Poor are our Planet's Galactic Business Opportunity

FAO's latest hunger report says starvation, humankind's oldest enemy, still lurks in large parts of the world. According to UNDP's latest Human Development Report 799 million Indians are still below the poverty line earning less than $2 a day. 10 million hungry live in industrialized countries including US & UK. Well after a decade of globalization, hunger is actually on the increase. India's own figures of people below the poverty line as per the latest National Sample Survey has arisen to 27.6% in 2001-2002 compared to 24.4% in 2000-2001. With 276 million people living below the poverty line, even as per India's official figures, India otherwise recognised as a software giant, has the dubious distinction of being a country with the largest number of hungry people in the world. India's poor are the worst off among emerging markets. The great IT revolution has not touched the poor.

The Twin Scourge of Poverty and AIDS

FAO's report links hunger with AIDS. It shows that countries with a high prevalence of chronically hungry people are also afflicted by high rates of HIV/AIDS. World's AIDS graph shows a steady increase of the number of deaths on account of AIDS. The figure last year went up by 3 million. After infecting 28 million people in Sub Saharan Africa, AIDS is advancing steadily towards Asia and East Europe. 1.8 million people are living with AIDS in the countries of Eastern Europe and Central Europe. Total number of people living with AIDS has increased to 40 million.

The Flop of Trickledown Effect

All this shows that the maxim of capitalism, on which the globalisation was based, that the free markets would lead to universal growth through free competition has been proved wrong. The levelling that was expected due to the great trickle-down effect has not materialised. In fact the inequalities have sharpened both in the developed and developing countries. They have increased by 2% since the Uruguay Round in developing countries. The world is witnessing a new phenomenon called "jobless growth". In 2001-2002 the monthly per capita consumption expenditure in rural areas of India rose a mere 0.7% over that in 2000-2001, while consumer price index for agricultural labourers, a measure of their cost of living, went up 2.23% pushing more people below the poverty line. Poverty means powerlessness, voicelessness, vulnerability, disease, fear.

Gap is Widening Everywhere

Even in the world's most powerful economy, the bottom fifth of US householders receive only 4% of the national income while top fifth receive about half of it. 82% of the expanding export trade is enjoyed by the top fifth quintile of world wealth. Bottom fifth enjoys only 1% of its expanding export trade. One million poor have been added in US only last year.

Disparities are a Time Bomb

Large parts of the world are being increasingly disenfranchised. It is purposeless waste to have 40% of world population in abject poverty with unused capacity in 20% of it. Test of the progress is not whether we add more to the abundance of those who already have too much, it is whether we provide enough to those who have little. It is the disparity that drives people to desperation. People can live in poverty but cannot stand injustice. These disparities are a time bomb waiting to explode and pose the greatest threat to the security of business. This is specially true in India where 54% of the population is under 25. Most of the unemployed are under 30. The business should have vested interest in thinking of revolutionary ways to remove the widening gap. It was John F. Kennedy who said in his inaugural address back in 1961: "If we do not make a peaceful revolution possible we will only make a violent revolution inevitable".

Outmoded Business Models

Globalisation is not necessarily the cause of these disparities. These are largely due to an outmoded business models, short term approach and ill-advised subsidies. The business is starved of innovation and enterprise and is based largely on a box ticking approach. There is an urgent need, therefore, for a fundamental rethinking of our business paradigms, and overhaul of its structure and reward system to align it with the requirements of knowledge economy.

Spiralling Aspirations - The Age of Individual

While the process of globalisation has been debilitating for the poor, their aspirations have risen exponentially with the onset of knowledge economy. We are today living in an age of the individual. Knowledge economy has empowered individuals and democratised institutions. The internet has made people highly conscious of their rights. If corporates do not improve things on their own, people will take the law into their own hands as they did recently in Nagpur, where groups of women killed two criminals in broad day light. Awesome events of 9/11 have demonstrated the vulnerability of business. Gruelling poverty may not be the breeding ground for fundamentalists and ideologues such as Osama Bin Laden, but it certainly provides them a lush recruiting ground for promoting terror and mayhem. Business, therefore, has a choice: either look after the local communities or be forced to do so and risk losing all you have.

Change in Business Values

Last few decades have seen a gradual migration of values. There are many factors responsible for it. Dawn of the millennium brought about a convergence between various forces of change that led to a realisation that we are living in a world which is becoming increasingly interdependent. We must therefore act more responsibly to one another and towards the planet. The events of 9/11 further reinforced the new thinking. The other factor influencing the new thinking has been the demographics. A third of world population today consists of teenagers. It is these 2 billion teenagers who are largely driving the world economy today. Their social and economic values are vastly different from the older generation. The new generation looks for greater ethical responsibility, transparency, environmental action and social responsibility from the business. It was this generation which was responsible for the exponential growth of companies like Body Shop when they pitched their marketing on "we do not test our products on animals" back in the early nineties. This generation does not share a fanatical obsession to economic success. They expect the corporation to take care of people and planet along side the pursuit of profit. A significant proportion of young management graduates have opted for NGOs as their first job. Others have accepted lower salaries with corporations known for protection of human rights, environment or social action.

CSR - A Competitive Differentiator

A survey conducted at the dawn of the millennium showed that 60% of those who responded would punish companies which are environmentally or socially irresponsible. On the other hand 54% felt they would prefer companies with a record of good corporate citizenship as opposed to 40% who preferred quality and 34% who opted for good management. This showed that we have marched into an era where consumers will increasingly make purchases on the basis of firms' role in society, how it treats employees, local neighbourhoods and other stakeholders. Social good has become a competitive differentiator. CSR is essentially a company's approach to managing stakeholder issues such as customer - supplier relationship, work force diversity, human rights, work life balance as well as its efficient management of environment issues.

Corporations are Moving from Strength to Strength

Globalisation has made corporations much stronger. Out of 100 biggest economies in the world 51 are transnational corporations. Businesses have become so powerful that they are circumventing democratically elected governments. Mobility of capital has further loosened the hold of national governments on business. With corporations becoming increasingly footloose the government's tax base is shrinking, forcing them to collect disproportionately higher taxes from salaried classes. No wonder there is a huge public outcry about companies being made responsible for their social and environmental obligations. Such is the pressure of civil society that more often than not market capitalisation is determined not by the profits announced by the company but the public perception of how they discharge their social and environmental obligations.

Positive Correlation Between CSR Performance and Bottom Line Results

That there is a strong evidence of positive correlation between the CSR performance and financial performance has been proved by some 95 empirical studies during the last 32 years using 70 different measures. But results cannot be tantalising unless companies give up posturing and start implementing the nitty gritty of CSR. CSR effort can be a win-win situation for the company as well as for the poor and disadvantaged provided it is executed with all sincerity.

CSR being used as a PR Tool

Corporations are becoming increasingly aware of the PR value of CSR. Companies have realised that its reputation is the most valuable intangible asset. No wonder, therefore, most claim to be votaries of CSR. There is a current debate whether this is driven by altruism opportunism. Christian Aid, a UK based charity, in their latest report "CSR - Behind the Mask: The real face of Corporate Social Responsibility has castigated companies for using CSR as a shield behind which to campaign against environmental and human rights regulations. Citing Shell's example, the report says that CSR in some cases has been counter productive and harmed relations between the business and local communities. Despite Shell's claim about and not come clean for years. "honesty, integrity and respect for people" it cheated investors by overstating reserves. The report says that CSR is being used as a public relations tool and it is no coincidence that companies in oil, mining and tobacco are its biggest public champions. That most CSR initiatives of the companies are designed to improve their public profiles, is evidence by the example of Philip Morris, a US tobacco company, which spent $75 million dollars on charitable causes but $100 million dollars to launch a corporate image campaign to publicise the $75 million dollar spend.

Philanthropy is not CSR

No one expects companies to simply donate money for CSR action. In fact CSR is far removed from simply giving away as charity. Philanthropy is not CSR. CSR has to be an integral part of the business model. The real benefit of CSR emerges only if it flows from the strategic intent; when the board and management both realise that CSR is a way to make the business more sustainable, assuring continual long term growth. CSR is part of continual improvement which says - everyday in every way I am getting better and better. CSR is an inside out job and not for those who simply want to act the part.

Poor are the Planet's Greatest Business Opportunity

The pursuit of business today is limited to a small proportion of the total field of options. There is a lethargy of innovation. There is a whole new market of untapped customers and unarticulated demand waiting to be commercialised. This market consists of 4 billion poor the world. In an article published in HBR titled "Serving the World's Poor Profitably" C K Prahalad and Alan Hammond have given an example of the huge premium being paid by India's poor for water, food and fuel in a shanty town called Dharavi inhabited by over one million people in Mumbai. Nobody has worked on the inclusion of these poor in the market place. This will have a transformational effect on the whole business landscape. It will not only radically improve the lot of the poor but also make a hell of a lot of money for the business. A conservative estimate of the value of the market offered by the poor in 18 countries including India, China, Brazil, South Africa comes to $1.7 trillion, roughly equivalent to the annual gross domestic product of Germany. Dr Hammond who is the Vice President of the Washington based World Resource Institute says "Business has all but turned a blind eye to the poor because of the assumption they have no money. Instead, global business continues to make the mistake of going after the "upscale" consumer even though there are fewer of them in developing countries." This hypothesis has most radical implications. The governments can stop treating the poor as begging bowls. The civil society can stop viewing them as objects of charity. The poor at the bottom of the pyramid represent the largest untapped consumer market on this planet. They can transform the bottomlines of many a fading corporation and save them from bankruptcy while making this world a less dangerous place. No need for the government to dole out Rs.30,000 crores of public money every year in the name of poverty alleviation programmes. This money can be well spent on infrastructure - roads, electricity, water and sanitation.

The Multiplier Effect

The collateral social and economic benefits of extending the market economy to poor can be huge. The multiplier effect of including 4 billion poor in the world economy will be of galactic proportions. Here we are not simply talking of the $ 1.7 billion existing economy. This market will multiply manifold once the poor are provided with the infrastructure and communication to integrate them with the rest of the economy. This has the potential of not only lifting the world economy from its current depressed state but raising the world's gross domestic product several times.

Creating Wealth from Wastelands

The concept has been given practical dimension by ITC in what they call their Social and Farm Forestry Project. ITC has effectively leveraged its wood fibre need to provide income generation for the economically backward wasteland owners of Andhra Pradesh. They brought equipment to turn the wastelands into productive farms and helped the local poor with planting trees intercropping with seasonal vegetables. In a single year in 2002, ITC's afforestation programme has resulted in the planting of 20 million saplings. ITC claims, they have planted 66 million saplings generating employment opportunities for 2,00,000 people. The marriage of ITC's technical know-how with the local poor has enabled yields of up to Rs. 75,000(US$ 1666) per acre per year from former wastelands, thus enabling both the company and the farmer make money in a virtuous cycle of sustainable development.

Routing Nations' Prosperity through Poor

Business can fundamentally alter the rural landscape and stimulate commerce and development by bridging infrastructure gaps in rural areas, linking the informal economy to established markets and providing distribution channels and transaction platform. Use of voice mail and voice recognition software can help bridge the literacy gap. e Choupal experiment of ITC provides the farmer direct access to uptodate market-information and help him/her eliminate intermediaries and reduce transaction cost as well as corruption. It improves the decision making ability of the farmers and enables them to secure better quality, productivity and pricing.

Social and Environmental Accounting

The primary reason for both our corporate and social ills lies in our accounting system. Capitalism has admittedly won the battle against communism. But we need to understand the true nature of capitalism based as it is on the market's ability to determine correct price levels. Knowledge economy has upset our equations and changed the definition and scope of capitalism. Firstly it has focused on the value of non-financial measures. Secondly this has established new rules of exchange. Exchange of knowledge has no losers. Both sides sharing knowledge win. We do not realize that corporates can create value by various non-financial measures. Enormous value can be created by enhancing human capital, environmental, capital and social capital. We are captives of a strange economy. I can walk out of this room, take a flight to any destination I want, hire a room in the best hotel, stay for weeks, may be even months - all this without a rupee in my pocket. But if all the air is sucked out of this room I cannot survive for more than a few minutes. Yet, while we have a price tag for all the goodies that I can live without, the things that are most crucial for my survival are free. Market economy is meaningless if it can not count the non-financial goodies that are far more important to our happiness such as our emotions, love, trust, inspiration, joyfulness.

Diversity - A Value Enhancer

Global corporations today are facing enormous geopolitical challenges. As the businesses expand and their operations extend beyond their borders they have to transcend their parochial mentalities. What sets them apart is that their constituency is global which enables them to capitalise on the inherent advantages of knowledge economy and constructively engaging with diverse stakeholders. Diversity is a value enhancer in the knowledge economy. Knowledge when shared benefits both sides. The degree of benefit is determined by the diversity between the parties. Greater the diversity, more is the gain. This realisation can have a monumental impact on our geopolitical landscape. Societies divided today between classes, races, religions and regions can unite and reap the huge benefits from working together. This will signal the death of clannish and caste politics which has brought havoc specially in India. As people realise that the value comes not from homogeneity but dissimilarity, the hatred based on religion and race will disappear.

Obsessive Consumerism

We are living in exciting times. Never before in human history the gap between what can be imagined and what can be achieved has been smaller. Technology has given us the power to do what we want. The question is Do we have the will to do it? Our will has been corroded by the omnipresent greed and our obsessive adulation and addiction to consumerism. This is the major cause of a lot of our ills the reason for widening disparities, distrust, waste, pollution, environmental damage, obesity and heart disease. We need to be ashamed of our obsession to consumerism. The true measure of a person's riches lies not in the things he or she can buy but the things he or she can afford not to buy. Do we not feel guilty that 63% of India's children go to bed hungry? They have no water supply, no concrete roof, no toilets-things that we take for granted. We must ponder why greed has become our sole driver. That goes even for our NGOs. There is a huge funding in the name of CSR and poverty alleviation programmes. Studies indicate that barely 18% of it reaches the targeted recipients. We need to think how we would like to be remembered by the history. Think of Alfred Nobel. Alfred Nobel, the founder of Nobel Prize had the very unique experience of reading his own obituary with his morning coffee. It was all about his involvement with dynamite. Noble was devastated that he would be remembered only for destruction. The experience changed his life. So he devised a Peace Prize.

Making a Difference

CSR essentially means redeeming the debt that the business owes to society. We must ask ourselves how best this debt can be repaid? Remember what Einstein said: "only a life lived in the service of others is worth living" We must ask ourselves - Why are we here? What is the purpose of our journey from womb to tomb? The moment you realise you have no other purpose than to realise your innate potential you will think of doing something that will make a difference. Indeed the whole purpose of business is to make a difference to the society. In the words of Charles Handy, "the principal purpose of a company is not to make profit. Full stop. It is to make profit to do things better and more abundantly." Profit is like breathing. You can not live without breathing but it is not the purpose of living. As Andrew Carnegie, the great American industrialist philanthropist said, "it is great to make money but it is a disgrace to die rich". Changing our motivation from greed to taking pride in making a difference will make businesses sustainable and help us to give up posturing and get real with CSR. Americans have long been proud of the decade when slavery was abolished. Let future generations be proud that it was our decade that abolished poverty and removed inequalities. The urgency is not because social good is the ultimate human creed but that the alternative is anarchy where terror and violence will succeed.

Author : Dr Madhav Mehra

Dr Madhav Mehra is the President of World Council for Corporate Governance