This week we discussed Microfinance. I think that some of the points that Aneel Karnani discussed in his paper, “Fortune at the Bottom of the Pyramid: A Mirage,” are not really true. I am definitely not an expert on microfinance or any type of global commerce, but from observations in my day-to-day life. Just from reading the paper, I get the feeling that Karnani is making assumptions about a population that a sociologist would be more qualified to make, and if indeed others think like Karnani and believe his solutions, then poverty will never be eradicated.
To be clear, I also am not a sociologist, or do I know anything about the levels of poverty in developing nations, but contrary to popular belief we do have poverty in the United States. Yes, the threshold for poverty in the U.S. is not $700 per year, and to be considered impoverished in the U.S. is vastly different than impoverished nations, but for today’s blog, I am merely making a couple of comparisons of human nature. Again, I just want to state here that I know nothing about poverty or developing nations; I am commenting on human nature.
“Selling inexpensive, low-quality products does not hurt the poor. Insisting on not lowering the quality actually hurts the poor by depriving them of a product they could afford and would like to buy”(Karnani 21). Karnani makes this statement after describing an affordable laundry detergent that “c[an] cause blisters” (20). I think that the poor would like to have a low-cost quality product that does not physically harm them in any way, and as we have learned in our discussions of frugal innovation, this is not impossible. I realize that this is just one example but it angers me. It almost seems that by saying that good quality actually hurts them, he is saying that because they are poor, they have no feelings, or are less than human- they do not even want the good stuff- they want to buy harmful products merely because they can afford them.
It is a dichotomy they would like to buy faulty products or are faulty products what they can afford? Logically, I cannot wrap my head around his reasoning. Should we not be trying to provide quality products for affordable prices instead of saying that poor people really only want the low quality products. To me, that is like saying, oh well, your child is really smart, and maybe we can give him financial aid, so you would not have to pay out-of-pocket for a great education, and the parent then saying, no, although we are getting this great education for free, we do not want it because the quality of the education is too good.
I have one more point of contention (to discuss in this post- I could write a paper on this).
“Poor people are, of course, price sensitive. “Companies assume that poor people spend only on basic needs like food and shelter.” Prahalad and Hammond (2002) disagree, stating that “such assumptions reflect a narrow and largely outdated view of the developing world. …In fact, the poor often do buy ‘luxury’ items.” Quite the contrary! The poor spend about 80% of their meager income on food, clothing and fuel alone (Gangopadhyay and Wadhwa, 2004). This clearly does not leave much room for luxuries!” (5-6).
Karnani disagrees with Pahalad in that the poor spend on luxury items. Later in the paper he implies that the poor “know better,” so they only spend money on exactly what they need. As I read his paper, I keep forgetting that the poor are different than the rest of us- they do not want what they cannot have, and they never spend money on items that they do not need. In the Matt Damon video I linked to in an earlier post regarding sanitation, Damon recites the stat that more people have cell phones than access to toilets. Matt Damon Goes On ‘Toilet Strike’. Karnani thinks that poor people wanting such luxury items is ridiculous, but as we know from our discussions, a cell phone is not only a cell phone, and mobile technology can improve one’s condition. People are going to spend money on items they do not need, and just because you are poor does not mean that you are more conservative with your money and spend more wisely.
If what Karnani is saying about poor people across the globe is true, then we need to fire all of our government workers around the world, because according to Karnani, they are inherently different, and they do not need or want quality in their lives; they understand that no matter what cheapest is best, and they will be more fiscally responsible because somehow they missed being a part of humanity.
India’s income inequality has doubled in 20 years– Karnani mentions that research shows trickle down economics works.
More recent poverty stats:
Poverty Facts and Stats– 80% of the world’s population lives on less than $10 per day. Karnani apparently feels that this is sufficient: “Surprisingly, Prahalad (2004, p.33) even claims that “the poor as a market are 5 billion strong” (4). Surprisingly? he claims? Does Karnani think that $10/day is adequate for people’s needs?