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Editor’s note: In December, Professor Aneel Karnani published an article in the Stanford Social Innovation Review entitled, “Romanticizing the Poor.” At the time, we posted about it here on NextBillion.net and suggested that our review of the article would be forthcoming; it has not, and for that, we apologize.

In the meantime, Staff Writer Moses Lee has provided his analysis of the article in his post, “Are the Poor Really Entrepreneurial?”

What’s more, Professor Karnani and Staff Writer Al Hammond have engaged in a lively e-mail debate about the article. Both Karnani and Hammond have been kind enough to give permission to NextBillion.net to post the content of their debate here. The first installment – a post by Al Hammond – is available here. This is the second installment is Aneel Karnani’s response to Hammond’s post.

By Aneel Karnani

Al, I am sorry that you are not happy with my article on the BOP — that certainly was not my intention. I do appreciate your sending me your critique in advance of publication. Incidentally, I too had sent you my first working paper arguing against BOP way back in 2006, well in advance of publication. I had send the same paper at the same time to CK Prahalad, and he did respond publicly on nextbillion.net.

I take scholarship seriously, and would appreciate it if you would substantiate the charge of “questionable scholarship.” If I have misquoted you I will be happy to publish a retraction. Please let me know specifically the misquotation.

(Editor’s note: At this point, Hammond sent Karnani a marked-up version of the paper, which I will not reproduce in full here due to copyright restrictions. What follows are Karnani’s responses to Hammond’s specific critiques.)

The article text appears in boldface; Hammond and Karnani’s responses are indicated by parentheses.

Allen L. Hammond, former vice president of WRI and a leading advocate of marketing to people at the bottom of the pyramid says that Fair & Lovely is a positive example of BOP strategy because it makes poor women “feel empowered” and think that they have choices.

(Hammond): I am an advocate of market-based solutions to poverty, not of “marketing to the poor”; the title of the article was not ours, but that of the journal’s editors

(Karnani): I think it is fair to ascribe to you the views (and the title) of an article published under your name. ‘Marketing to the poor’ is at least a subset of ‘market-based solutions to poverty’, and a large part of what you and CK Prahalad write about. The article ‘Selling to the Poor’ (not just the title) is all about marketing to the poor. There is a photograph with the caption “Sweet smell of success: An Avon lady peddles deodorant to Tembe indians in Brazil’s Amazon basin.” You prominently discuss the example of Fair & Lovely. This is surely marketing to the poor – I have argued elsewhere that this is exploitative and socially irresponsible marketing.

The title of your earlier article with Prahalad is “What works: serving the poor, profitably” – and this is a WRI publication. The thrust of this article also is clearly about marketing to the poor.

Hammond once asserted that the BOP harbored $15 trillion in commerce

(Hammond): my only serious publication on numbers, designed to put an empirical base under speculations, was the joint IFC/WRI publication The Next 4 Billion, which clearly identifies BOP, defined as less than $3000/y ppp income in 2004 dollars, as 4 billion persons and $5trillion; and I am not an economist.

(Karnani): That quote is from Wall, Barbara. ‘Facing global challenges while turning a profit.’ International Herald Tribune. July 7, 2006 – surely a “serious” publication. This article refers to the poor as “less than $2 a day”. Later the article states: “According to Allen Hammond, vice president for innovation at the World Resources Institute, the buying power of these poorer markets weighs in at a staggering $15 trillion a year.” Presumably “these poorer markets” are people living on “less than $2 a day”.

Since you write in the field of development economics, I reasonably assumed you are an economist. In any case, that is not a pejorative term. If you tell me your preferred affiliation, I will be happy to use that in the future.

(Hammond): This depends, of course, on a different income cutoff for the BOP, which is an essentially arbitrary judgement, as we acknowledge—so your estimate of market size and mine are not inconsistent, as you imply, but simply reflect different income cut-offs. To imply differently is sloppy scholarship.

(Karnani): This does depend on the income cutoff, but it is not arbitrary. Much of the research in development economics, and most developing country governments, uses a cutoff between $1 and $2 per day – this is based on World Bank research from 1990. Prahalad in his book also uses $2 per day; I consistently use that cutoff also. Your report the Next Four Billion does use a different cutoff. But, I do not cite your market estimate from that report since I find the cutoff to be unreasonable.

I just use data from that report to calculate the BOP market using the traditional $2 cutoff. I do not imply anything about the market estimate from this report.My calculations suggest that the BOP market is far smaller than Prahalad and other BOP proponents estimate. Their assumptions are problematic in many other ways as well (see sidebar “The Mirage at the Bottom of the Pyramid”).

(Hammond): To be fair, you should acknowledge the detailed critique of your earlier estimates that we published on nextbillion.net

(Karnani): I have not seen this detailed critique. Would you please send me this link? Since you had not earlier sent me this link, I certainly cannot be expected to cite a blog. I have seen references to my research several times on nextbillion.net, but no detailed responses.I published a newspaper op ed article explicitly criticizing the market estimate from the Next Four Billion report. I saw a blog post about this, and a statement about a forthcoming response, but not the response itself.

All the research cited in this paper defines poverty as per capita consumption of $1 or $2 per day, measured according to 1990 prices. The World Bank first proposed these definitions of poverty, and experts in development economics and public policy commonly use them.

(Hammond): We give quite a detailed argument for abandoning this definition, because of the extent of unmet needs up to even $8/day; if you want to disagree with our market size estimate, then you should acknowledge that we define poverty in different terms, as not just “absolute poverty”, and give our reasons. Otherwise you are inaccurately portraying our scholarship to make your arguments.

(Karnani): I did not find in the report a “detailed argument for abandoning this definition.” Clearly your cutoff is much higher than used by most researchers in the development field. Moreover, I saw no need to raise that issue in my article since I do not cite the market estimate from the Next Four Billion report.