CK Prahalad's theory on the purchasing power at the 'bottom of the pyramid' (BOP) has a legion of enthusiastic supporters. The BOP argument that savvy multi-nationals will enrich themselves and the poor by selling to this market is "at best a harmless illusion and potentially a dangerous delusion", according to Michigan professor Aneel Karnani. His new working paper, Fortune at the bottom of the pyramid: a mirage, is the strongest criticism I've seen of Prahalad and his devotees.
Clearly influenced by Amartya Sen's convictions that development should focus on improving the capacities of the poor, Karnani praises microfinance and efforts to improve market efficiency for poor producers (such as Amul and eChoupal). Karnani's conclusion:
Certainly the best way for private firms to help eradicate poverty is to invest in upgrading the skills and productivity of the poor, and to help create more employment opportunities for the poor.
Via Karnani himself, at NextBillion
Update: Prahalad's letter (PDF) responding to Karnani, thanks to Rob at NextBillion. The halls of the University of Michigan must be buzzing. One snippet:
Poverty alleviation is, simply, improving the disposable income for the families - by reducing the costs of services, improving its quality, and releasing their time to do work that is productive.
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