"If you innovate for the bottom of the pyramid, you get the whole world."
- Allen Hammond
Allen Hammond is Vice President for Innovation and Special Projects at the World Resources Institute, as well as Director of Development Through Enterprise Projects as well as the author, with C.K. Prahalad, of What Works: Serving the Poor, Profitably. He's also involved with WRI's NextBillion.net: Development Through Enterprise, an emerging network of scholars, business leaders, social entrepreneurs, NGOs, and policy makers exploring the potential for successfully alleviating poverty and enhancing development by utilizing public-private partnerships and the best practices of commercial enterprises.
Allan was kind enough to describe the genesis of NextBillion.net, the potential for new models of development to alleviate poverty where traditional aid and funding schemes have fallen short, and the promise of the Clinton Global Initiative.
Emily Gertz: Tell me more about NextBillion.net.
Allen Hammond: We ran major conference in San Francisco in December (Eradicating Poverty Through Profit: Making Business Work for the Poor) that brought together over 1000 people: from business, governments and civil society -- around the idea that you could seriously address poverty through business activity.
Later on people described it as a kind of Woodstock: The big companies were wowed at how major amounts of business were being done in emerging countries. NGOs were wowed because the private sector was going in to emerging countries -- and what they were doing looked a lot like sustainable development.
It was a suspension of globalization hostilities. Mark Malloch Brown, then the head of the United Nations Development Programme, said that the only way to achieve the Millennium Development Goals is if business steps up to take bigger role. The conference showed that bit by bit, people are coming together around the idea that most important unplayed card in poverty and development is the role of private sector.
The intensity of networking in San Francisco was furious. So we started the blog and the site to help cohere the the community that formed at the conference. The network helps people share what's happening in real space, and makes it easier for people to find and interact with each other -- to continue the contact.
It also gives us a channel to put new ideas into discussion.
Our project is increasingly moving to work in developing countries, mentoring small and medium enterprises -- SMEs -- creating funding mechanisms, and working with local partners.
We just had kickoff workshops in Brazil and Mexico. We're giving them the software for blogging -- which is open source -- and they're creating sites in Spanish and Portugese. We're creating, cloning, and localizing our model.
EG: So is this the future of alleviating poverty and development -- a private enterprise approach?
AH: We're not at the tipping point yet, but many companies now taking this very seriously -- major companies have realized that emerging markets are going to create the biggest growth opportunities, and that they have to figure out how to do it.
So it's a business reason: They need to grow, and they'll do it by going downmarket. More and more companies are taking seriously the fact that next big untapped market is low income consumers. And while some come at it with a social metric in mind, ultimately business drivers are what are most important.
And if you're going to serve low income customers in ways that meet their needs, you're going to learn to be very efficient and have lower priced products. And then, what stops you from selling for low prices in the other markets as well?
EG: So it's kind of like leapfrogging business models from the poor to the middle class.
AH: Look at Wal-Mart as an example. Whatever other problems people have with that company, they got really efficient supplying to rural America, and now it's the largest company in the world. If you innovate for the bottom of the pyramid, you get the whole world.
If you ask, what is the market, well, the market is the 4 to 5 billion people who are the world's poorest, and that's only going to get bigger. In China, 67 percent of the GDP is in the low income communities; in India, 75 percent.
So if you're only selling to middle class, you're missing three-quarters of the market.
And official poverty statistics understate income, because they don't take into account the informal economies in low income communities. The ability to pay for goods and services in low income communities is much bigger than realized.
Applying enterprise to development is a large scale version of social entrepreneurship [models for change that are gaining a hold in developed countries]. NGOs are looking for sustainable models that let them scale to the point that effective development can really happen. There's a set of approaches that have been underutilitzed -- because [the rich] assumed the poor had no money. The development community saw them as wards and assumed that they had to go through governments to get to them -- and then got blocked. NGOs could only get in as long as their grants held out.
At NextBillion.net, we're starting to articulate the ideas and issues, doing analytical work, generate numbers -- in business you've got to have numbers -- create case studies to document sustainable examples, planning conferences and blogging. The outcome is to in fact grow the amount of investment into businesses that serve these low income and neglected communities, and do so profitably so they themselves can grow in turn.
It's a potentially very profitable route to alleviating social issues -- and environmental issues, for that matter -- that the development community hasn't been able to make headway with.
Look: Jeff Sachs trying to get double development aid. But does anyone think that doubling from $50 to $100 billion a year is going to eradicate poverty? The largest untapped pool for alleviating poverty is in private sector. How many NGOs or governments can serve 1 million people a day? But how many companies do it every day? So if you want to serve millions, where would you go?
EG: How do you -- I'm trying to figure out a way to ask this without leading the question --
AH: How do you keep companies from exploiting people?
EG: Right. That doesn't seem to be a popular question at a gathering like this --
AH: There's no way you can perfectly guarantee it. We believe, and research supports, that you can't serve poor people effectively without doing many things that constitute development, even if they're coming from private enterprise. The nature of the beast is that you have to do capacity building, you have to do finance, usually micro. You have to support local entrepreneurs, you have to change products and services to suit the market.
Poor people are very savvy about what they need, but also by same token open to new things. The poor have no legacy systems, like the middle class does -- they're very quick adopters where something works, and word of mouth is the only way to reach them. So you have to market in a different way. Let me give you one example: Unilever, with the little packets of shampoo. That was an effective response to that market -- people who can't afford to buy a gallon of shampoo at once -- but then they realized that it had to reformulate it work in cold water. Then they had to think about the packaging, about sustainability -- otherwise there was going to be garbage all over with the company name on it.
Or how about distribution? Lever's Shaki distribution system is an Avon-like micro-enterprises of 500,000 women selling tiny packets of shampoo. It creates jobs. The product meets real needs, and lowering the price created capacity to consume.
[Another check on exploitation is that] the market is ferociously competitive, so companies have to keep innovating. Enterprises have to make it on low margin, high volume, and high quality products. So suddenly, you've created consumer market power for the poor. Their tastes, needs and perceptions suddenly determine your company's future.
So, lots of good things start to happen when people start to pay attention to the poor as a market. Market pressure is a sort of protection. Intense word of mouth [is how people find out about new products] -- networking with neighbors about what works. if your company don't serve their needs, you're dead.
It's not perfect, but it's better than how poor are addressed now.
EG: So is this new focus on enterprise challenging to the established development community?
Yes. Companies are now doing what NGOs are doing, but on a massive scale. But for NGOs, there's a massive opportunity for leverage here. They can go into commerciall agreements. They can build on their own solid local reputations and their understanding of the needs of local communities while leveraging resources of large companies [to achieve development goals].
Also, NGOs getting involved helps to create another check [on exploitation of the poor -- because their missions are to serve the disadvantaged, not to promote a private agenda]. If they can serve people better through private sector partnerships, great. But also -- they're not going to let companies pollute or harm health -- they haven't become companies themselves.
We don't say the world will be perfect. But development through enterprise represents real progress, and and opportunity to serve many more people better than they're being served now.
EG: Do you think these will displace more traditional aid schemes coming out of development banks?
AH: They might -- or, force them to devolve to the poorest of the poor, the bottom third who are absolutely without resources. But this is a positive aspect. It focuses public resources onto those without any other means to improve their lives.
Risk-lowering is a better use of public funds than running the projects -- insuring the private sector to make it safer for that sector to go into high-risk areas.
EG: This is just what President Clinton was talking about in the plenary yesterday, isn't it? He was talking about insuring businesses against loss from terrorism to encourage economic investment in Gaza.
AH: It's exactly was President Clinton was talking about. The best investment of public sector dollars is to lower costs overall, in the long run, for the public sector. [Then you can get private sector-level investment in risky arenas, and] get private sector quality of management.
EG: What's the potential of the Clinton Global Initiative?
AH: This meeting is the beginning of a global NGO -- the first global NGO. New investments ought to spin out of it, new partnerships, new kinds of ways to work outside the system. There is a huge focus [here] on what the private sector can do, in what was once considered the job of the aid agencies and NGOs.
I'll paraphrase my colleague C.K. Prahalad, from his book "The Fortune at the Bottom of the Pyramid:" Stop thinking of poor as dependents and awards of states, and start thinking of them as very dynamic consumers, and many new things are possible.
It's the key mind shift -- we think others will take care of them, and [the unspoken corollary of that is that] we don't have to think about them.
But if they're our customers? Then we have to take care of them.
This mind shift is critical.
EG: Why is the Clinton Global Initiative different from other gatherings about development, like the World Economic Forum?
AH: The World Economic Forum is a meeting where everyone gets together to talk about ideas, and then they leave and go home. I think it's clear that the intent here is to start an organization, or tightly coupled network, with real outcomes. We're essentially creating a new civil society organization to address these problems
If the Clinton Global Initiative continues and succeeds, it will redefine the idea of the global NGO. This is the birthing ground.
The nexus is forming here, of an NGO scaled to meet global problems.
(Many thanks to Worldchanging reader and NextBillion.net staffer Rob Katz for helping arrange this conversation.)
While I share some of the analysis, I don't read much about practical solutions to really alleviate poverty.
Blogs? I don't think so. :-)
What we need are community oriented initiatives that offer their members a framework for culture friendly development.
What we need are alternative currencies to support fragile and informal economies and bring them into the mainstream.
What we need is a secundary knowledge infrastructure in the form of a Global Federation of TeleCommunity Centers, around which local clusters of simple economic activities can grow: bicycle repair, bio-farming, ironing services, soup kitchens, training centers,...
Don't forget: in 2015 there will be 450 cities with more than 5 million inhabitants, most of them in developing countries.
Where and how can a small non-profit fit into all this? I'm thinking of, for instance, EVI (EcoVentures International) which promotes sustainable, environmentally friendly entrepreneurship, especially for women and youth, internationally.
Bonjour! I am designing an agricultural and gardening web page about using fruit & nuts seedlings for reforestration, animal feed, industrial orchards, farm and homes hedges, landscaping and bonsais. As a mean to promote a lifeful diet and to have planted a big quantity so much needed trees, everywhere on the planet. For the ecology and to fight poverty. If you want I can send you the latest french and english text versions. Or take look at Gorilla Gardener on the web. I want to find sponsors for that web page.
Sylvain Picker, farm worker
Plateau Mont-Royal, Montreal, Quebec, Canada
Lyn -- While I can't speak for NextBillion.net, I'd suggest going over to their web site and signing up for a user account, at least as a start -- there's also contact information for the project. The goal of the project is to help everyone who wants to bring entrepreneurial and other kinds of business based solutions to development in touch and sharing information. It's not an end in itself but a means of connection and exchange for those engaged in the work, in creating the practical solutions on the ground.