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The Fortune at the Bottom of the Pyramid
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The Fortune at the Bottom of the Pyramid

Eradicating Poverty Through Profits

C.K. Prahalad
Wharton School Publishing, 2004
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Editorial Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

C.K. Prahalad’s excellent book suggests replacing traditional notions of government-channeled aid with a new model for relieving poverty and stimulating development. The new model relies on profit-making businesses, especially multinational corporations (MNCs). The MNCs have an economic incentive to tap the great market that exists, all but hidden, at the bottom of the economic pyramid. The professor of business administrations demonstrates clearly that it is possible to develop business models that allow the poorest of the poor to participate actively in their own economic development by becoming entrepreneurs. Although the individuals at the bottom of the pyramid (referred to as BOP) have little money, collectively they represent a vast pool of purchasing power. They welcome opportunities to escape their oppressive burdens, including predatory intermediaries, corrupt governments and the societal “poverty penalty” that requires them to pay more than the rich for similar services. Clearly written, well documented and furnished with an abundance of anecdotes, getAbstract considers this book a must-read both for those interested in alleviating poverty and for those looking to tap a vast new market for consumer goods.

Summary

A New Approach to the Problem of Poverty

For the past several decades, three mistaken assumptions have guided efforts to solve the problem of poverty: 1) Countries are poor because they have no resources; 2) the best return on aid investment comes from education and health care; and 3) rich countries can reduce poverty by aiding the governments of poor countries with infrastructure and other projects.

Yet as Peruvian economist Hernando DeSoto showed in his seminal book, The Mystery of Capital, the poor are not poor because they lack assets; they are poor because they lack capital. Assets can only become capital when the rule of law, especially contract law, allows the conversion of assets into other hands and other forms. Only legal ownership can turn an asset into capital. Moreover, although the governments of rich countries have transferred massive sums of money to the governments of poor countries through many channels (the World Bank, various foreign aid programs, and so on), they have solved the problem of poverty in only a very few instances.

Aid programs guided by the above flawed assumptions have not achieved the objective of reducing poverty...

About the Author

C.K. Prahalad is Harvey C. Fruehauf Professor of Business Administration and professor of corporate strategy and international business at the University of Michigan Business School. He co-authored the global business bestseller Competing for the Future.

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