Profiting from the poor (done properly)

Businesses have got it wrong by trying to turn the poorest in society into consumers instead of asset holders, argues sustainable energy entrepreneur and co-founder of SELCO-India Harish Hande.

The world and humanity in particular is very lopsided today in terms of wealth distribution. According to numerous surveys, the bottom half of the world’s poor own less than 2% of the world’s wealth and the richest 1% own more than half of the world’s assets. This skewed distribution is socially unsustainable: instability in many parts of the world is a testimony of this pattern of one-sided growth.

Over the last decade there has been a crescendo of voices pushing the belief that market forces and market based delivery mechanisms could solve the existential problem of poverty. Thus numerous ‘models’ have been developed that cater for or focus on the poor. Interestingly most, if not all, the models are focused on ‘selling’ to the poor. The basic philosophy is how can we bring the poor into the world of consumption but not asset creation. The push is about creating affordable products so the poor can buy them. It is not about partnering with the poor to make them producers or asset creators so they can get out of poverty in the true sense.

One thing the world needs to understand is that the ‘wealth’ that resides with the poor is mostly non-expendable. And non-expendable funds need to go towards creating assets and for basic necessities like food, shelter and clothing. Any portion of it that is diverted towards consumptive procurement will actually push the poor deeper into the economic strata.

...it is not about profiting from the poor but by creating and sharing the profits by partnering with the poor

Some years ago the world celebrated business models like selling shampoo to the poor by packaging them in small sachets – thus making it ‘affordable’ for them. The non-expendable income went into buying a product that provided no long-term financial return to the poor. The only stakeholders who financially profited from the transaction were the shareholders of the corporate who sold the shampoo. This is surely not the way to profit from the poor: the obvious result would be widening the gap between the poor and rich.

Many reports suggest that the ‘potential’ market at the bottom of the pyramid is approximately $5tn. One needs to understand that the money is mostly in the non-expendable bracket – and thus should not be categorised as being ‘in’ the market. Any money taken out of that pool for consumptive purposes will actually shrink the pot, or in other words make the poor poorer.

On the other hand if one is able to create products or services that create assets for the poor and help to increase the pot from $5tn to $6tn then real change will happen. Now in this case it is okay to profit by dipping into the extra $1tn of wealth (and not from the existing $5tn bracket) that got created: here it is not about profiting from the poor but by creating and sharing the profits by partnering with the poor.

Such interventions are the only way that ensures true equity, reduces the gap between the rich and the poor, paves the way for social sustainability and creates the foundation for a peaceful and healthier world. 

 

Photo credit: Brandon Lam