Review by CSRwire Contributing Writer Elaine Cohen
By Aneel Karnani
Published by Palgrave Macmillan. ISBN: 978-0-230-10587-4.
Global poverty continues to be a major problem, one that has received much attention and resources for the last 60 years. The developed countries, international institutions such as the World Bank and United Nations, various aid agencies and civil society have contributed trillions of dollars to fight poverty; yet, there are more "poor" today than there were a decade ago. In this hard-hitting polemical, Karnani demonstrates what is wrong with today's approaches to reducing poverty. He proposes an eclectic approach to poverty reduction that emphasizes the need for business, government and civil society to partner together to create employment opportunities for the poor. He argues the only way they will ever be truly lifted out of poverty is to create jobs that provide financial support for entire local communities in developing nations.
Aneel Karnani, who shot to fame following his Wall Street Journal article that created online uproar in 2010 by provocatively denouncing CSR, remains true to his convictions in this book, Fighting Poverty Together: Rethinking Strategies for Business, Governments and Civil Society to Reduce Poverty. We have all got it wrong, says Karnani.
What we have been doing so far has not lifted the poor out of poverty, in fact, much of what we have done so far, well-intentioned or otherwise, has helped the poor to stay poor. Karnani uses the first chapters in his book to take the shine out of microcredit (which Karnani describes as being "touted as one of the newest silver bullets for alleviating poverty") and the Bottom of the Pyramid (BOP) theory, which Karnani says is "riddled with unrealistic expectations and false hopes for both businesses and the poor, empirically false, logically flawed and morally problematic." Both Muhammad Yunus and C.K. Prahalad, two of the most admired figures of modern social entrepreneurship and business thinking, suffer a miserable fate in Karnani's book.
Grameen Bank: A Failed Business Model
First, Karnani explains, The Grameen Bank model has not worked. Loans provided to the poor through Grameen Bank have not lifted them out of poverty. On the contrary, since most of the money loaned is used to fund consumption, and not the growth of new business ventures, microcredit has succeeded only in postponing the bitter pill of having to pay up sooner or later with money the poor don't have. Most of the people who use Grameen services are not entrepreneurs; they just want to make a living. Even if they do have some financing, they lack the necessary skills to grow businesses. Also, microcredit interest rates are extremely high, sometimes reaching up to 100% interest, making the overall proposition unattractive as a tool for lifting poor people out of poverty, he argues.
Similarly, he goes on, the Bottom of the Pyramid theory is untenable. The BOP market is grossly overrated, estimated at only $0.44 trillion and not $13 trillion as identified by Prahalad. Additionally, explains Karnani, the total number of people living at the BOP is also grossly overestimated. So, in a small market with a much smaller critical mass of poor people – who have close to zero disposable income to purchase anything other than basic needs – the fortunes to be made at the BOP are fallacy.
A Libertarian Approach
Even Hindustan Lever, hailed as a hero for introducing Annapurna iodized salt, has not succeeded in penetrating mass markets. All this microcredit and BOP thinking creates what Karnani calls a libertarian approach, romanticizing the poor through a belief that creating the right kind of opportunities for the poor will turn them into significant value-conscious consumers, entrepreneurs and savvy leaders of a new kind of egalitarian society. Instead, these initiatives according to Karnani are simply an extension of capitalist greed in which companies look to profit from creating new markets targeting poor people, often immoral and exploitative.
Unilever's Fair and Lovely is another example quoted by Karnani: Unilever portrays Fair and Lovely, a skin whitening product for women, as supporting "choice and economic empowerment for women." Karnani says its simply sustaining racist prejudices (while making lot of profit for Unilever).
Karnani: Don’t Give the Poor Microcredit; Give Them Jobs
The key to lifting the poor out of poverty, according to Karnani, is to regard them as producers and not consumers. Give them jobs, he says. Create employment opportunities. This is the role of business.
Governments have a role to play, too. By facilitating business growth and job creation, they can ensure provision of basic services for the poor. Civil society and NGOs must ensure businesses and governments do the right thing and provide equitable opportunities without exploitation.
For example, many of the products targeted at the poor are "harmful" and not in the self-interest of the poor.
Companies repeatedly try to introduce new products that not based on a true understanding of the poor and their habits. Initiatives, such as Shokti Ladies, developed by Danone in partnership with Grameen Bank, to distribute yogurt to the rural poor with an army of trained local women micro-entrepreneurs, were not successfully commercialized. Unilever's program for Shakti women, trained to sell Unilever products in remote parts of India, did not meet its objectives, according to Karnani. Almost every initiative targeted at improving the employability of the poor has not succeeded.
Instead, business and governments must act on their primary role as creators of conditions in which equitable employment can thrive in any country.
In a free market economy, businesses create employment opportunities and NGOs support them by providing extra skills. This is all fine as long as markets thrive. When markets fail, according to Karnani, governments must regulate to protect the vulnerable poor. However, "Too much falls through the cracks between the markets and governments. It is the role of civil society to fill this gap." NGOs must act as catalysts for change as well as watchdogs to help markets regulate themselves effectively.
Karnani's arguments are presented clearly and supported by select data and some case studies. They are also very cleverly organized to support his preferred regulatory-driven approach, assigning very distinct, non-overlapping, boundaries between the roles of business, government and NGOs. He further embellishes by providing data, stories and anecdotes to prove the failure of voluntary corporate responsibility, even in the more enlightened areas of conscious capitalism such as microcredit and BOP products, claiming these approaches are subordinate to a profit-mindset and not really about the needs of the poor.
Alleviating Poverty: A New Blueprint
Aneel Karnani's blueprint is that governments should do their job, businesses should play along and NGOs should keep it all under control. It may just be, however, that while Karnani accuses many writers and public figures of "romanticizing the poor," he himself is indulging in some romanticizing about the role government can and will play.
Not every country can be Norway, highlighted as an example of a proactive, sustainability-minded government. And yet, the doubts about microcredit and BOP approach hold a certain truth. Data does show that the Millennium Development Goal of "eradicating extreme poverty and hunger" is still far from being achieved by 2015.
Fighting Poverty Together challenges current mainstream thinking and raises important questions about ways in which our developed societies can address the economic and moral issues related to poor people and how governments should act to correct market failures and inadequacies. The issues Karnani presents attack very specifically the "silver bullet solutions," which he maintains haven’t worked.
Over two billion people are still living on less than $2 per day. Karnani claims that the poor are misunderstood and that solutions to date have not met their true needs. Karnani's answer: create employment opportunities suited to the poor, ensure the poor have adequate access to public services, market beneficial goods to the poor at prices they can afford and use the power of government to protect the vulnerable poor. Appealing in its simplicity but, I feel, no less challenging.
Many questions remain as to how these solutions can be practically implemented on a scale large enough to make a difference.
Karnani makes it clear: "To significantly reduce poverty requires resources. Only the business sector and the government can provide resources on the scale needed." Perhaps the winds of change are blowing in Karnani's direction. The Arab Spring and Occupy Wall Street citizen uprisings have gained voice.
Time will tell whether these interventions create the kind of consensus Karnani advocates or if political consensus to eradicate poverty is just another romanticization of the will and capabilities of governments and business to act in the interests of anyone but themselves.
About Elaine Cohen
Elaine Cohen is a Sustainability Consultant and Reporter at Beyond Business and blogger on sustainability reporting and author of CSR for HR: A necessary business partnership to advance responsible business practices.
This commentary is written by a valued member of the CSRwire contributing writers' community and expresses this author's views alone.