politically corrupt and invested in profit at the expense of people, what alternatives are we left with? I propose that we put our hope in “fair trade” instead of “free trade.” Already there are hundreds of small local and international companies that are fueled by a commitment to just and sustainable economic development and political freedom under the umbrella of free trade. All of them are collective or cooperative and rely on professional knowledge of marketing and small scale manufacturing. These organizations are not about aid or charity, but are providing jobs for people to work their way, not buy their way out of poverty. For more information about fair trade, visit www.fairtradefederation.org.
The true winners of the fortune at the bottom of the pyramid should be the people at the bottom of the pyramid.



References
Cockburn, Alexander, National Public Radio Weekend Edition, “A Noble Peace Prize for Neoliberalism; The Myth of Microloans,” Oct 20/22, 2006. A shorter version also published in The Nation Magazine.

Leamer, Edward, “A Flat World, A Level Playing Field, a Small World After All, or None of the Above?: A Review of Thomas L Friedman The World is Flat”, Journal of Economic Literature, Vol. XLV (March 2007). P. 84 April 16, 2006

Montgomery, Anne, “Globalization and ‘Free’ Trade,” 2001; www.colombiajournal.org.

Prahalad, C.K. The Fortune at the Bottom of the Pyramid; Eradicating Poverty Through Profits, 2006, Pearson Education, Inc; Upper Saddle River, NJ.

Wheelan, Charles,, Naked Economics; Undressing the Dismal Science, “Development Economics: The Wealth and Poverty of Nations,” 2003, Norton, W.
W. & Company, Inc.

Zachary, Pascal, G. The New Republic, “Poor Idea,” March 7, 2005, pp. 16-19.