10 – Hart on Base of the Pyramid

10 – Hart on Base of the Pyramid

Sustainability 2

This podcast is the second in a two-part series on the topic of sustainability.

In our first segment, we featured Cornell Professor Stuart Hart’s thoughts on defining sustainability. He emphasized that sustainability should be seen as something that creates entrepreneurial opportunities rather than threatening business profits.

This second segment will focus on what has pushed sustainable practices to the forefront. During this podcast, Stuart Hart talks about why the world has become stratified from a socioeconomic perspective and how the concept known as BOP or base of the pyramid fits into the picture.

Transcript

Hart: That’s the way that we’re going to make our way out of this, right, through the creative energies of hundreds and then thousands and then tens of thousands and millions of individuals and organizations behaving differently.

Kristen: Welcome to “Sound Advice” – the brief audio download that brings the best of eClips to you. I’m Kirsten Barker.

This podcast is the second in a two-part series on the topic of sustainability.

eClips recently had the opportunity to sit down for a conversation with business professor Stuart Hart – founder of Cornell’s Center for Sustainable Global Enterprise.

In our first segment, we featured Hart’s thoughts on defining sustainability. He emphasized that sustainability should be seen as something that creates entrepreneurial opportunities rather than threatening business profits. This second segment will focus on what has pushed sustainable practices to the forefront. During this podcast, Stuart Hart talks about why the world has become stratified from a socioeconomic perspective and how the concept known as BOP or base of the pyramid fits into the picture.

Hart is the author of book called Capitalism at the Crossroads which explores how business–more than either government or civil society–is uniquely equipped, at this point in history, to lead us toward a sustainable world in the years ahead. We’ll open with his thoughts on why we are at such an imperative time in modern history.

Hart: We are really at a very intriguing and a time of singular importance right now and I know that every generation thinks that that’s the case. I talk about in the book. There’s a term for that called chronocentrism. Every human generation thinks they live at the most important time, but I think there’s actually a good case, we can make a good case, we’ve got the empirical data to back it up, because let’s face it nothing like this has ever happened before in the history of the world. I mean the current human population 6.5 billion, if I live to be a ripe old age I could see 8 or 9 billion people on the planet. I’m a baby boomer, you know, born in the early 50s and only 2 billion people when I was born. I mean think about that, right. I mean it took all of humanity you know however long you believe that to be, you know up until about the time of the American revolution to get to one billion and then from the time of the American revolution to the time I was born to get to 2 and then in my lifetime the human population has grown from 2 to 6.5, could be 8 or 9 billion in my lifetime. So, you know, doesn’t really matter whether you talk about the age of the dinosaurs or the Cambrian explosion of life, I mean, nothing like this has ever happened before on the face of the earth and we’re stressing the system right in a pretty substantial way, you know, it doesn’t really matter which natural system you want to talk and climate is getting a lot of attention these days. The climate’s not the only system that’s under stress and they’re all interrelated of course, you know, I mean you name it forests, oceans, fisheries, coral reefs, soils, you know, water system you name it, you know, they’re all under stress and pressure and you know could tip at any point in time.

Kristen: Hart goes on to point out that not only are we at a period of extreme physical strain on the planet – but also that our socioeconomic system is also terribly overtaxed.

Hart: The population dynamics that I’ve just described you know, of those 6.5 billion we have grown a you know, permanent underclass of 4 to 4.5 billion since the end of World War II, right, I mean there were only 2 billion people in the world at the end of World… you know less than 2 billion at the end of World War II. There’s 6.5 billion now and 4.5 billion of them earn less than $3 a day, you know, and that during the period when we said we were interested in development. So, you know we haven’t been very successful on either front. So I think you can make a pretty strong case that environmentally, socially, and from the demographic point of view nothing like this has ever happened before.

Kristen: So how did all this happen? Hart provides a brief overview of the history of the past century and how it led us to the crossroads where we now stand.

Hart: The reason I think capitalism stands at a crossroads is that in many respects I believe that we’re dealing with the unresolved issues of the 19th Century. If you go back a 100 years to the early 1900s, you know the British were still in the driver’s seat at that point. It was kind of the end of their empire, but British still were very much in the driving seat, but if you go back 100 years or 110 or 120 years, you know the 1880s, 1890s, it’s all the same issues, you know, and I’ve actually been spending a fair amount of time on that over the last couple of years trying to understand the history of the industrial revolution. So, I think we’re still dealing with the unresolved problems of the industrial revolution because what happened was many of those same problems in terms of pollution, contamination, environmental issues, conservation issues, and then of course poverty, displacement, labor, you know alienation, the labor movement you know, emerged in the 1860s and 1870s. The concept of socialism, right, Marx wrote just after the civil war, but the Communist manifesto really wasn’t taken seriously until the 1880s or 1890s. All of those things exploded on to the scene during the 1880s and 1890s, sort of dealing with the dark side of the industrial revolution. You know the industrial revolution created a lot of good but also had and has a dark side. Very few of those issues were resolved, right, there was during that period of time growing labor unrest, growing demonstrations and riots, I mean the real risk of revolution you know in the industrializing countries at that point in time, great fear of that right, environmental problems, you know, just were huge and growing right, the conservation movement in North America was born you know at the end of the 19th Century or Teddy Roosevelt and progressive year, I mean that’s when all those reforms came in and those were incremental reforms, you know, they kind of put a Band-Aid over things little bit, but the underlying problems were never resolved and then you know 1914 came, World War I and then 30 years of World War, the rise of fascism, the great depression, the rise of communism, and you know capitalism was hanging by a thread, you know, the idea of 19th Century liberal capitalism it was hanging by a thread in the 1940s, and had things broken differently, we could be living in a very different world today. So we emerged from the second World War right after you know these 30 years hiatus of essentially the rise of the Germans, the Italians, and the Japanese with the kind of the fascist movement that was ultimately defeated, and the US kind of picks up after the second World War as you know, the clear, you know the industrial leader of the world and to a certain extent things kind of then picked up where they left off right, in the early 1900s before World War I, only now the US is in the driver’s seat and the industrial economy you know, kind of the boom years of the 50s and 60s premised on essentially high volume standardized mass production. The difference is that by the time we get to the 60s and the world economy is on a very rapid growth pace all the same problems come back again, are there again, have emerged again as were there in the 1880s and 1890s, only now it’s on a much bigger scale, right, it’s now global, right, and now a lot of the problems that the industrial countries had, you know, if you go back to the 1880s and 1890s in England especially, but also in Germany and elsewhere they were burdened with rural populations in revolt, you know, a rising labor movement and so forth. Yeah, that was happening in the US too, may be a little more delayed, but now in the post war years, it’s the developing world, right, where a lot of those problems are really coming home to roost where you have rapid industrialization, a lot of the same issues as you had in England and the United States in the 19th Century and in Germany and so forth, and those colonies, it was the colonial problem then you know. Now you’ve got rapid industrialization in those very same countries and in the industrialized countries you know, the United States and England and Germany and so forth, you know you’re faced with a different set of problems to some degree because many of those heavy pollution burden problems while they’re still there at some level have been exported right … I mean lot of that stuff has been off shored and out sourced. You know you have productions happening in Latin America and China and other places now, but the problems are the same as they were in the 1880s and 1890s, it’s just that the world economy is now an order of magnitude bigger, so the implications are much bigger, the impacts are much bigger. So the stakes are a lot higher, right. So I believe that the capitalism is at a crossroads because if we thought what happened you know starting in 1914 was bad, I think that unless we can come to grips with these underlying difficulties, unresolved problems that I’ve just described from the 19th century that who knows what lies in front of us right, I mean the downside is so enormous that I think it’s difficult for us to even imagine.

Kristen: Given that we stand at a crossroads, what are the next steps we can take as individuals and businesses to get back on course? To understand the right pathway, Hart argues we first must understand the concept of the “base of the pyramid” often called, BOP for short.

Hart: There are 2-3 billion people at the base of the income pyramid with no electricity for example, you know, who still have the same needs and desires as we do even for basic things, functionality, light at night for example, right. It seems kind of obvious to us and we take it for granted but it’s not taken for granted if you get out into the rural areas.

Kristen: As Hart explains, BOP theory holds that multinational corporations can simultaneously profit and help reduce global poverty by serving a market they have largely ignored until recently: the 4 billion people in the world living on less than $3 a day.

Hart: You know, two to two and half billion people really don’t have dependable light at night and how do they secure it today, they secure it through candles, kerosene lanterns, dry cell batteries, maybe if there’s you know, enough capital to combine you can get a diesel generator but that’s much rare. Generally at the household scale, it’s going to be what I just described, candles, kerosine lanterns, dry cell battery driven light. Those technologies or those approaches to having light at night for the poor in rural areas of the world are expensive, dangerous, polluting, right, thousands of people die every year kicking over kerosine lanterns and burning to death, breathing in the fumes. They get the worse stuff and the most expensive stuff, they pay a lot more than we do in absolute terms and if you say in relative terms relative to their income, it’s obscene, right. So they’re really badly served as a result, so why can’t we as western capitalist, we’ve got all the solar technology, all the stuff you know and yeah okay it doesn’t compete today given all of the perverse subsidies for fossil fuels against grid generated electricity with coal as a fuels or whatever, okay fine, great but look at the base of the pyramid where you know people are paying exorbitant amounts of money just for light at night, solar is very competitive today, it is.

Kristen: To illustrate how even a technology that does not make sense in western economies can be competitive in other parts of the world, Hart points out the activities of Light Up The World, a nonprofit that is promoting affordable ways to provide dependable and safe light sources to the BOP market.

Hart: With current technology, it’s not fundamentally a technology problem. Now, there’ll be continued technological innovations that will bring the cost down and the case becomes even more persuasive, but you have an NGO for example called Light up the World, Canadian NGO started by an engineering professor at the University of Calgary, really interesting little NGO and he has basically figured out how over the last 10 years how to assemble a rural lighting system out of existing components. It’s not the huge you know BP Solurex rooftop panels you know that they want to try to market to the top of the pyramid you know, to the Germans primarily these days. It’s … little 1 and 2 watt panels because that would be what those in rural areas would need at a household scale. Light up the World was able to put together these components into a rural lighting system and then used micro finance, micro credit, right ‘cause let’s face it, a household in the rural area that earns $500 a year in income can’t afford one of these systems even though they’re looking at pricing it around $50-60 retail. I mean that’s pretty cheap. When most people in America think of solar they think in the thousands of dollars right. So here we’re talking about a rural lighting system for $50-60 maybe $70 retail for all of that, that I’ve just described but still a family with $500 a year in income can’t afford that. So you micro finance it, over a 3-5 year period. It’s like buying a car for us over 3-5 year period of time you micro finance this and there’s a monthly installment payment and you can structure that micro finance in such a way that the monthly installment payment is less than the household currently pays for candles, kerosine, dry cell batteries and so forth, so you can actually lower their monthly cost, provide the same functionality but without the fumes, without the risk of fire, without any of that and at the end of the loan period say 3 years, they own it free and clear and their light at night is free after that. Is there a business there? I think so. Is this where solar and LED technology might come home to roost and develop and emerge and grow as industries? I think so. I mean there’s 2-3 billion people. Can you see how this might actually hatch the more sustainable way of living for tomorrow and then trickle up?

Kristen: So Hart basically turns the traditional “trickle-down” theory on its head. In fact, he argues that focusing sustainability efforts on the base of the pyramid can result in technologies that will trickle UP to the rest of the world population — completely backwards to the way in which product development has traditionally occurred.

Hart: You can always add cost and features on to a low cost platform. It’s much more difficult to take cost out of a high cost platform and try to trickle it down. So this great leap idea right, is the way you combine the idea of next generation inherently clean technology with serving the base of the pyramid and then you can imagine trickling it up over time, so initially it’s all about creative creation. It’s whole new market space with huge growth potential. It doesn’t cannibalize the existing business at the top of the pyramid to start with. Only after that’s become established and has grown in a dramatic way that you then begin to think about migrating it up market. Only when you’ve got an alternative that’s clearly better will it happen and in my view, this is the dynamic through which that can happen. It’s the great leap and then the up market migration which is totally against the grain, contrarian, right. So I think a lot of sustainability thinking, sustainability strategy is contrarian.

Kristin: We’ll close with Hart’s thoughts on the future. While he acknowledges there are rough roads ahead, he also remains optimistic that business has the creativity to find solutions.

Kristin: Unless the capitalists of the world you know the enterprises of the world can figure out how to include you know, the other four and half billion people of the world and how to do it in a way not only doesn’t just increasingly destroy the natural capital base but in fact do it in a way that begins to regenerate the natural capital base then I don’t see a very bright future for either global capitalism or the global economy and you know I’m not a pessimist by nature that’s why I think there’s enormous opportunity here if we can figure it out, but we clearly stand at a crossroads. The companies that are able to crack the code on this you know, will be the successful corporations in the 21st century in my view. I think the situation is dire and that scares me quite frankly and I wonder if it’s not already too late. I hope not, right, I hope not but that’s the optimist side of me, but I think we could be in for some really, really rough going here over the next decade or two. I think what gets me up everyday is the optimist side and also the excitement of seeing how many people increasingly understand this, get it, are motivated by this way of thinking in the business. What’s exciting about it is that it’s not rocket science, right. I mean if you can kind of wrap your mind around it, it seems obvious, right. But most good ideas in retrospect are obvious and I think that this is another example of that but a lot of it is just kind of getting the idea out there so that people can absorb it and then they run with it, right, then what’s exciting is once people are sort of empowered with the basic idea, the creativity that they can apply and that’s to me that’s what gets me up because that’s the way that we’re going to make our way out of this, right, through the creative energies of hundreds and then thousands and then tens of thousands and millions of individuals and organizations behaving differently.

Kristen: Thanks for listening to this segment. If you are interested in hearing additional comments from Stuart Hart or comments from other entrepreneurs on the topic of sustainability, please check our website at eclips.cornell.edu.

That’s E-C-L-I-P-S. cornell.edu.

And remember, if it is a business topic of interest, eClips will bring you “Sound Advice”…


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