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.

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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 - follows.

By Al Hammond

I'm writing this in India, having just spent the day in a rural part of Punjab seeing how a market-based strategy is bringing clean drinking water to villages that have had none. The point of the trip is to plan in detail how we leverage this successful BOP business to bring modern healthcare, as well as clean water, to low-income rural communities.

From this perspective, most of what Mr. Karnani says seems just silly—armchair theorizing. His numbers are wrong—as we have already explained in detail elsewhere, although he does not acknowledge the criticism.  And he misquotes me and attributes words to me that I’ve never spoken, thus underscoring his questionable scholarship and the sloppy editorial work of the journal that published him. But it is his larger critique that is more troubling.

The poor make bad choices?

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Last month, Aneel Karnani wrote in the Stanford Social Innovation Review an article entitled, "Romanticizing the Poor."  In it, he states, " ...romanticized views of BoP people as value-conscious consumers and resilient entrepreneurs are not only false, but also harmful." In the article, Karnani spends a lot of time debunking the view that people in dire straits are well-informed and rational economic actors. In the end, he exhorts governments and policy makers to get more involved in the fight against poverty.

Personally, I think a lot of what Karnani says in the article is true.  Particularly on the topic of entrepreneurship, (which is what I'd like to focus on in this entry). It's just wrong to assume that the majority of those living at the BoP are entrepreneurial. Recently, I spoke to a friend who is working on a BoP project that seeks to help the poor start microenterprises.  The project selects a handful of people from a poor community and puts them through an entrepreneurship training program.  I asked her what was one of the biggest challenges of the project.  She responded, "That we're trying to train a lot of people to be entrepreneurial who are simply not."

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It was a high profile news day for the development-through-enterprise community today.  First, a report was published at the World Economic Forum in Davos, Switzerland entitled The Next Billions: Unleashing Business Potential in Untapped Markets.  The report was produced by the Boston Consulting Group; Francisco and I were able to see an early version - we encourage everyone to check it out.

Is there much new here?  Yes and no.  There's not much in the way of new data, nor is there much as far as new analysis (if you've been following NextBillion.net at all, most of the points in here are old hat.)  Still, for a report to come out at the World Economic Forum about the BoP and specifically, the "next billions" is huge.  Important people go to Davos.  They listen.  Then they go back home and, in theory, they act.  So this is a huge day for the development through enterprise world.  I got an e-mail from one colleague calling it a "stop the presses" moment.  As we have no actual presses here at NextBillion, perhaps not literally, but you get the idea.

The other big news story of the day was a great op-ed written by Iqbal Quadir in the Wall Street Journal.  Entitled "Foreign Aid, Bad Governments: Helping entrepreneurs is the right approach," Quadir argues that the Cold War model of direct aid is broken and, instead, we should focus on lowering trade barriers and funding transformative small and medium enterprises.

Couldn't agree more.

Francisco and I will chew on these over the weekend and hope to have something more substantive by way of analysis for Monday.  In the meantime, happy reading.

Guest Blogger Lesley Pories is a Deshpande Foundation Sandbox Fellow, working with the Water Literacy Foundation in India.

Before taking on this role, Lesley worked as a Research Analyst with the People and Ecosystems Program at the World Resources Institute. A graduate of Emory University, she double-majored in International Studies and English and minored in French.

By Lesley Pories

The real "meat" of the action kicked off this morning in Hubli, when the 250+ participants separated into small groups to read and discuss case studies that highlighted challenges faced by the participating NGOs.  While each NGO prepared their case study based on their own challenges, the problems brought forward were indicative of many other organizations. 

The one I had prepared for WLF, for example, outlined the difficulties in management of an organization as it tries to make the important step from small to medium-size.  Each case study has 2 opportunities to be the topic of a small-group discussion, and note-takers are provided to capture all the feedback.  I wasn't there last year, but this "case study session" idea was a direct result of suggestions from last year's conference.

After the first session, participants returned to the auditorium for the official "lighting of the lamp" ceremony (a tradition in India) and opening remarks from Desh.  It seemed like he was reading my mind, as the bulk of his speech was about the management challenges faced by many of the NGOs that the Deshpande Foundation supports. 

"Innovation is the lifeblood of an organization," he emphasized, and advocated for infusion of corporate-style management into the social sector. "[We need to] combine the passion of the NGO sector with the discipline and Darwinian nature of the for-proft sector," Deshpande commented.

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I recently had the chance to work on a case study with Late Lawson, Director of Economic Development for CARE, and Professor Ted London at the Ross School of Business at the University of Michigan. The case study centers on CARE considering how to best incorporate an explicit market-based approach to poverty alleviation within its portfolio of poverty alleviation activities.
 
In 2005, CARE started a three-year pilot initiative in Central America to assess whether revenue-generating ventures could provide large-scale, sustainable, and scalable poverty alleviation outcomes, as well as an opportunity to generate excess revenues for the organization itself. One of the primary catalysts for CARE to move in this direction was CARE’s experience in microfinance. In 1998, CARE had founded EDYFICAR, a microfinance institution in Peru. The MFI quickly became a business leader in the country, providing thousands of low-income families with access to much needed capital.

During the three-year pilot project, CARE started or supported many social ventures, primarily co-ops in the agricultural sector. Many of the ventures, however, had become overly dependent on CARE for support and struggled to find a path towards financial and operational independence. Furthermore, the ventures did not seem to offer any prospect of generating revenues for CARE.

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As it should be clear by now to our frequent and not so frequent readers, the BoP is potentially a huge market. Within this potential market there are different segments depending on who products are directed to, which needs they address, or what income and educational levels the target customer has. Depending on the target geographic area, BoP members may face totally different needs and constraints.

Another important differentiating feature of BoP communities are the violence levels they face. For example, it could be argued that the Indian BoP is exposed to comparatively less violence than Colombian BoP. As I pointed out in a previous post, this is important because BoP communities are especially vulnerable to violence and crime. It has been shown that younger, lower income and less educated men are more at risk of being homicide victims, while women and their children are most affected by forced displacement (Moser, 1999).

Francisco pointed out in his post launching NextBillion en Español, that one of the defining characteristics of Latin American BoP markets are relatively higher levels of chronic violence. Such violence can come in many forms such as Colombia's narco-guerrillas, slum violence in Brazil, Tijuana's border drug wars in Mexico or Guatemala's, Panama's, El Salvador's and Hondura's "maras". Additionally, Latin America has a recent history of violent dictatorships which often literally terrorized its own people and which has left deep scars from which many communities are still recovering.

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Position: Enterprise Development Specialists

Location: Africa (various countries)

Organization: CARANA Corporation, a contractor for USAID, designs and directs innovative economic growth strategies to help countries and businesses compete globally, reducing poverty and raising living standards around the world. For almost 25 years, we have specialized in market-led solutions to development challenges in more than 80 countries, packaging our expertise with on-the-ground resources for continuing, cost-effective results.

Description: CARANA has an immediate need for short and long-term Enterprise Development Specialists for current and pending projects in Africa.  CARANA’s Enterprise Development initiatives in Africa emphasize value chain development and market linkage strategies, targeting industries that are trying to grow their market share in U.S., European and regional markets.  These initiatives target industries that have significant potential for generating jobs and reducing poverty in the region. We have current opportunities for consultants with experience in the following areas:

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Like Rob mentioned in his post yesterday, I do think this is the year of ANDE. More precisely, I believe that thanks to forums like ANDE this will be a year in which companies and intermediaries serving low income markets will start to work in a more collaborative and coherent way, leveraging each other's innovations, successes and failures, and finding effective distribution mechanisms so that a more effective "knowledge brokerage" across boundaries is possible.

This may be the first step in building global supply chains for products aimed at low income markets, connecting the dots between existing supply (known to work at addressing specific needs) and existing demand. As far as the supply side is concerned, it is easy to see that most of the business models highlighted in BoP/ social enterprise literature, conferences and forums like this one are usually concerned with the design and commercialization of products and services that address very specific needs of the poor. Kickstart or IDE are examples in the case of irrigation. They have both developed products that work and serve their purpose in the context of small scale agriculture.

The quality and effectiveness of their products have been commented time and again; stats and success stories of their use abound. However, neither KickStart nor IDE have reached a truly global scale, the way, say, iPods have. Lack of demand for their products is not the reason, of course -- whether The Next 4 Billion or Aneel Karnani is right about the size of the markets at the base of the pyramid. Demand exists. The reason is that the marketing and distribution infrastructure to make a global reach and scale possible is not (yet) in place for the markets at the base of the pyramid. In other words there isn't someone that, like a retail outlet, aggregates products of several manufacturers (those that address needs like water management or energy or health), markets and makes them available and accessible to local communities.   

This is the opportunity that PowerMundo identified. Mike Callahan, its founder, traveled extensively through the poorest regions of Peru after learning that a vast portion of the population lacked electricity and/or used expensive, dirty and unhealthy fossil fuels for cooking and lighting.

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As I opened up my interview notes, Francisco pinged me over Skype.  His message was simple: I just have a feeling, 2009 is going to be the year of ANDE.  This has to be more than a coincidence, I thought.  After all, the interview notes I'd just clicked open were from a conversation with Randall Kempner – the incoming Executive Director of the Aspen Network for Development Entrepreneurs (ANDE, for short.)  Laughing, I wrote back to Francisco, telling him of his fortuitous timing.  He agreed that my interview with Randall was destined to be our first post in 2009.

It's more than timing; the development through enterprise sector is developing quickly.  I predict that the next 12 months will bring more formality and more cross-organization cooperation to our sector, as a range of funders, investors, entrepreneurs, intermediaries and research organizations work to take the base of the pyramid concept and turn it into an investible asset class.

A good first step towards this goal is creating the Aspen Network of Development Entrepreneurs, and hiring its first Executive Director.  The Aspen Network is basically a trade association for organizations like Acumen Fund, New Ventures, Agora Partnerships, E+Co, Technoserve, Root Capital and others working to help small and growing businesses take hold in low-income markets (full disclosure: NextBillion's sponsors, Acumen Fund and New Ventures, are members of ANDE).  Before taking his new job, Randall Kempner was Vice President for Regional Innovation at the Council of Competitiveness.  He has also worked for the OTF Group and before that, as a consultant with Monitor Group.  Randall graduated from the University of Texas at Austin with a M.B.A and an M.P.Aff.  He earned his Bachelor's degree in Government from Harvard University.

In our conversation, we discussed the role of innovation in economic development, how the Houston Astros broke Randall's heart in 2005, and just about everything in between.

Rob Katz, NextBillion.net: Who is Randall Kempner?

Randall Kempner, Aspen Network of Development Entrepreneurs: I'm a loud and proud Texan - a fifth generation Galvestonian.

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I recently read an article titled Negroponte - missionary not manufacturer, in which the author makes the argument that, well, Nicholas Negroponte - founder and Chairman of the One Laptop Per Child project - is a missionary, not a manufacturer. I think this is a very interesting point and caused me to ponder the definition of success.

Negroponte has been pilloried in the press, blogosphere and by analysts around the world, and even to an extent by me. You can see this in a three part blog posting that I wrote that starts here.

While some of the criticism may be valid, if you actually change the perspective of how you view his role ... from someone that is trying to manufacture and sell millions of laptops, to someone that has a vision of a computer as a key tool for accelerating learning and technology adoption, then his cause would be seen in a different light. And that is exactly why the world embraced him in 2005 when he first introduced his OLPC project.

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Guest blogger David Auerbach works on strategic growth projects for Endeavor, a global organization that supports high-impact entrepreneurs.  He is a 2003 graduate of Yale University.

By David Auerbach

High-Impact Entrepreneurs – those running high-growth, innovative businesses – are important drivers of economic growth in emerging economies. Endeavor, a non-profit with operations in 11 countries, supports these entrepreneurs by providing access to mentors, strategic advice, managerial talent and inspiration. In turn, these entrepreneurs – who come from a wide range of industries such as architecture, meat-processing and IT – create wealth and good jobs in their economies.

As the economic crisis continues to be felt around the world, Endeavor conducted a survey of 92 portfolio companies from Argentina, Brazil, Chile, Colombia, Jordan, Mexico, South Africa, Turkey and Uruguay. Endeavor asked about how the entrepreneurs had been affected so far by the crisis and what they foresaw happening in 2009. Three general trends emerged:

It’s going to be tough this year and next:

The results showed that 85% of Endeavor Entrepreneurs are already feeling the effects of the crisis:

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