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f_0016635_14377 - Romanticizing the Poor Harms the Poor by...

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The Whitehead Journal of Diplomacy and International Relations Romanticizing the Poor Harms the Poor by Aneel Karnani A libertarian movement that emphasizes free markets to reduce poverty has grown strong in recent years. The think tank World Resource Institute advocates ‘development through enterprise and emphasizes business models driven by a profit motive that engage the poor as producers and consumers. The Private Sector Development network, part of the World Bank, focuses on private sector led growth in developing countries. CK Prahalad a prolific exponent of this perspective argues that selling to the poor people at the ‘bottom of the pyramid (BOP) can be profitable and simultaneously help eradicate poverty. 1 The BOP proposition has caught the attention of senior executives and business academics. Many multinational companies (such as Unilever and SC Johnson) have undertaken BOP initiatives; the worlds top CEOs have discussed this topic at recent sessions of the World Economic Forum. Several business schools (such as University of Michigan and University of North Carolina) have set up BOP centers. This libertarian approach to reducing poverty necessarily assumes that the poor are fully capable and willing participants in the free market economy. Prahalad explicitly urges us in the very first paragraph of his book to recognize the poor as “resilient and creative entrepreneurs and value-conscious consumers.” 2 However, the rest of the book does not provide any empirical support for this assumption. The United Nations, having designated 2005 as the International year of Micro-credit, declares on its website, “currently microentrepreneurs use loans as small as $100 to grow thriving business and, in turn, provide [for] their families, leading to strong and flourishing local economies.” 3 This is hype and the United Nations provides no empirical evidence to support its bold assertion. I will argue that the view of the poor as “resilient and creative entrepreneurs and value-conscious consumers” has no empirical support. Romanticizing the poor not only does not help them, it actually harms them. First, it results in too little emphasis on legal, regulatory, and social mechanisms to protect the poor who are vulnerable consumers. Second, it results in overemphasis on micro-credit and under-emphasis Aneel Karnani is a professor at the Stephen M. Ross School of Business at the University of Michigan. 57
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KARNANI The Whitehead Journal of Diplomacy and International Relations on fostering modern enterprises that would provide employment opportunities for the poor. More importantly, the BOP proposition grossly under-emphasizes the critical role and responsibility of the state for poverty reduction.
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