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

Monday, August 6, 2007

Roughly four billion people, mostly in developing countries, subsist at the bottom of the economic and social pyramid. They are vulnerable not only to the risks associated with poverty, unemployment and social exclusion, but also to a host of environmental threats including poor air quality, contaminated water and climate change. Linking their entrepreneurial talent with the need to overcome the environmental conditions in which they live could accelerate the deployment of environmental technologies, help overcome urban poverty, and create more sustainable cities. VANCOUVER, BRITISH COLUMBIA ? Roughly four billion people, mostly in developing countries, subsist at the bottom of the economic and social pyramid. They are vulnerable not only to the risks associated with poverty, unemployment and social exclusion, but also to a host of environmental threats including poor air quality, contaminated water and climate change. Linking their entrepreneurial talent with the need to overcome the environmental conditions in which they live could accelerate the deployment of environmental technologies, help overcome urban poverty, and create more sustainable cities.

C.K. Prahalad of the University of Michigan famously wrote that the world’s 4 billion poorest people represent a tremendous market opportunity. Rather than treating the poor as victims and aid recipients, businesses and governments should see them as creative entrepreneurs as well as demanding consumers, he argues.

This theory has received considerable attention, perhaps because the bottom of the pyramid (BOP) market is enormous when measured as a whole. A recent study from the World Resources Institute (WRI) and the International Finance Corporation (IFC) concluded that the 4 billion people with annual incomes below $3,000 in local purchasing power (less than US$2 a day in many countries) constitute a $5 trillion global consumer market.

While wealthier market segments are generally well served and competitive, BOP markets are often poorly served, inefficient and uncompetitive, concludes the report. The private sector is increasingly tackling those issues, and a recent survey from the non-profit Aspen Institute showed that even business schools are responding to this need, with BOP-geared courses growing exponentially.

As economies expand many of those poor will become middle class, and that transition will require environmental goods and services. Without access to clean water, adequate energy and a healthy environment, economic development and the resultant social mobility will no doubt fail to occur in many countries.

While these needs remain largely unmet, traditional approaches have focused on achieving goals through public investments, subsidies, or foreign aid. Certainly such efforts are noble and worthy, but unfortunately have been largely unsuccessful.

The reasons for these failures are widely debated, but one school of thought holds that providing entrepreneurial activities, catering to demands based on willingness to pay, and encouraging market participation will be a more effective development approach. New business models are seeking to engage the world’s poor in the global economy by providing affordable goods and services.

These new solutions may involve a combination of market-based and traditional aid strategies – microfinance, entrepreneurial education, public-private partnerships, and other hybrid business models.

In some vital sectors, there are encouraging entrepreneurial ventures: affordable home water treatment systems allow households to purify water themselves, low-cost solar powered LED (light-emitting diode) lighting systems can illuminate homes at night, and efficient, multi-fuel stoves can reduce fuel costs and improve indoor air quality.

Continue reading “Environmental Technologies and the Bottom of the Pyramid“