Stuart Hart met Coimbatore Krishnarao Prahalad, known universally as C.K., in 1985. Hart was then a newly minted PhD hired by the University of Michigan. Prahalad was already a full professor at its Ross School of Business and a growing legend. His ideas about “core competencies” and “cocreation” sparked a revolution in the management world, and his 1994 book Competing for the Future, coauthored with Gary Hamel, became a classic. Moreover, in his consulting work, Prahalad had a reputation for unorthodoxy and a significant track record for doing the impossible: convincing multinational corporations that nimble and collaborative was a better approach than staid and defensive.
Over the next few years, Hart and CK got to know each other. They taught classes together and became friends. In the late eighties, when most of Hart’s professional colleagues were telling him to abandon his interest in the environment and stay focused on business, Prahalad was one of the few who encouraged his passion. “In fact,” says Hart, “were it not for CK, I never would have made the conscious decision (which I did in 1990) to devote the rest of my professional life to sustainable enterprise. That was the best decision I ever made.”
During their time at Michigan, the duo never collaborated. Hart left to run the Center for Sustainable Enterprise at the University of North Carolina. (Now he’s the chair of the Cornell Center for Sustainable Global Enterprise.) From that post, in 1997, he wrote his now-seminal “Beyond Greening: Strategies for a Sustainable World,” which helped launch the sustainability movement. But that article, published in the Harvard Business Review, raised a number of follow-up questions that peaked Prahalad’s interest, and the following year, the pair teamed up to answer them.
The result was another article, this one just sixteen pages long, that was destined to change the world—although, as Hart points out, that didn’t happen overnight. “It took us four years before anyone would publish it. The paper went through literally dozens of revisions before coming out in 2002 as ‘The Fortune at the Bottom of the Pyramid’ [in the journal Strategy + Business]. That paper became an underground hit before it was ever published and spawned a whole new field: BoP business. For me, this was a life-changing experience. For C.K., it was another day at the office.”
Their article made a simple point: the four billion people occupying the lowest strata of the economic pyramid, the so-called bottom billion, had lately become a viable economic market. They didn’t claim that the bottom of the pyramid (BoP) was an ordinary market, rather that it was extraordinary. While the majority of BoP consumers lived on less than $2 a day, it was their aggregate purchasing power that made for extremely profitable possibilities. Of course, this radically different business environment demanded radically different strategies, but for those companies that could adapt to business unusual, both Hart and Prahalad felt that the opportunities were immense.
Backing up this claim was a quick survey of a dozen big-name companies that had all enjoyed considerable success in BoP markets after adopting business practices that were a little outside their comfort zone. Arvind Mills, for example, the world’s fifth-largest denim manufacturer, had a history of struggling in India. At $40 to $60 a pair, its jeans weren’t affordable for the masses, and its distribution system had almost zero penetration into rural markets. “So Arvind introduced Ruf & Tuf jeans,” Hart and Prahalad wrote in The Fortune at the Bottom of the Pyramid, “a ready-to-make kit of jean components—denim, zipper, rivets, and a patch—priced at about six dollars. Kits were distributed through a network of thousands of local tailors, many in rural towns and villages, whose self-interest motivated them to market the kits extensively. Ruf & Tuf jeans are now the largest-selling jeans in India, easily surpassing Levi’s and other brands from the US and Europe.”
In 2004 these ideas were expanded into Prahalad’s book The Fortune at the Bottom of the Pyramid. He opened with a strong statement of purpose: “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up,” and an even stronger statement of possibility: “The BoP market potential is huge: 4 to 5 billion underserved people and an economy of more than $13 trillion PPP (purchasing power parity).” While Prahalad’s book presented twelve case studies of BoP business success, its biggest selling point was social rather than fiscal: finding cocreative ways to serve this market was a developmental activity, one that could pull the poor out of poverty.
One of the best examples is the telecom Grameenphone, which started in Bangladesh in 1997, and, as of February 2011, had thirty million subscribers in that country. Along the way, Grameenphone invested $1.6 billion in network infrastructure—which means that money made in Bangladesh actually stayed in Bangladesh. But the even bigger impact has been on poverty reduction. Economists at the London School of Business and Finance figured out that adding ten phones per one hundred people adds 0.6 percent to the GDP of a developing country. Nicholas Sullivan, in his book about the rise of microloans and cellular technology, You Can Hear Me Now: How Microloans and Cell Phones Are Connecting the World’s Poor to the Global Economy, explains what this really means:
“Extrapolating from UN figures on poverty reduction (1 percent of GDP growth results in a 2 percent poverty reduction), that 0.6 percent growth would cut poverty by roughly 1.2 percent. Given 4 billion people in poverty, that means that with every 10 new phones per 100 people, 48 million graduate from poverty, to borrow a phrase from Mohammad Yunus.”
Critics have pointed out that this approach can take us only so far, but they fail to mention that may actually be far enough. Hart and Prahalad’s BoP argument is essentially one of commodification: take existing goods and services and make them orders of magnitude cheaper, then sell them on a massive scale. But there are two additional features. First, the methodology required to open these markets is based on cocreating products with the BoP consumer. Second, the products and services being commodified—soaps, clothes, home-building supplies, solar energy, microscopes, prosthetic limbs, heart surgery, eye surgery, neonatal baby care, cell phones, bank accounts, pumps, and irrigation systems, to name only the more famous success stories—may seem a random lot, but they share exactly what’s needed to move massive numbers of people up the abundance pyramid.
When Hindustan Unilever, a subsidiary of Unilever, developed a hygiene-based marketing campaign for BoP markets in India, its goal was to sell more soap (which the company did, with sales increasing 20 percent). But for our purposes, more important was the fact that 200 million people learned that diarrheal disease—which kills 660,000 people in India each year—can be prevented simply by washing one’s hands. This form of improvement quickly becomes empowerment, since the better health that results from hand washing adds income (fewer sick days from work) and keeps kids in school, and thus becomes a self-reinforcing cycle.
But the benefits don’t just flow toward the consumer. As Hart explains in his (also now classic) 1995 book Capitalism at a Crossroads: The Unlimited Business Opportunities in Solving the World’s Most Difficult Problems, “[I]t is very difficult to remove cost from a business model aimed at higher-income customers without affecting quality or integrity.” To compete in BoP markets, a new wave of disruptive technology is required. Take Honda’s motorcycles. In the 1950s, Honda began selling very stripped-down and inexpensive motorized bicycles in Japan’s jam-packed, poverty-stricken cities. When these bikes entered the American market in the 1960s, they reached a considerably larger population than those who could afford Harley-Davidsons. Hart explains: “Honda’s base in impoverished Japan gave it a huge competitive advantage in disrupting American motorcycle makers because it could make money at prices that were unattractive to established leaders.”
Ratan Tata, the CEO of the gargantuan multinational Tata Industries, offers another great example. In 2008 he created the Nano, the world’s first $2,500 automobile. In 2008 the Financial Times reported, “If ever there were a symbol of India’s ambitions to become a modern nation, it would surely be the Nano, the tiny car with the even tinier price tag. A triumph of homegrown engineering, the Nano encapsulates the dream of millions of Indians groping for a shot at urban prosperity.” Besides benefiting India, Tata’s efforts jump-started an innovation trend. A dozen plus companies, including Ford, Honda, GM, Renault, and BMW, are now developing cars for emerging markets, a development that will introduce a level of choice in transportation into BoP communities that was unimaginable just ten years ago.
Choice was the missing ingredient. Suddenly the rising billion—all four billion of them—have a way and a reason to participate in the global conversation. “This new generation growing up with freedom of communication,” says Tata, “are plugged into an information and entertainment world that didn’t exist before. They have needs and wants that exceed those of the older generation. And they’re going to be demanding in terms of the quality of their life.”
For the first time, not only are their voices being heard, their ideas—ideas that we’ve never had access to before—are joining the global conversation. And if for no other reason than the law of large numbers and the power of these ideas, this puts the rising billion in the same category as exponential technology, the DIY-ers, and the technophilanthropists: as a potent force for abundance.
In 1993 Iqbal Quadir was working as a venture capitalist in New York when a temporary power outage shut down his computer. The inconvenience reminded him of his childhood in Bangladesh, when he once spent an entire day walking to buy medicine for his brother, only to arrive and find the pharmacy closed. Then, like now, poor communications led to wasted time and lowered productivity. In fact, by comparison, the power outage was just a minor inconvenience. So Quadir quit his job and moved back to Bangladesh to tackle this communication problem. Cell phones, he thought, were an obvious solution, but this was 1993. Back then, the cheapest cell phone available ran about $400 and had an operating cost of about fifty-two cents per minute, while the average yearly income in Bangladesh was $286, so how to pull this off was anybody’s guess.
“When I first proposed the idea,” says Quadir, “I was told I was crazy. I was thrown out of offices. Once, in New York, I was pitching the idea to a cell phone company, and they said, ‘We’re not the Red Cross; we don’t want to go to Bangladesh.’ But I knew what was happening in the Western world. I knew that cell phones were analog, and they were about to become digital, and that meant their core components would be subject to Moore’s law—so they would continue to get exponentially smaller and cheaper. I also knew that connectivity equals productivity, so if we could get cell phones into the hands of BoP consumers, it would translate into their ability to pay for the phones.”
Quadir won his bet. Cell phones followed an exponential price-performance curve, and Grameenphone transformed life in Bangladesh. By 2006, sixty million people had access to a cell phone, and the technology had added $650 million to Bangladesh’s GDP. Other companies filled the gaps in other countries. In India, by 2010, fifteen million new cell phone users were being added each month. As of early 2011, over 50 percent of the world had cellular connectivity. And it’s this technology that’s transforming the “bottom billion” into the rising billion. “We snuck powerful computers into the hands of the people,” explains Quadir. “They crept in through the killer app of voice communication.” As a result, over the next few decades, these devices bring with them the potential to completely reshape the world.
We’re already seeing this happen in banking. There are 2.7 billion people in the developing world without access to financial services. Impediments to change are considerable. In Tanzania, for example, less than 5 percent of the population have bank accounts. In Ethiopia, there’s one bank for every 100,000 people. In Uganda (circa 2005), there were 100 ATM machines for 27 million people. Opening an account in Cameroon costs $700—more than most people make in a year—and a woman in Swaziland can manage that feat only with the consent of a father, brother, or husband.
Enter mobile banking. Allowing the world’s poor to set up digital bank accounts accessible via cell phones has a significant impact on quality of life and poverty reduction. M-banking allows people to check their balances, pay bills, receive payments, and send money home without giant transfer fees, as well as avoid the increased personal security risks that come from carrying cash. In Kenya, where many poor people work very far away from home, workers would frequently disappear for three to four days after getting paid—the amount of time it took to get that money to their families—so being able to transfer cash wirelessly saves them incredible amounts of time.
For all of these reasons, mobile banking has seen exponential growth in a few short years. M-PESA, launched in Kenya in 2007 by Safaricom, had 20,000 customers its first month. Four months later, it was 150,000; four years after that, 13 million. A market that did not exist as of 2007—the mobile payment market (making payments via mobile phones)—exploded into a $16 billion industry by 2011, with analysts predicting that it would grow an additional 68 percent by 2014. And the benefits appear to be considerable. According to the Economist, over the past five years, incomes of Kenyan households using M-PESA have increased by 5 percent to 30 percent.
Beyond banking, cell phones are now enabling improvement at every level of our abundance pyramid. For water, there’s already SMS-delivered information available on everything from hand washing to conservation techniques and technology is now being pioneered that turns a smart phone into a testing device for water quality. In food, fishermen can check in advance which ports are paying top dollar before hauling their catch into shore, and farmers can do the same before bringing fruits and vegetables to market, in both cases maximizing their time and revenue. The impacts of mobile telephony on health stretch from being able to quickly locate the nearest doctor to a smart phone app invented by Peter Bentley, a researcher from University College London, that turns an iPhone into a stethoscope and has since been downloaded by over 3 million doctors. And it is only one of 6,000 health care apps now available through Apple.
These examples go on and on, but what they all have in common is that they empower the individual like never before. Most of these services used to require tremendous amounts of infrastructure, resources, and well-trained professionals, making them accessible primarily in the developed world. If one of the definitions of abundance is the widespread availability of goods and services—such as stethoscopes and water-quality testing—then the now-networked rising billion are rapidly gaining access to many of the fundamental mechanisms of first world prosperity.
The majority of mobile phones at work in BoP markets are on 2G networks, which provide voice and text-messaging capabilities. As should be clear by now, just these features alone have enabled incredible progress at every level of our pyramid, but they’ve also done what many considered impossible: help the rising billion break out of the “resource curse.”
Over the past fifty years, researchers have spent a lot of time trying to figure out what was keeping the bottom billion pinned to the bottom. As economist William Easterly has frequently pointed out, “The West spent $2.3 trillion in foreign aid over the past five decades and still has not managed to get twelve-cent medicines to children to prevent half of all malarial deaths.” The issue comes down to so-called poverty traps. Being a landlocked nation without access to shipping ports is one kind of poverty trap; being stuck in a cycle of civil war is another. One of the most insidious of these is the resource curse, which goes like this:
When a developing nation discovers a new natural resource, this causes its currency to rise against other currencies and has the downstream effect of making other exportable commodities uncompetitive. The discovery of oil reserves in Nigeria in the 1970s destroyed the country’s peanut and cocoa industries. Then, in 1986, the world price of oil crashed, and, as Oxford University economist Paul Collier writes in The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, “the Nigerian gravy train came to an end. Not only was oil revenue drastically reduced, but the banks were not willing to continue lending: they actually wanted to be paid back. This swing from big oil and borrowing to little oil and repayment approximately halved Nigerian living standards.”
There is no easy way to break the resource curse, but two of the more effective measures are the development of diversified markets and the emergence of a free press (and the transparency it brings). Thirty years of aid failures have taught us that neither is easy to jump-start, but both are now a part of the wireless landscape. Microcredit gives people outside the natural resource game access to money, thus encouraging the creation of small businesses not linked to the boom-and-bust cycle. The crowdsourcing of tiny jobs—known as microtasking—gives the poor access to novel revenue streams that further break this cycle. According to the New York Times, freelancers the world over are “increasingly taking on assignments like customer service, data entry, writing, accounting, human resources, payroll—and virtually any ‘knowledge process’ that can be performed remotely.” This is a huge step forward. By helping disperse productivity, communication technology helps disperse power, which, as Quadir once wrote, “makes it harder for individuals or groups to corner resources or advance state policies that favor narrow interests.” Furthermore, the free flow of information enabled by cell phones replaces the need for a free press and, as recent events in the Middle East bear out, can have serious impacts on the spread of democracy.
What’s more incredible is that all this was possible with yesterday’s technology. However, smart phones relying on 3G and 4G networks are arriving in the developing world, and that makes tomorrow’s potential exponentially greater. Former Harvard business professor Jeffrey Rayport, now CEO of the consulting firm MarketShare, writes in Technology Review: “Today’s mobile device is the new personal computer. The average smart phone is as powerful as a high-end Mac or PC of less than a decade ago … With over five billion individuals currently armed with mobile phones, we’re talking about unprecedented levels of access and insight into the psyches of over two-thirds of the world’s population.”
In his excellent book Where Good Ideas Come From: The Natural History of Innovation, author Steven Johnson explores the impact of coffeehouses on the Enlightenment culture of the eighteenth century. “It’s no accident,” he says, “that the age of reason accompanies the rise of caffeinated beverages.” There are two main drivers at work here. The first is that before the discovery of coffee, much of the world was intoxicated much of the day. This was mostly a health issue. Water was too polluted to drink, so beer was the beverage of choice. In his New Yorker essay “Java Man,” Malcolm Gladwell explains it this way: “Until the eighteenth century, it must be remembered, many Westerners drank beer almost continuously, even beginning their day with something called ‘beer soup.’ Now they begin each day with a strong cup of coffee. One way to explain the industrial revolution is as the inevitable consequence of a world where people suddenly preferred being jittery to being drunk.”
But equally important to the Enlightenment was the coffeehouse as a hub for information sharing. These new establishments drew people from all walks of life. Suddenly the rabble could party alongside the royals, and this allowed all sorts of novel notions to begin to meet and mingle and, as Matt Ridley says, “have sex.” In his book London Coffee Houses, Bryant Lillywhite explains it this way:
The London coffee-houses provided a gathering place where, for a penny admission charge, any man who was reasonably dressed could smoke his long, clay pipe, sip a dish of coffee, read the newsletters of the day, or enter into conversation with other patrons. At the period when journalism was in its infancy and the postal system was unorganized and irregular, the coffee-house provided a centre of communication for news and information … Naturally, this dissemination of news led to the dissemination of ideas, and the coffee-house served as a forum for their discussion.
But researchers in recent years have recognized that the coffee-shop phenomenon is actually just a mirror of what occurs within cities. Two thirds of all growth takes place in cities because, by simple fact of population density, our urban spaces are perfect innovation labs. The modern metropolis is jam-packed. People are living atop one another; their ideas are as well. So notions bump into hunches bump into offhanded comments bump into concrete theories bump into absolute madness, and the results pave the way forward. And the more complicated, multilingual, multicultural, wildly diverse the city, the greater its output of new ideas. “What drives a city’s innovation engine, then—and thus its wealth engine—is its multitude of differences,” says Stewart Brand. In fact, Santa Fe Institute physicist Geoffrey West found that when a city’s population doubles, there is a 15 percent increase in income, wealth, and innovation. (He measured innovation by counting the number of new patents.)
But just as the coffeehouse is a pale comparison to the city, the city is a pale comparison to the World Wide Web. The net is allowing us to turn ourselves into a giant, collective meta-intelligence. And this meta-intelligence continues to grow as more and more people come online. Think about this for a moment: by 2020, nearly 3 billion people will be added to the Internet’s community. That’s 3 billion new minds about to join the global brain. The world is going to gain access to intelligence, wisdom, creativity, insight, and experiences that have, until very recently, been permanently out of reach.
The upside of this surge is immeasurable. Never before in history has the global marketplace touched so many consumers and provided access to so many producers. The opportunities for collaborative thinking are also growing exponentially, and since progress is cumulative, the resulting innovations are going to grow exponentially as well. For the first time ever, the rising billion will have the remarkable power to identify, solve, and implement their own abundance solutions. And thanks to the net, those solutions aren’t going to stay balkanized in the developing world.
Perhaps most importantly, the developing world is the perfect incubator for the technologies that are the keys to sustainable growth. “Indeed,” writes Stuart Hart, “new technologies—including renewable energy, distributed generation, biomaterials, point-of-use water purification, wireless information technologies, sustainable agriculture, and nanotechnology—could hold the keys to addressing environmental challenges from the top to the base of the economic pyramid.”
However, he adds, “Because green technologies are frequently ‘disruptive’ in character (that is, they threaten incumbents in existing markets), the BoP may be the most appropriate socioeconomic segment upon which to focus initial commercialization attention … If such a strategy were widely embraced, the developing economies of the world become the breeding ground for tomorrow’s sustainable industries and companies, with the benefits—both economic and environmental—ultimately ‘trickling up’ to the wealthy at the top of the pyramid.”
Thus this influx of intellect from the rising billion may turn out to be the saving grace of the entire planet. Please, please, please, let the bootstrapping begin.
So let’s return to where we began: with One Planet Living. Jay Witherspoon explained that if everyone on Earth wants to live like a North American, then we’re going to need five planets’ worth of resources to do so—but is this really the case anymore? Bill Joy, cofounder of Sun Microsystems turned venture capitalist, feels that one of the advantages of contemporary technology is “dematerialization,” which he describes as one of the benefits of miniaturization: a radical decrease in footprint size for a great many of the items we use in our lives. “Right now,” says Joy, “we’re fixated on having too much of everything: thousands of friends, vacation homes, cars, all this crazy stuff. But we’re also seeing the tip of the dematerialization wave, like when a phone dematerializes a camera. It just disappears.”
Just think of all the consumer goods and services that are now available with the average smart phone: cameras, radios, televisions, web browsers, recording studios, editing suites, movie theaters, GPS navigators, word processors, spreadsheets, stereos, flashlights, board games, card games, video games, a whole range of medical devices, maps, atlases, encyclopedias, dictionaries, translators, textbooks, world class educations (more on this in chapter 14), and the ever-growing smorgasbord known as the app store. Ten years ago, most of these goods and services were available only in the developed world; now just about anyone anywhere can have them. How many goods and services? In summer 2011 the Android and Apple App stores boasted 250,000 and 425,000 applications, respectively, with a staggering 20 billion downloads combined.
Moreover, all of these now dematerialized goods and services used to require significant natural resources to produce, a physical distribution system to disperse, and a cadre of highly trained professionals to make sure that everything ran smoothly. None of these elements remain in the picture. And the list of those items no longer necessary keeps growing. When you also consider that robotics and AI will soon be replacing material possessions such as the automobile (think time-shared, on-demand access to the robo car of your choice), the potential for sustainably increasing standards of living becomes much more apparent. “It used to be that you were considered healthy and wealthy if you were fat,” says Joy. “Now it’s not. So now we think it’s healthy and wealthy if we have all these things; well, what if it’s actually the opposite? What if healthy and wealthy means you don’t need all those things because, instead, you’ve got these really simple devices that are low maintenance and encapsulate everything you need?”
Furthermore, for most of the twentieth century, pulling oneself out of poverty demanded having a job that—one way or another—relied on these same natural resources, but today’s greatest commodities aren’t physical objects, they’re ideas. Economists use the terms rival goods and nonrival goods to explain the difference. “Picture a house that is under construction,” says Stanford economist Paul Romer. “The land on which it sits, capital in the form of a measuring tape, and the human capital of the carpenter are all rival goods. They can be used to build the house, but not another simultaneously. Contrast this with the Pythagorean theorem, which the carpenter uses implicitly by constructing a triangle with sides in the proportion of three, four, and five. This idea is nonrival: every carpenter in the world can use it at the same time to create a right angle.”
Today the fastest-growing job category is the “knowledge worker.” Since knowledge is nonrival, most of the jobs in the future will produce nonrival goods, and this removes another constraint on abundance: it allows the rising billion to earn a living in a way that does not require burning through our ever-diminishing supply of natural resources. And this trend, as Stuart Hart explains, will only continue as we move forward:
Bio- and nanotechnology create products and services at the molecular level, holding the potential to completely eliminate waste and pollution. Biomimicry emulates nature’s processes to create novel products and services without relying on brute force to hammer goods from large stocks of virgin raw materials. Wireless information technology and renewable energy are distributed in character, meaning they can be applied in the most remote and small-scale settings imaginable, eliminating the need for centralized infrastructure and wire-line distribution, both of which are environmentally destructive. Such technologies thus hold the potential to meet the needs of the billions of rural poor (who have thus far been largely ignored by global business) in a way that dramatically reduces environmental impact.
Alongside dematerialization, there’s also the demonetization exemplified by Chris Anderson’s drones to consider. In the past decade, this force has been steadily reshaping markets across the globe. eBay demonetized transactions, putting local stores out of business, yet increasing the availability of goods while simultaneously reducing their cost. Then there’s Craigslist, which demonetized advertising, taking 99 percent of the profits out of the newspaper industry and putting them back into the pockets of the consumer. Or iTunes, which tanked the record store and liberated audiophiles. And the list of similar examples runs long. While short-term job loss is the inevitable and often painful result of demonetization and dematerialization, the long-term payoff is undeniable: goods and services once reserved for the wealthy few are now available to anyone equipped with a smart phone—which, these days, thankfully, includes the rising billion.
It’s here, then, with the rising billion rising, that we conclude part 4 of this book. We’ll continue working our way up the pyramid in part 5, then, in part 6, we’ll return to one of our basic premises: this transformation is not inevitable. To go where we need to go also requires accelerating the rate of innovation, increasing global collaboration, and—perhaps most importantly—expanding our notions of the possible. But first, our world of abundance is going to need a lot of energy, so let’s look at how we can power our planet in the decades to come.