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

Thursday, August 2, 2007

VANCOUVER, August 1, 2007 (GLOBE-Net) ? Roughly four billion people, mostly in developing countries, subsist at the bottom of the economic and social pyramid. Here 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. Even though they live on less than US $2 per day, these people represent a huge potential market. Linking their entrepreneurial talent with the need to overcome the deplorable environmental conditions in which they live could accelerate the deployment of environmental technologies, help overcome urban poverty, and create more sustainable cities.

The phrase ?bottom of the pyramid? was popularized by C.K. Prahalad of the University of Michigan in his book The Fortune at the Bottom of the Pyramid , in which he proposed 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. Many business sectors have experienced growth as a result of these innovative new strategies, but others have yet to find the recipe for success, and there remain tremendous unmet needs and unfulfilled opportunities.

Some sectors with the greatest need have stumbled: privatized water systems have struggled to provide clean water as well as business stability, and the energy sector has had limited success serving off-grid communities and providing clean cooking fuels.

Even in these sectors, however, 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.

Clean water is a particularly important market. The United Nations estimates more than 1 billion people worldwide do not have access to a treated water source, resulting in increased sickness, child mortality and reduced opportunities for economic growth. While privatization of municipal water supplies has met with mixed results, a number of unique projects to provide low-cost water treatment technologies have been received positively.

Some organizations provide training on constructing water filters, or provide in-house units for a small fee, along with education on proper use. In some cases, microfinance or and education allow local residents to become ?water entrepreneurs’. Many organizations have found that once time and money has been invested in a filter, it is more likely to be used properly and maintained over time. Community water treatment systems often become self-sustaining and encourage further entrepreneurial activities.

Energy is another area of crucial importance, both environmentally and economically. Electricity is required in many areas to raise living standards, but increased consumption of fossil fuels threatens the health of communities as well as the global climate. Displacing solid fuels used for cooking with sustainable alternatives is also a way to improve indoor air quality and to reduce health risks.

Continue reading “Life at the Bottom of the Pyramid: Are Environmental Technologies the Way Out?“