Stuart Hart, founder of "base of the pyramid" economics, talks about terrorism, poverty, and the next big corporations
As one of the founding fathers of the "base of the pyramid" economic theory, Stuart Hart plays a crucial role in reshaping the way companies view the 4 billion people who live in poverty. The Cornell B-school professor is the founder and chair of the school's Center for Sustainable Global Enterprise and an authority on the implications of sustainable development and environmentalism for business strategy. His 2005 book Capitalism at the Crossroads is required reading for many students taking classes on the base of the pyramid theory, along with C.K. Prahalad's 2004 book The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.
Since Hart's book was published, the subjects he touched upon in the first edition of the book—sustainability, climate change, and environmentalism, to name a few—have become some of the hottest topics of the day. With so many new developments in this area, Hart recently put out a second edition of the book, which hit store shelves in late July. In this new edition he expands upon the connection between terrorism and poverty, climate change, and new developments in sustainable enterprise. With its streamlined subtitle, an introduction by former Vice-President Al Gore, and a number of additional case studies, Hart is hoping that his book will have new relevance for business school students and more general readers.
BusinessWeek reporter Alison Damast recently spoke to Hart about the new book. The following is an edited transcript of their conversation:
Why did you ask Al Gore to write the introduction to the second edition of your book?
Al Gore's star has really risen since the first edition came out in 2005. If you look at it going back maybe five years, he looks like a failed politician. That is clearly no longer the case, and he never really was. His track record around environmental matters and climate changes goes back 20 to 30 years.
But over the last two-and-a-half years, with the film An Inconvenient Truth and these issues exploding on the scene, he's become prophetic on these topics. His level of visibility and his impact has risen dramatically over that period of time. The combination of his championing [combating] climate change, along with his new company, Generation Investment Management, made him seem like the perfect person to write the introduction. I've also tried to incorporate more content in this second edition around climate change.
I noticed you changed the subtitle of the book from The Unlimited Business Opportunities in Solving the World's Most Difficult Problems to the more succinct Aligning Business, Planet and Humanity. Can you explain why you decided to do that?
It just seemed like the time was right to change it. I think the first subtitle was quite a mouthful to begin with because it was descriptive and very utilitarian, couched in business terms. With the first edition of the book, I tried to keep any reference to sustainability off the cover. I thought at the time it might prevent some people from picking up the book. Over the last two or three years, a lot has happened to suggest these issues have changed. I thought the time was right to change the subtitle to something that was a little more aspirational.
How does terrorism play into the theories you are espousing in this book?
The perspective I try to develop in the book is that terrorist actions are often embedded in extremist movements. It's not just monetary poverty. It's a loss of dignity, a sense of humiliation and alienation and a feeling you have no options. So certainly these extremist movements can't exist without the tacit support of a large number of people. From my perspective, the whole idea I try to develop in the book is the importance of collaborating with those in the base of the pyramid, the other two-thirds of humanity. We need to create alternative pathways for them and a future so that people can see a way out.
Business school students are becoming more and more interested in base of the pyramid theory. Schools are responding by offering more courses on this subject. What are the long-term implications of this?
I certainly hope that the outcome is that there is greater interest, demand, and initiative for undertaking this action in companies. We need a supply of people who might actually have a chance of being effective. This is not something where you can just take a typical MBA and shove him into this role. It just doesn't work that way. It takes a certain attitude, a sense of purpose and a set of skills to actually go out and do this work. Our hope is that base of the pyramid classes at B-schools will help us find people with the inclination and passion for this type of work. We want to give them the tools and skills that can make them effective.
In the book, you talk about how the perspective of the poor has been lost in the rush to capture the fortune of the 4 billion poor at the base of the economic pyramid. Why has this happened and what can be done to prevent that?
I think that this whole notion of the base of the pyramid has really taken off, which is very good. But whenever that happens, many companies come forward and essentially attach their own spin to the idea. The natural tendency for companies is to take their existing processes and routines and apply them to this new territory. When you do that, essentially what happens is you end up taking the product, technology, and business model you've already got and adapting them somewhat. But the danger is that it can become the latest form of corporate imperialism.
You and your colleagues have written guidelines—known as the base of the pyramid protocol— that you hope companies will use when they try to reach out to this market. Can these guidelines help mitigate this potential 'corporate imperialism' you talk about?
The protocol we wrote represents a pretty good attempt at developing a whole new business approach to addressing this problem of potential imperialism and perceived exploitation of the poor. It's a problem if we are presuming, as Western capitalists, that we know what the problems are of these people who live in rural areas, urban slums, and shantytowns.
You can't just foist products on poor people without really spending any time in these communities or getting to know them or developing any sort of empathic relationship. It's a rather arrogant attitude. The vast majority of people who work for large corporations—any one, not just American or European—have never been in a slum or rural area. We need to show a little humility and admit that we don't always know what is really going on in these areas. I don't believe any of us who wrote the base of the pyramid protocol believe that you must follow it to the letter, but we do believe the spirit behind it is important.
Who do you think will be the true innovators in this field in the next decade?
I believe we are in the midst of the next "great transformation," to use a term coined by [political economist] Karl Polanyi. We're witnessing the birth of the kind of corporation that has a chance of succeeding and growing in the 21st century. Those that figure it out and are able to engage in that transformation will, I think, be the dominant corporations of the 21st century. At this point, it's too early to tell who it's going to be.
But I don't think it's likely that it will be a well-known brand company from the U.S., Europe, or Japan. These companies will be significantly marginalized over the next 10 or 20 years because they will not have been successful at this transformation. Companies in developing countries are in a prime position to really lead. It's no coincidence that by far the biggest and most exciting commercial markets in renewable energy technology are found now in places like India and China, not here. They are best positioned for this and are beginning to awaken to the challenge and opportunity that is in their own backyard.