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Tuesday, May 13, 2008

Base of the Pyramid Market Building in Disaster Areas

By Manuel Bueno

Refugee CampWe live in a world obsessed with growth.We live in a world obsessed with growth. According to the National Bureau of Economic of Research (NBER), there have been only four recessions in the US since 1980. Between March 1991 and March 2001, the US experienced the longest economic expansion in its history. It comes, therefore, as no surprise that BoP experts seem to be concerned only with applying BoP lessons toward stimulating growth. In this post, I would like to suggest the possibility of using BoP knowledge as a palliative action in places that are experiencing extreme hardship and as a first step towards returning to normalcy.

One of the defining characteristics of BoP markets is the lack of connections with global markets. This lack of connections results in smaller markets with fewer competitors and higher prices. Furthermore, BoP markets suffer from a lack of infrastructure, efficient bureaucracy and the legal, political and economic certainties that are normally provided by public actors. Now, what happens in an area afflicted by disaster or violence where some or all of these variables are totally non-existent? Would BoP lessons be applicable in these cases?For example, ?standard? BoP markets are to be found in India, the Philippines or Brazil, where there is some degree of competition and connection with global markets, and the state, though often a nuisance, can be of help. However, what about places like Burma or North Korea, where the state heavily restricts the rights of most of its citizens? What about Sudanese refugee camps where there is virtually no governance while rape and murder pervade the place? What about zones that have recently suffered from a natural disaster? Could the stimulation of markets ? la BoP improve the plight of the people there? Is there a role to be played by BoP practitioners in, what will be called in this post, disaster areas?

I believe that BoP lessons could be applied to some extent in these cases without substituting the traditional aid approach (which, in many cases, should have priority over BoP efforts). The creation of even rudimentary forms of markets would help improve the state of affairs in most of these regions. BoP experts have now accumulated a wealth of information about market creation, which improves economic inclusiveness and even wealth distribution while being sustainable for the private actors involved.

Unfortunately I have only found one relevant example of BoP markets serving as a palliative action in disaster areas. This example was presented during ?A Conference on Global Poverty: Business Solutions and Approaches? at the Harvard Business School in December 2005. In its seventh panel, a presentation entitled ?Brcko and the Arizona Market? introduced how the Arizona Market was originally an informal market in the north-south highway in the former Yugoslavia. The local commander of the NATO troops stationed there decided to nurture this market as a means of motivating inter-ethnic gatherings between Bosnians, Croats, and Serbs. By 2005 the market comprised an estimated 2,000 small retail establishments covering some 300 acres and stretching for approximately half a mile. In addition to this example, I would greatly appreciate if any of our readers could point out other similar cases.

In a nutshell, what could BoP markets bring to the table in disaster areas?
  • Markets improves confidence and trust building among the parties involved. In conflict-prone areas, trust building could help diffuse possible conflicts and allow parties to view each other as a neighbor with similar needs and aspirations, rather than as a competitor or enemy. Trading improves mutual understanding.
  • Market creation stimulates employment and entrepreneurship. This well-known tenet among BoP practitioners could be very useful in communicating the message across that locals can improve their situation by working together instead of fighting each other. Furthermore, employment tends to empower locals and give them a feeling that there is a future for them and their families.
  • Disaster areas are usually also characterized by an extreme scarcity of natural resources, such as water or land. This scarcity problem is normally compounded by state subsidies that tend to worsen the scarcity, or by infighting among parties to control these resources. Competitive and free markets tend to properly price these resources price and to help improve their rational use (note that this is not always the case and there may be some exceptions to this rule).
  • Markets help create a middle class that values predictability in the economic and political climate. A robust middle class can prod politicians to provide better infrastructure and improve their efficiency.
This is only a short list of ideas about how stimulating BoP markets in disaster areas can alleviate and ultimately improve their conditions. I hope that BoP readers can contribute to it. Do you think that BoP expertise can help effectively in disaster areas? How can they do so and to what extent?
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