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Tuesday, May 13, 2008

Guest Post: Show Me the Income

By Derek Newberry

ryan gundersonGuest blogger Ryan Gunderson writes about sustainable, scalable solutions to end global poverty on his Riches For Good blog. A finance professional with an MBA from the University of Michigan's Ross School of Business and seven years of Fortune 500 experience, Ryan is transitioning to part-time work to allow him to pursue his goal of helping 1 million people out of $1-a-day poverty. He welcomes help in reaching his goal and can be reached at richesforgood@yahoo.com.

In this post, Gunderson responds to Allen Hammond's series on taking Base of the Pyramid models to scale. This week, NextBillion.net will publish responses from a number of BoP experts and practitioners, followed by a concluding post from Hammond.


By Ryan Gunderson"The biggest reason most poor people are poor is because they don't have enough money." Why did Paul Polak find the need to write that embarrassingly obvious statement in a book? Because the development community has a long history of overlooking the concept. My initial reaction to Allen Hammond's series on transformative sector strategies is that he is perpetuating the common mistake of ignoring income generation. One of his sentences particularly strikes a wrong chord with me: "How do you meet the unmet needs of four billion people?" To me, the appropriate question is "How do you help people raise their incomes so they can afford to meet their unmet needs?"

Consider his phone example for a minute. Hammond shares a reasonable level of detail about how WiFi networks can be built relatively affordably in rural areas, theoretically at a profit to companies. (I will ignore for a moment that in his example he implies a regional government may be more interested than its for-profit partners in expanding its WiFi network). But Hammond does not talk convincingly, in my opinion, about how phone and Internet access will help raise individuals' incomes. He mentions that a phone user could solicit information about how to raise pigs, and he mentions that quality of life would improve from less walking.

Although I do not question the quality of life improvements that come from technology, I need more concrete details to convince me of the income proposition to individuals. For example, other than pig raising information, what types of income generating content will be available? Who will develop the content that will be relevant to local geographies in their local languages? Where is the market research or pilot that shows individuals actually value such content? Would a large percentage of the population actually buy phones, or would a few buy and rent out to others, similar to the Grameen model in Bangladesh? I am not convinced the model is sustainable, nor am I convinced of a causal relationship between telecommunications and higher incomes.

Similar to telecommunications, enhanced health care offerings would bring tremendous quality of life improvements to the rural poor and could help with productivity as well. But Hammond's health care example relies heavily on a strong telecommunications infrastructure. How will inhabitants of rural dollar-a-day communities increase their incomes so they can afford telecommunications and improved health care? It's a classic chicken versus egg scenario, and I believe income generation has to come first in order for market-based solutions to work sustainably.

In summary, I agree with Hammond on the need for sustainability, scalability, affordability, and market development, but I am unconvinced that the transformative sector strategy, as currently introduced, will have a large favorable impact at the base of the economic pyramid. Specifically, I believe that as a result of asking the wrong question, Hammond's solutions are incomplete and do not explicitly address income generation.

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