NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Asks BOPreneur Paul Hudnut in a blog post published this weekend. He does so in response to the Fast Company article about J-PAL, which I linked to late last week and cites one of J-PAL’s researchers arguing against the practice of charging fees for products and services at the BoP. “Charging small fees is exactly the wrong thing to do”, says Rachel Glennester in the second to last paragraph of a short article (even by Fast Company’s standards) that left no room for him or his team to go into the nuances and details of such an assertion.

Hudnut is concerned, with right, that a sound bite like this goes on to create a false absolute notion about something that is nuanced in nature -in short, the answer to the question in the title is not always; market based approaches are not a feasible answer to the challenges of poverty in all circumstances. In FC’s piece, however, the reference to it is almost literally a sound bite (it takes roughly 200 of the 2,600 words that build the whole piece); in fact, the charge-or-not-to-charge citation is just one among many examples chosen by the author to make the article’s central point: that the J-PAL team is creating a lot of buzz and currently taking on many questions related to anti-poverty strategies.

But in a world where ideas are spreading 140 characters at a time 200 words can go a long way, and regardless of the original purpose of Mr. Blitstein’s article for FC, it successfully managed to raise some important thoughts in Hudnut’s mind, which he was generous to share via his blog. The resulting article is thought-provoking and a must if you’re interested in market based approaches to development challenges.

I’d like to add a couple of additional arguments to the discussion Paul started. Both start from the assumption that I think charging and creating market dynamics is essential. If I didn’t, NextBillion would probably be the wrong train to be riding.

The first one relates to the crucial role of transparency in pricing and the use of subsidies to increase the access to products or services for the poor. To make my point, let me use the same example that is cited in the FC article: anti-malaria bednets. That “charging small fees is the wrong thing to do” and arises after observing reaction to price points in the distribution of these nets, giving no explanation about the possible differences that exist among groups of users. Not all malaria bednet users live under the same conditions and some middle ground between “free” and “full price” can be found to make ventures that manufacture and channels that distribute the nets more viable and more efficient.

Examples of this “tiered-pricing” approach (charging a different price to different segments according to a pre-established set of criteria) abound and, in all of them, transparency has been the key factor of success. Take 1298, for instance, a company that provides quality ambulance services for all in Mumbai, rich and poor, making it clear that fees will vary from $0 to $___ (I ignore the full fee value) according to the type of hospital you ask to be driven to. Aravind Eye Hospitals is another example of a tiered-pricing model that works (which, ironically, lies at the heart of what makes it one of the world’s most innovative businesses, as judged by Fast Company).

These models are transparent and have proved viable for the most part, which is not to say that challenges do not arise. If you are getting something for free and suddenly someone starts charging for it, it’s likely you’ll reject that condition in the short term. Water provides a good example for this. That community scale treatment systems (like those of Naandi Foundation or WaterHealth International) have grown from a handful of experiments to almost an industry on their own has been possible only because fees are being charged. Technology is key but by no means the whole trick. Companies that know how to install and operate membranes that make dirty water clean have had to partner with other organizations that know the communities very well, and make joint efforts around something deemed as social marketing, or the practice to tell people the reasons why it makes sense to pay for something even though it seems you could get it for free by walking a couple more kilometers.

In conclusion, I’m sure that it was not J-PAL’s intention to rule out all market based approaches, nor the purpose of Fast Company’s article. I do know that Fast Company’s piece becomes a lot richer with addendums like Paul’s blog post.

That’s the beauty of the time we live in. Five years ago, Paul would have called on the phone to tell me “can you believe this generalization?”. We would have discussed and then would have had to wait a whole month until his Letter to the Editor was published. I guess we’re lucky that nowadays thinking, disagreeing, discussing and building upon the ideas of others is something we can do out loud and almost real time.

Happy Monday.