ROMANTICISINGTHEPOORHARMSTHEPOORANEELKARNANITheUniversityofMichigan,An - PDF document

ROMANTICISINGTHEPOORHARMSTHEPOORANEELKARNANITheUniversityofMichigan,AnnArbor,USAAlibertarianmovementthatemphasisesfreemarketstoreducepovertyhasgrownstronginrecentyears.Itviewsthepooras‘resilientandcreativeentrepreneursandvalue-consciousconsumers’.Thisromanticisedviewofthepoorisfarfromthetruthandharmsthepoorintwoways.First,itresultsintoolittleemphasisonlegal,regulatoryandsocialmechanismstoprotectthepoorwhoarevulnerableconsumers.Second,itresultsinover-emphasisonmicrocreditandunder-emphasisonfosteringmodernenterprisesthatwouldprovideemploymentopportunitiesforthepoor.Moreimportantly,thelibertarianpropositiongrosslyunder-emphasisesthecriticalroleandresponsibilityofthestateforpovertyreduction.2008JohnWiley&Sons,Ltd.Keywords:povertyreduction;bottomofpyramid;consumptionchoices;mi1INTRODUCTIONAlibertarianmovementthatemphasisesfreemarketstoreducepovertyhasgrownstronginrecentyears.ThethinktankWorldResourceInstituteadvocates‘developmentthroughenterprise’andemphasisesbusinessmodelsdrivenbyaprotmotivethatengagethepoorasproducersandconsumers.ThePrivateSectorDevelopmentnetwork,partoftheWorldBank,focusesonprivatesectorledgrowthindevelopingcountries.CKPrahalad(2005),aprolicexponentofthisperspective,arguesthatsellingtothepoorpeopleatthe‘bottomofthepyramid’(BOP)cansimultaneouslybeprotableandhelperadicatepoverty.TheBOPpropositionhascaughttheattentionofseniorexecutivesandbusinessacademics.Manymultinationalcompanies(suchasUnileverandSCJohnson)haveundertakenBOPinitiatives;theworld’stopCEOshavediscussedthistopicatrecentsessionsoftheWorldEconomicForum.Severalbusinessschools(suchasUniversityofMichiganandUniversityofNorthCarolina)havesetupBOPcentres.JournalofInternationalDevelopmentJ.Int.Dev.,76–86(2009)Publishedonline1October2008inWileyInterScience(www.interscience.wiley.com)DOI:10.1002/jid.1491 *Correspondenceto:AneelKarnani,StephenM.RossSchoolofBusiness,TheUniversityofMichigan,701TappanStreet,AnnArbor,MI48109-1234,USA.E-mail:akarnani@umich.edu2008JohnWiley&Sons,Ltd. Thislibertarianapproachtoreducingpovertynecessarilyassumesthatthepoorarefullycapableandwillingparticipantsinthefreemarketeconomy.Prahalad(2005)explicitlyurgesusintheveryrstparagraphofhisbooktorecognisethepooras‘resilientandcreativeentrepreneursandvalue-consciousconsumers’.However,therestofthebookdoesnotprovideempiricalsupportforthisassumptionaboutthebehaviourofthepoorasconsumersandasentrepreneurs.TheUnitedNations,havingdesignated2005astheInternationalyearofMicrocredit,declaresonitswebsite,‘currentlymicroentrepreneursuseloansassmallas$100togrowthrivingbusinessand,inturn,provide(for)theirfamilies,leadingtostrongandourishinglocaleconomies’.ThisishypeandtheUnitedNationsprovidesnoempiricalevidencetosupportitsboldassertion.Iwillarguethattheviewofthepooras‘resilientandcreativeentrepreneursandvalue-consciousconsumers’isempiricallyfalse.Thisromanticisedviewofthepoordoesnothelpthem,andactuallyharmsthepoor.First,itresultsintoolittleemphasisonlegal,regulatoryandsocialmechanismstoprotectthepoorwhoarevulnerableconsumers.Second,itresultsinoveremphasisonmicrocreditandunder-emphasisonfosteringmodernenterprisesthatwouldprovideemploymentopportunitiesforthepoor.Moreimportantly,theBOPpropositiongrosslyunder-emphasisesthecriticalroleandresponsibilityofthestateforpovertyreduction.ThisisnottoadvocateareturntostatistpoliciesthatstiedeconomicgrowthfordecadesincountriessuchasIndiaandChina.Contemporaryeconomichistoryclearlydemonstratesthatthefreemarketsystemisthebestwaytoachieveoverallgrowthanddevelopment.Butthatdoesnotmeanthatthereisnoroleforthestate.RajanandZingales(2003,p.293)persuasivelyarguethat‘marketscannotourishwithouttheveryvisiblehandofthegovernments’.Thereisaneedtoimposesomelimitsonfreemarketstopreventexploitationofthepoor(Karnani,2007b).Anothervitalroleofthestateistoprovidebasicservicessuchasinfrastructure,publichealthandeducation.Boththeseresponsibilitiesofthestateareevenmorecriticalinthecontextofpovertyreduction.2POORASVALUE-CONSCIOUSCONSUMERSTheBOPpropositionviewsthepoorprimarilyasconsumers,asuntappedpurchasingpower.Providingincreasedconsumptionchoicestothepoorpersonwillincreasehiswelfare,assumingheisarationalconsumer.Itisalmostan‘itemoffaith’amongdevelopmenteconomiststhatthepooractrationally(Economist,2007a).Civilsocietyorganisationshaveoftenarguedthattargetingthepoorasamarketmightcausethemtowastefullyspendpartoftheiralreadymeagreincomeonlowpriorityproductsandservices(e.g.Clay,2005,Chapter5).HammondandPrahalad(2004)dismisssuchargumentsaspatronisingandarrogant;howcananybodyelsedecidewhatisbestforthepoor?TheBOPpropositionarguesthatthepoorhavetherighttodeterminehowtheyspendtheirlimitedincomeandareinfactvalue-consciousconsumers;thepoorthemselvesarethebestjudgeofhowtomaximisetheirutility.Onlytheexpenditurepatternsofthepoor,andnottheirutilitypreferences,canbedirectlyobserved.TheBOPpropositionassumesonideologicalgrounds,andwithoutempiricalevidence,thatthepoormustbemaximisingtheirutilitypreferences,andthatthesepreferencesarecongruentwiththetrueself-interestofthepoor.Thisisfreemarketideologytakentoadangerousextreme,andharmsthepoor.EvenastalwartproponentofneoliberalpolicieslikeTheEconomistconcludesthatthepoordomakechoices,andthe2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidRomanticisingthePoorHarmsthePoor empiricalevidencesuggeststhat‘theyarenotalwaysthebestones’(TheEconomist,2007).Iwillarguebelowthattheassumptionthatthepoorarevalue-consciousconsumersisempiricallyfalse;additionally,itismorallyproblematic.Thepoorinfactarevulnerablebyvirtueoflackofeducation(oftentheyareilliterate),lackofinformation,andeconomic,culturalandsocialdeprivations.Aperson’sutilitypreferencesaremalleableandshapedbyhisbackgroundandexperience,especiallysoifhehasbeendisadvantaged(Sen,2000).Itisnotappropriatetoassumethattheexpressedpreferencesaretrulyintheself-interestofthepoor.Weneedtolookbeyondtheexpressedpreferencesandfocusonpeople’scapabilitiestochoosethelivestheyhavereasontovalue.AmartyaSen(2000,p.63),theNobelPrizeeconomist,eloquentlystates:‘Thedeprivedpeopletendtocometotermswiththeirdeprivationbecauseofthesheernecessityofsurvival,andtheymay,asaresult,lackthecouragetodemandanyradicalchange,andmayevenadjusttheirdesiresandexpectationstowhattheyunambitiouslyseeasfeasible.Thementalmetricofpleasureordesireisjusttoomalleabletobearmguidetodeprivationanddisadvantage.Socialandeconomicfactorssuchasbasiceducation,elementaryhealthcareandsecureemploymentareimportantnotonlyintheirownright,butalsofortheroletheycanplayingivingpeopleopportunitytoapproachtheworldwithcourageandfreedom’.2.1EmpiricalEvidenceUnfortunatelytherearefewmicro-levelstudiesonthepurchasingbehaviourofthepoor.Inanexcellentsurveyofresearchontheconsumptionchoicesthepoormake,BanerjeeandDuo(2006)showthatthepoorspenda‘surprisinglylarge’fractionoftheirtotalincomeonalcohol,tobaccoandentertainment(beittelevisions,weddingsorfestivals).Thepoorenjoysuchproductsasmuchasafuentpeopledo,andmaybeevenmoresogiventheratherbleaklivesofthepoor.Itiseasytorationaliseanyparticularconsumptionchoiceofthepoor.But,itisproblematicthatthepoordonotspendenoughontheirownnutrition,healthandeducation.OnesurveyofthepoorinUdaipurinIndiafoundthat55%oftheadultswereanaemic,andthat65%ofadultmenand40%ofadultwomenwereunderweight(Banerjeeetal2004).ThetypicalpoorhouseholdinUdaipurcouldspendupto30percentmoreonfoodthanitactuallydoes,justbasedonwhatitspendsonalcohol,tobaccoandfestivals.MeenakshiandVishwanathan(2003)ndthatthepoorarebuyinglessandlesscaloriesovertime.Partlyasaresultofthisgeneralweakness,thepoorarefrequentlysick.BanerjeeandDuo(2006)speculatethatonecauseofthissurprisingunder-spendingonnutritionisthe‘growingavailabilityofconsumptiongoods’.Thepoorlackself-controlandyieldtotemptation.Apartialcausemightbethatthepoortypicallydonothavebankaccounts,andhavingcashathomemakesithardertoexerciseself-control.Thepoorseemtobeawareoftheirvulnerabilitytotemptation.InasurveyinHyderabad,India,thepoorwereaskedtonamewhethertheywouldliketocutparticularexpenses,and28percentoftherespondentsnamedatleastoneitem(Banerjeeetal2006).Thetopitemthathouseholdswouldliketocutisalcoholandtobacco,mentionedby44percentofthehouseholdsthatwanttocutonitems.Thencamesugar,teaandsnacks(9percent),festivals(7percent)andentertainment(7percent).2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidA.Karnani Thedatasuggestthatthepoorlackself-control,yieldtotemptationandspendtokeepupwiththeirneighbours(BanerjeeandDuo,2006).Inthistheyarenodifferentthanpeoplewithmoremoney,buttheconsequencesofbadchoicesaremoresevereforthepoor.EfroymsonandAhmed(2001)tellamoving,butnotuncommon,storyofHasan,arickshawpuller,whospends$0.20/dayontobacco.Whenaskedifhisthreechildrenevereateggs,heexclaimed,‘Eggs?Wherewillthemoneycomefromtobuythem’?IfHasandidnotbuytobacco,eachofhischildrencouldeataneggaday,orothernutritiousfoods,andbehealthierasaresult.Formoreafuentpeopletheconsequencesofsmokingarenotasbleakaschildren’smalnutrition.Thereismuchevidence(e.g.Luttmer,2005,andDieneretal.,1999)ineconomicsandpsychologyshowingthatpeoplederivesatisfactionnotjustfromtheirownconsumptionbutalsofromfaringbetterthantheirpeers.FafchampsandShilpi(2008)showthatthisisequallytrueforthepoor.Keepingupwiththeneighboursseemstobeapervasivetraitcuttingacrossincomebrackets.PoorpeopleinNepalwereaskedtoassesswhethertheirlevelofincomeaswellastheirlevelsofconsumptionofhousing,food,clothing,healthcareandschoolingwereadequate.Theanswerstothesequestionswerestronglynegativelyrelatedtotheaverageconsumptionoftheotherpeoplelivinginthesamevillage.Spendingonfestivalsisasurprisinglylargepartofthebudgetformanyextremelypoorhouseholdslivingonlessthan$1perdayperperson.InUdaipurmorethan99percentoftheextremelypoorhouseholdsspentmoneyonawedding,afuneralorareligiousfestival(Banerjeeetal.,2004).Themedianhouseholdspent10percentofitsannualbudgetonfestivals.InSouthAfrica,90percentoftheextremelypoorhouseholdsspentmoneyonfestivals.InPakistan,IndonesiaandCoted’Ivoire,morethan50percentdidlikewise(BanerjeeandDuo,2006).Spendingonfestivalsisaformofentertainment,especiallyintheabsenceofmoviesandtelevision.Theneedtospendmoreonentertainmentappearstobeastronglyfeltneed.Onereasonthismightbethecaseisthatthepoorwanttokeepupwiththeirneighbours.Empiricaldatadonotsupporttheromanticisedviewofthepooras‘value-consciousconsumers’.Theproblemisthatthepooroftenmakechoicesthatarenotintheirownself-interest.Therichalsooftenmakechoicesnotintheirself-interest,buttheconsequencesarenotassevereintheircase.Sellingtothepoorcaninfactresultinreducingtheirwelfare.Therefore,thereisaneedtoimposesomelimitsonfreemarketstopreventexploitationofthepoor(Karnani,2007b).Marketsworkbestwhenappropriatelyrestrictedtoprotectthevulnerable.Toexamineoneexampleindepth,Istudybelowtheconsumptionchoicesofthepoorwithrespecttoalcohol.2.2PovertyandAlcoholAlcoholconsumptionisanancialdrainforthepoor.Thereportedshareofhouseholdincomespentonalcoholandtobaccobythepoorishighinallcountries,rangingfrom6%inIndonesiato1%inNicaragua(BanerjeeandDuo,2006).ThepoorinIndiaspendabout3%oftheirhouseholdincomeonalcoholandtobacco(GangopadhyayandWadhwa,2004).Thesenumbersunderstatethetrueconsumptionlevelsinceitisusuallyonlythemaninthehouseholdwhoengagesinthisconsumption.BaklienandSamarasinghe(2004)intheirin-deptheldstudyndthat‘moneyspentonalcoholbypoorfamiliesandcommunitiesisunderestimatedtoaremarkabledegree.Alargepartofalcoholexpenditureisunseen....Over10%ofmalerespondentsreportspendingasmuchas(or2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidRomanticisingthePoorHarmsthePoor morethan!)theirregularincomeonalcohol’.Sadly,thepoorerpeoplespendagreaterfractionoftheirincomeonalcoholthanthelesspoor.Asidefromthedirectnancialcost,alcoholabuseimposesothereconomicandsocialcostssuchasworkperformance,healthandaccidents.‘Domesticviolenceandgender-basedviolencewasalmosttakenforgrantedinnearlyallsettingsasanautomaticconsequenceofalcoholuse.Deprivationoftheneedsofchildrenduetothefather’sheavyalcoholusewasregardedsimplyasamisfortuneofthechildrenconcerned’(BaklienandSamarasinghe,2004).Thereismuchevidenceshowingalcoholabuseexacerbatespoverty(e.g.Asunta,2001).TheEconomist(2006a)citesSABMillerwhichhassucceededinseveralAfricancountrieswithEagle,acheaperbeermadefromlocallygrownsorghum(ratherthanimportedmalt).SABMillerisabletopricethebeeratalevelbelowthatofmainstreamclearbeersinUganda,ZambiaandZimbabwepartlybecauseithasobtainedareductioninexcisedutiesfromthegovernmentsinvolved.AndreParker,managingdirectorforAfricaandAsiadivisionsays,‘thebrandisreliantontheexcisebreak,soweareworkingwiththegovernmentstolowertheexciseratesothattheretailpriceisbelowthatofclearbeer.Themargin,though,isatleastasgoodasourotherbrands’(Bolin,2005).EaglebeerisprotableforSABMillerandapracticalexampleconsistentwiththeBOPproposition,butitisprobablydetrimentaltotheoverallwelfareofthepoorconsumers.Activistconsumerorganisationsadvocatehigher(notlower)taxesonalcoholtosupportpubliceducationandrehabilitationprogrammes(e.g.Asunta,2001).Shouldthepoorhavetherighttoconsume,andevenabuse,alcohol?Yes.Isitintheirselfinteresttodoso?Undoubtedly,no—atleastatthelevelsmanydrink.Shouldcompanieshavetherighttoprotfromsaleofalcoholtothepoor?Yes,buteveninrich,capitalisteconomiesthegovernmentsputsomeconstraintsonthisright,suchas‘sintaxes’,restrictionsonadvertising,andsaletominors.Yet,inmanydevelopingcountries,suchconstraintsaresometimesmissing;evenwhentheydoexist,theyarepoorlyenforced,especiallyinthecontextofmarketingalcoholtothepoor.Forexample,inMalaysia,bottlesof‘samsu’(thegenericnameforcheapspirits)advertiseoutrageousclaimsthatitis‘goodforhealth,itcancurerheumatism,bodyaches,lowbloodpressureandindigestion.Labelsalsoclaimitisgoodfortheelderly,andformotherswhoarelactating’(Asuntaetal.,2001).EvenMNCshavegotintotheact.DOMBenedictine,whichcontains40%alcohol,claimshealthgivingandmedicinalproperties.GuinnessStoutsuggestsitisgoodformalefertilityandvirility.Alcoholicdrinksareeasilyavailableincoffeeshopsandsundryshopswithoutaliquorlicense.Forty-vepercentofMalaysianyouthunder18consumealcoholregularly.Inanironictwistonthe‘singleservepackaging’ideaoftenchampionedbytheBOPproposition,samsuisavailableinsmallbottlesofabout150mland‘soldforaslittleas$0.40–0.80.Itisobviousthatthesepotentdrinksarepackagedtoespeciallyappealtothepoor’(Asuntaetal.,2001).Asidefromthegovernment,activistmovementsalsoplayaroleinprotectingtheconsumer.AlcoholicsAnonymousisafellowshipofmenandwomenwhosharetheirexperience,andhelpeachotherthattheymaysolvetheircommonproblemwithalcoholism.Thepoorinemergingeconomiesusuallydonothaveaccesstosuchrehabilitationprogrammes.In1991intheUSA,HeilmanBreweryintroducedPower-Master,amaltliquorwithhighalcoholcontent,targetedtoAfrican-Americanyouth.AcampaignledbyAfrican-Americanleadersresultedintheproductbeingwithdrawnfromthemarketwithinafewmonths.Suchsocialmechanismsforconsumerprotectionareoftenveryweakindevelopingcountries,andevenmoresowithregardtothepoorpeople.There2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidA.Karnani isaneedforchecksandbalancesonpowerfulcompanies,especiallyMNCs,marketingtothepoor.Theromanticisationofthepooras‘valueconsciousconsumers’hasresultedintoolittleemphasisonlegal,regulatoryandsocialmechanismstoprotectthevulnerableconsumers.3POORASENTREPRENEURSManypoorpeopleareentrepreneursintheliteralsense:theyareself-employed,raisethecapital,managethebusinessandaretheresidualclaimantsoftheearnings.But,thecurrentusageoftheword‘entrepreneur’requiresmorethantheliteraldenition.EntrepreneurshipistheengineofJosephSchumpeter’sdynamismof‘creativedestruction’.Anentrepreneurisapersonofvisionandcreativitywhoconvertsanewideaintoasuccessfulinnovation,intoanewbusinessmodel.Somepoorpeoplearecertainlytrueentrepreneurs,andhavecreatedthrivingbusinesses—thesearethesubjectsofheart-warminganecdotes.But,theempiricalevidencesuggeststhatthevastmajorityofthepoorlacktheskills,vision,creativityanddriveofanentrepreneur.BanerjeeandDuo(2006)arguethatthepoorhavea‘reluctancetopsychologicallycommitthemselvestotheprojectofmakingasmuchmoneyastheycan’.InastudyoffarmersinKenya,Duoetal.(2006)ndthatfewfarmersusefertilisers,evenafterthebenets—averagereturnoninvestmentofover100%—havebeendemonstratedtothem.NotmanyGhanaianfarmerscultivatepineappleswhichwouldachievereturnsof250–300%(TheEconomist,2007).Thisisperhapsunderstandable:thepoorfacesuchbleakcircumstancesthattheycometobelievethefutureishopeless.Overahundredyearsago,GeorgeOrwellwrotethatpoverty‘annihilatesthefuture’—thatbleaktrenchantobservationisjustasvalidtoday.Thevastmajorityofself-employedpoorarecaughtinsubsistenceactivitieswithnoprospectofcompetitiveadvantage.Theself-employedpoorusuallyhavenospecialisedskillsandoftenpracticemultipleoccupations(BanerjeeandDuo,2006).Manyofthesebusinessesoperateattoosmallascale.Themedianbusinessoperatedbythepoorhasnopaidstaff;mostofthesebusinesseshaveveryfewassetsaswell.Withlowskills,littlecapitalandnoscaleeconomies,thesebusinessesoperateinarenaswithlowentrybarriersandtoomuchcompetition;theyhavelowproductivityandleadtomeagreearningsthatcannotlifttheirownersoutofpoverty.ThereisnoevidencetosupportPrahalad’s(2005)assertionthatthepoorare‘resilientandcreativeentrepreneurs’.Thisshouldnotbetoosurprising.Mostpeopledonothavetheskills,vision,creativityandpersistencetobetrueentrepreneurs.Evenindevelopedcountrieswithhigherlevelsofeducationandinfrastructure,about90%ofthelabourforceareemployeesratherthanentrepreneurs(InternationalLaborOrganization,2007).Evenwithgreateravailabilityofnancialservicesindevelopedcountries,onlyasmallfractionhaveusedcreditforentrepreneurialpurposes.Mostpoorpeoplearenotself-employedbychoiceandwouldgladlytakeafactoryjobatreasonablewagesifpossible.Theromanticisedviewofthepooras‘resilientandcreativeentrepreneurs’isfarfromthetruth.TheInternationalLaborOrganization(ILO)usesamoreappropriateterm‘ownaccountworkers’. Foranothercasestudyinthisvein,Karnani(2007b)focusesonskinwhiteningcreammarketedbyUnilever.2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidRomanticisingthePoorHarmsthePoor Thisromanticisationofthepoorasentrepreneurshasledtoanoveremphasisonmicrocreditasawaytoreducepoverty.TheNobelPeacePricefor2006wasawardedtotheGrameenBankinBangladeshanditsfounderMuhammadYunus,apioneerofthemicrocreditmovement.TheNobelCommitteeafrmedthatmicrocreditmustplay‘amajorpart’ineliminatingpoverty.Manygovernmentssubsidisemicrocredit.Forexample,P.Chidambaram,FinanceMinisterofIndia,isasupporterofmicrocredit.TheUnitedNationsdesignated2005astheInternationalyearofMicrocredit.But,therealityofmicrocreditislessattractivethanthepromise(Karnani,2007a).EvenasupporterofneoliberalpoliciesTheEconomist(2006b)concludedthatmoststudiessuggestthatmicrocreditisbenecialbutonlytoalimitedextent.Theproblemliesnotwithmicrocredit,butratherwithmicroenterprises.Creatingopportunitiesforsteadyemploymentatreasonablewagesisthebestwaytotakepeopleoutofpoverty.Governmentsinfragilestateshavelimitedpoliticalcapitalandcapacity.Theywouldbebetterofffocusingonissuessuchpublichealthandeducation,infrastructureandsoundlegalandbankingsystemsthatfostermodernentrepreneurship,whichinturnwouldprovideemploymentopportunitiesforthepoor(BhideandSchramm,2007).Microlendingtomarginalbusinessesisadistraction.BatemanandEllerman(2005)gofurtherandarguethatmicrocreditactuallyundermineslong-termsustainabledevelopmentthroughfosteringinformalisation,marginalisationandde-industrialisation.Microcreditisverycloselyidentiedwiththepromotionofinformalnon-industrialenterprisesoverwhelminglybelowefcientscale,whichsuggestsproblemsinthelongterm.BoliviaandBangladesharethetwocountriesthatpioneeredmicrocredit;aftermorethan30yearsofmuchmicrolending,itisdifculttonditspositiveimpactsonoveralleconomicdevelopment.Themicrocreditapproachisplausiblyimplicatedintheevolutionofdisturbinglyweak,unsophisticatedandveryfragmentedeconomicstructure.Ontheotherhand,countriessuchasChina,VietnamandSouthKoreahaveachievedrapidgrowthandsignicantreductioninpovertybyfosteringmodernentrepreneurship,andhencejobcreation,throughemphasisoneconomicreforms,publicservicesandinfrastructure.4ROLEOFTHESTATEAmartyaSen(2000)says‘socialandeconomicfactorssuchasbasiceducation,elementaryhealthcareandsecureemploymentareimportantnotonlyintheirownright,butalsofortheroletheycanplayingivingpeopleopportunitytoapproachtheworldwithcourageandfreedom’.Thestateisresponsibleforpublicservicessuchasbasiceducation,publichealth,water,sanitation,publicsafetyandinfrastructure,whichhelpincreasetheproductivityandtheemployabilityofthepoor,andthustheirincomeandwell-being.Thereismuchdebateaboutwhetherthedirectproductionoftheseservicesshouldbeprivatised.But,fewwouldarguethatthestatecantotallyavoiditsresponsibilities.Forexample,ifwatersupplyisprivatised,thegovernmentneedstoregulatetheratesorensurethatthepoorhaveenoughpurchasingpowertobuywater.Inthecaseofa‘publicgood’suchassanitationandpublichealth,themarketcannotsolvetheproblem.EvenlateMiltonFriedmanadvocatedschoolvouchersystem,andnotforthestatetowithdrawtotallyfromtheeldofeducation.Thestatemustberesponsibleforserviceswhenthereisanaturalmonopoly(pipedwater),whenitisapublicgood(publichealth),andforthesakeofequity(education).Whenthestatefails,themarketmightbeapartialcomplement,butitcannotbeatotalsubstitute.Thegovernmentineverydevelopingcountrycertainlyprofessesto2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidA.Karnani acceptresponsibilityforthesetraditionalfunctions.Yet,ithasfaileddismallytodeliveronitspromises.Asanexampleofthefailureofpublicservices,considerthecaseofIndia.TheIndianeconomyisgrowingrapidly,thestockmarketisrising,Indiancompaniesareexpandingabroadandalargemiddleclassisemerging.Itisthebestoftimes.ContrastthiswithanotherIndia.Thereispersistentincomeinequalityandgenderinequality.Seventy-ninepercentofIndiansarebelowthecommonlyused$2/daypovertyline.Thirty-ninepercentofadultsareilliterate.Tenpercentofboysand25%ofgirlsdonotattendevenprimaryschool.Forty-ninepercentofchildrenareunderweightfortheirage.Ninepercentofchildrendieintherstveyearsoftheirlives(WorldBank,2006).Seventeenpercentofruralhouseholdsand5%ofurbanhouseholdsdonothaveaccesstosafedrinkingwater.Seventy-eightpercentofruralhouseholdsand41%ofurbanhouseholdsdonothaveadequatesanitationfacilities(UNICEF,2008).Atotalof500000childrendieofdiarrhea(awaterbornedisease)everyyear(TheTimesofIndia,2004).Theboomintheprivatesectorhasbeenaccompaniedbyasignicantfailureofthestate.Thecostofthisfailureisbornedisproportionablybythepoor.Therichoftenpurchasetheseservicesfromprivateenterprises.Themiddleclassarethemainbeneciariesofthepublicserviceexpenditures.Thepoorhavenoorlittleaccesstotheseservices,orgetverylowqualitypublicservices,orpayveryhighpricesforprivateservices.Forexample,therichgotoworld-classprivatehospitalsandclinics.Themiddleclasshasaccesstoreasonablepublichealthfacilities.Whilepublichealthcentresdoexisttoserveruralandpoorareas,thesecentresaregrosslyunderfundedandunderstaffed.Evenworse,thestaffareunderqualied,andoftenabsent.Childrenoftherichgotoexclusiveprivateschools.Themiddleclassusesamixofprivateandpublicschools.Childrenofthepooroftendonotgotoschoolorgotolowqualitypublicschools.Inonesurvey,aquarteroftheteacherswereabsentandanotherquarterwerepresentbutnotteaching.Absenteeratesforteachersandhealthworkersarehigherinpoorerregions.Therichhaveampleaccesstocleanwater,theypurchasebottled-drinkingwater,drillprivatetubewellsanduseboosterpumps.Themiddleclasssettlesforpipedwaterevenifonlyforafewhoursaday.Thepoorhavenoorlittleaccesstocleanpublicwatersupply.Therichhireprivateguards.Themiddleclassliveinreasonablywell-policedneighbourhoods.Thepoorhavelittleprotectionfromthugsandcriminals.Theburdenoffailureofpublicservicesisbornedisproportionablybywomen,whichexacerbatesgenderinequality.Lackofaccesstotoiletsposesabiggerproblemforwomenbecauseofanatomy,modestyandsusceptibilitytoattack.Womenoftenlosemuchtimetohaulingbucketsofwateroverlongdistances.Womenaremorelikelythanmentoneedmedicalcare;theyareexpectedtocareforsickfamilymembers,especiallychildren.Girlsattendschoollessoften,especiallyinpoorfamilies.Thereisnomagicsolutionforthefailureofthestatetoprovidethesebasicservices,butthestartingpointispassionandangeratthisfailure.Givinga‘voice’tothepoorisacentralaspectofthedevelopmentprocess.Inmanydevelopingcountries,anautocraticgovernmenthasdeniedavoicetothepoor.Evenindevelopingcountrieswitharepresentativedemocracy,thepoliticalprocesshasbeenhijackedbyvariousvestedinterests.Thebusinesscommunity,bureaucrats,politiciansandthemediaarefullofself-congratulationsontheboomingprivatesector—forexample,ontheincreasedpenetrationofcellphones.However,therepresentativeimageofadevelopingcountryisnotacellphone,butratherdefecatinginpublic.Forexample,inMumbai,thebusinesscapitalofIndia,about50%ofthepeopledefecateoutside.2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidRomanticisingthePoorHarmsthePoor 5BOPPROPOSITIONUNDER-EMPHASISESTHEROLEOFTHESTATEInrecentyears,thepoliticalideologyoftheworldhasshifteddecisivelytowardsanincreasedroleformarkets.Thereisagrowing‘neoliberal’movementwhichseekstodecreasetheroleofthestateandto‘marketise’allpublicsectorfunctions.Inparticular,theBOPpropositionarguesthattheprivatesectorshouldplaytheleadingroleinpovertyreduction(Prahalad,2005).Thisisadangerousdelusionbecauseitgrosslyunder-emphasisestheroleandtheresponsibilityofthestateforpovertyreduction.ContrarytotheBOPproposition,theempiricalevidencesupportsalargerroleforthestateinsocialservicesindevelopingcountries.Pattnayak(2006)calculatesthepublicexpenditureoneducationasapercentageofGNPfordevelopedcountriestobe5.46%in1980and5.54%in1997;thecomparablenumbersfordevelopingcountriesare3.99and3.92%.WorldBank(2006)dataindicatepubliceducationexpendituretobe5.6%ofGDPfordevelopedcountriesand4.1%fordevelopingcountries,in2004.Similarly,publichealthexpenditureaccountedfor6.7%ofGDPin2004inhighincomecountriescomparedto1.3%inlowincomecountries.Governmentsindevelopingcountriesneedtoplayalargerroleineducationandpublichealth.PrahaladandHammond(2002)describetheimpressiveextentofbusinessactivityintheslumsofDharavi(inMumbai),‘theseedsofvibrantcommercialsectorhavebeensown’.Theyarguethatthepooracceptthataccesstorunningwaterisnota‘realisticoption’andthereforespendtheirincomeonthingsthattheycangetnowthatimprovethequalityoftheirlives.Prahaladhassaid‘ifpeoplehavenosewageanddrinkingwater,shouldwealsodenythemtelevisionsandcellphones’?(Time,2005).Thisopensupamarket,andtheBOPpropositionurgesprivatecompaniestomakesignicantprotsbysellingtothepoor.But,weshouldbecautiousaboutcelebratingthisentrepreneurshiptoomuchandromanticisingthepoor.Sharma(2000)inheremotivebookaboutDharavistatesthatwhileenterpriseinthemidstofdeprivationistobeadmired,thereisabsolutely‘nothingtocelebrateaboutlivinginacramped150sqfthousewithnonaturallightorventilation,withoutrunningwaterorsanitation’.TheUN-habitatestimatesthatinDharavithereisonepublictoiletforevery800people.WritingabouttheslumsofKibera(inNairobi),TheEconomist(2007b)observed,‘moststrikingofall,tothoseinuredtothesightofsuchplacesthroughphotography,isthesmell.Withpilesofhumanfaeceslitteringthegroundandsewagerunningfreely,thestenchisever-present’.TherealissuewhichtheBOPpropositionglossesoveris:whydothepooracceptthataccesstorunningwaterisnota‘realisticoption’?Eveniftheydo,whyshouldweallacceptthisbleakview?Instead,weshouldemphasisethefailureofgovernmentandattempttocorrectit.6CONCLUSIONAlibertarianmovementthatemphasisesfreemarketstoreducepovertyhasgrownstronginrecentyears,andhasattractedtheattentionofbusinessexecutives,academicsandpublicofcials.Thisapproachexplicitlyviewsthepooras‘resilientandcreativeentrepreneursandvalue-consciousconsumers’.Thisromanticisedviewofthepoorisfarfromthetruthandharmsthepoorintwoways.First,itresultsintoolittleemphasisonlegal,regulatoryandsocialmechanismstoprotectthepoorwhoarevulnerableconsumers.Second,itresultsinoveremphasisonmicrocreditandunder-emphasisonfosteringmodernenterprisesthat2008JohnWiley&Sons,Ltd.J.Int.Dev.,76–86(2009)DOI:10.1002/jidA.Karnani 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