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Capitalism at the crossroads: The unlimited business opportunities in solving the world’s most difficult problems

by Stuart L Hart, Wharton School Publishing (Pearson), 2005

(Reviewed by Edgar Wille in April 2006)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

• Introduction
• The impact and potential of globalisation
• Beyond greening
• Alternative solutions
• The three economies
• Opportunities in all three economies
• Creative destruction
• Examples of new directions
• The Grameen Bank and other stories
• How can MNCs reach the BOP?
• Redefining development in poorer countries
• The implications of redefined development
• A revolution in thought and action
• Closing challenge

Introduction

This book can shock in spite of its unsensational tone. The stark fact emerges that if we solve the problem of world poverty and raise four billion of our fellow humans up to even half the Western standard, their demands on world resources would then bring the world’s ability to sustain the human race to near collapse. Thus Stuart Hart combines ways of solving environmental issues with proposals for taking practical action on poverty in the developing world. He brings the two issues together and offers a common solution, spearheaded by businesses in a way which enables them to make profit, while transforming life for two thirds of the world’s population.

But it is a major challenge and requires a new paradigm to benefit from such a vast customer base, as yet largely untapped by Western corporations. These corporations use resources and labour from the "developing world" in their production activity, but tend to envisage only the elite as customers and, even then, mainly for Western type goods and services.

It is generally recognised, in theory at least, that environmental factors, such as over exploitation of the world’s resources, pollution, and climate change could in due course threaten the survival of the human race. Separately, again in theory, it is recognised that the fact that two thirds of our fellow humans live in dire poverty borders is unacceptable.

This book marries concern about the environmental threats with a proposal for a profitable expression of capitalism which could, in time, overcome the poverty in what we call the developing world, of which we see harrowing pictures on our TV screens. Yet this is not a book by an extreme activist. Neither is it a fantasy by an idealist who can’t face up to practical issues.

The reasonable nature of the book is suggested by the fact that the foreword is written by a practising business man, facing these very problems in a constructive way – Dr H Fisk Johnson, CEO of the well known company, S C Johnson and Son. He writes: "Improving the lives of workers in one country, while degrading the environment in another, is an unacceptable demonstration of civic responsibility. Short term quarterly profits cannot trump long-term sustainability."

The author of the book, Stuart L Hart, is SC Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell’s Johnson Graduate School of Management. He has worked closely with Professor CK Prahalad of the University of Michigan Business School, whose book on The Fortune at the Bottom of the Pyramid is also summarised on the Ashridge VLRC.

Maybe we become wearied by the frequent use of the word "sustainability", but these two books, and a number of other books and journal articles, suggest ways of dealing with our global problems that we ought to take seriously and develop further. The Bruntland Commission defined sustainable development as that which "meets the needs of the present without compromising the ability of future generations to meet their own needs."

With this in mind, Dr Johnson’s foreword summarises Stuart Hart’s book succinctly:

The author asks us to involve the full range of stakeholders in crafting solutions to the issues of sustainability. He demands that we embrace a new business paradigm built not on incremental change, but on creative destruction and reinvention. He challenges us to base our policies and businesses on the unassailable truth that shareholder value can be created while solving social and environmental problems.

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The impact and potential of globalisation

Hart does not deny that there has been much human progress as a result of the development of information and communication technologies:

Life expectancy and literacy are on the rise throughout the world…. The new information based economy has greatly increased transparency, fostered local self-help and facilitated the spread of democracy. Technological innovation has also led to dramatic reductions in the material and energy intensity of the economy.

Yet he shows how the ability of the advanced economies to go on consuming more and more goods and services shows signs of moving toward its limit. There is a significant question about where the growth will come from in the future. Economic globalisation, privatisation and free trade over recent years have not enabled the majority of nations and people in the world to grow richer. Rather the poor get poorer as the rich get richer and the natural systems which support growth – forest, fisheries, soils, eco-systems – have been disrupted and have declined. New diseases have also proliferated, such as SARS, Ebola and AIDS.

The author does not support the protests of the anti-globalisation groups, though one of his major thrusts is to formulate a new direction for globalisation, in which it will listen to the voice of the four billion poor people and rethink its policies. Businesses in the relatively prosperous West cannot ignore this majority in their plans. Their own self interest is involved. They will be ignoring what could be a significant part of their future customer base and failing to foresee the harm to their activities if unrest and militancy become even more widespread from the under-served peoples. This particularly applies to the 60,000 multinational corporations (MNCs) in the world, (defining an MNC as any corporation operating in more than one country).

The ten largest MNCs have annual sales of more than the GNPs of the 100 poorest countries. Hart wants to see this enormous power exercised for the good of the whole world and proposes ways by which such businesses may do so, with profit to themselves. This will involve a shift from a perspective which concentrates on developing "a worldwide monoculture, based on the values of Western consumerism" and facing up to the results of the spread to the rest of the world, of the energy and material intensive industries associated with global capitalism. Where the MNC’s do get involved in Foreign Development Investment (FDI) in the developing countries, it is largely their wealthy elites who benefit from goods and services based on the Western model. Little attention is paid to serving the needs of those at "the base of the economic pyramid" (BOP).

MNCs employ 1 percent of the world’s labour force; yet, according to World Bank figures, one third of the world’s willing-to-work population is unemployed or underemployed. The wealth created by the MNCs reaches only the less than1 percent of the world’s population who are shareholders. Hart recognises that the MNCs are not solely responsible for the situation; the World Bank and the IMF follow traditional Western criteria in their involvement; corrupt and repressive regimes in the poor countries also make a major contribution to the problems. But MNCs are in the front line for being targeted by anti-globalisation protests, sabotage and terrorism.

Stuart Hart closes his prologue with a summary of what he intends to demonstrate:

Sustainable global enterprise thus represents the potential for a new private sector based approach to development that creates profitable businesses that simultaneously raise the quality of life for the world’s poor, respect cultural diversity, and conserve the ecological integrity of the planet for future generations. Making such a societal contribution while simultaneously creating shareholder value will take real imagination and a fresh approach to business strategy. These exciting and uplifting challenges are the focus of the pages that follow.

He considers that business, more than governments or civil society, is uniquely equipped at this moment to lead us toward such a sustainable world. Corporations are the only entities with the technologies, resources, capacity and global reach required. "Properly focused, the profit motive can accelerate, not inhibit, the transformation toward global sustainability, with non profits, governments and multilateral agencies all playing crucial roles as collaborators."

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Beyond greening

Hart proceeds to consider two stages by which some progress has been made and a third necessary one, on which progress is in its early phase.

The first stage over the last thirty years has been the attempt to deal by regulation with the problem of damage to the environment – by command and control. Government decrees have been issued with penalties and punishments for disregarding them and the formation of regulatory bodies, such as the American Environmental Protection Agency (EPA), aimed at forcing companies to mitigate their negative impacts. The regulators and citizen activists increased the pressure with a flurry of litigation. Companies complied when they had to, but were unhappy with the expensiveness of the responsibilities which were being imposed. They believed that they must sacrifice financial performance in order to fulfil these societal obligations.

However unpopular it was, the regulatory approach did create a new perspective. Companies could no longer think in terms of pollution being an inevitable part of the industrial scene. The "take, make and waste" paradigm had to change, but the approach of business was initially merely reactive. The fact that the regulations themselves often prescribed actions without regard to their efficiency or cost effectiveness didn’t help to gain a positive approach.

Nevertheless, the concern of the public grew and there were therefore the incentives of public opinion to do something. The response was to do as little as possible, until it began to become apparent, with the advent of ideas like total quality management and lean management, that there were cost benefits to be gained from reducing waste, by higher standards of manufacture. To prevent pollution was less expensive than cleaning it up afterwards, or getting involved in litigation.

So the second stage evolved in creative approaches to product and process redesign which could prevent much pollution, actually save money, reduce risk and improve the products. Measurement of toxic emissions was developed and laws were passed in Europe making producers responsible for their products even after the end of their useful life, which in turn gave an impetus to recycling and responsible sourcing of raw materials. Social stewardship began to find its way into corporate thinking, at least when financial benefit became apparent. Companies were moving "beyond greening".

These two stages set some strategic thinkers on a search for a related foundation for innovation and growth in future decades, by which they would outperform their competitors and develop new technologies and markets, by moving toward sustainability for the whole world, involving the billions who were not currently thought of as markets for Western style corporations. This emerging third stage beyond greening has a wider purpose and is likely to make obsolete many a company’s present core business. It is a case of disruption with rich rewards if it succeeds. For it to succeed, the developing world has to be seen as a potential partner in the processes which, as well as bringing profit to the corporations, will help to banish poverty.

This third stage involves corporations in thinking along with the local people, learning of their needs and applying advanced technologies to enable the poor countries to become part of the business world, but developing their own adaptations, so that the investing corporations have to become indigenous, rather than imposing alien culture, products, services and working methods. The corporations would have to move out of their centralising "one size fits all" mentality and "think local". They would have to understand "appropriate technology", also called "intermediate technology", where essentially simple devices are cheap and available to a wide clientele. To have a part in this unmet market the businesses have to address real needs and offer new approaches, acceptable to the local people and able to help lift them out of poverty, while making profit for the Corporations by the sheer scale of the large number of customers, offering small margins on a vast customer base.

The sustainability of the Earth and the sustainability of corporations and the capitalist system will thus come together. The challenge will be to develop a sustainable global economy, which the planet can support indefinitely and which can provide for the whole human community. It will require vision, strategy, structure, capability and audacity. How it can, and must, happen is the topic of the rest of the book.

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Alternative solutions

In order to achieve sustainability – an Earth which can carry on functioning into the future – Hart presents three alternatives:

• Drastically reduce the human population
• Radically reduce affluence and its consumption
• Change the technology used to create and produce the goods and services which constitute the world’s wealth.

The first is out of the question. It would require draconian measures of a totally immoral kind, unless new diseases killed off billions. Apart from such plagues, world population is irrevocably set to reach ten billion within the next four or five decades.

The second is not viable. Reduced affluence goes hand in hand with a rising birth rate. Increased education and economic standing in the poor nations is necessary before their rate of population increase levels off, and if the richer nations were in turmoil through affluence reduction measures, the poor nations would be very much left to cope on their own.

The third, however, has practical possibilities. The first two are societal issues, but changing technology is the business of business. The author sums up its possibilities:

If economic activity must increase tenfold over what it is today to support a population nearly double its current size, then technology will have to reduce its impact twenty-fold merely to keep the planet at its current levels of environmental impact. Thus, for those who believe that ecological disaster will somehow be averted, it must also be clear that, over the next decade or so, sustainable development will constitute one of the biggest opportunities in the history of commerce. And innovation will be the name of the game.

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The Three Economies

Stuart Hart continues on this theme by reviewing the three overlapping economies that prevail in the world today: the money economy, the traditional economy and the natural economy.

The money economy is the one familiar to the developed countries and to those less developed countries which are, nevertheless, referred to as emerging economies. Perhaps two billion people are involved in the money economy to a greater or lesser extent, with 800 million in the wealthier countries accounting for 75% of the world’s energy and resource consumption and creating the bulk of the industrial, toxic and consumer waste. The USA consumes more than one quarter of the world’s energy and materials, with only 4% of earth’s population.

The money economy leaves what Hart calls a large ecological footprint, defined as the amount of land and resources needed to meet consumer needs. Pollution has been reduced in the West. But many of the polluting activities have been relocated to the emerging market economies. These emerging markets are reproducing the environmental threats that the wealthy countries have exported to them and they are experiencing the blight of urbanisation with people leaving the rural areas for a wage packet in the money economy, very often living in shanty towns. The World Bank expects that by 2010 there will be more than a billion motor vehicles in the world, with all that means in terms of energy use, greenhouse gas emissions etc.

A significant fact is that, for all the apparent prosperity of the money economy, particularly in the US, there has been a decrease in real incomes during the past two decades, except for the absolutely most wealthy.

The traditional economy reflects the village-based way of life found in the rural parts of most developing countries. Roughly four billion people are involved in it, directly or indirectly – largely Indians, Chinese, Latin Americans and Africans who meet their basic needs directly from nature, and share only sparingly in the money economy. They are also responsible for 90% of world population growth of 100 million people a year. This economy was the habitat of indigenous cultures, which used to live in a self sufficient way, albeit harshly, based on principles of community and frugality. Being linked with the money economy with cash and wage approaches has radically changed the traditional ways. Extractive industries, the introduction of Western industrial culture and infrastructure has often degraded the eco-systems on which they depended. Of course, we should not over-idealise the traditional societies, which had their own drawbacks and high mortality rates and could not escape from natural disasters, such as drought and disease.

However, they had their own culture which the intrusion of the money economy has disrupted, driving many rural areas into greater poverty as they compete for natural resources often made scarcer by the expansion of the money economy. And the large institutions, such as the World Bank, the International Monetary Fund, no doubt sincerely wishing to help, tend to do so from a money economy perspective, applying the mores of the wealthy world. The rural population are in a vicious cycle of resource depletion and poverty as their numbers grow. Wood becomes scarce and is replaced for fuel with health hazardous dung. Clean water becomes ever more difficult to find. As it becomes difficult to live off the land, the exodus to the cities and towns increases, where many will become unemployed and often drift into criminal activities. Others work in the informal economy with all its insecurities. Red tape and corruption keeps such people out of the formal and registered small business world. Many, even in China, are permanent refugees, roaming from city to city, driven from their villages by deforestation, soil erosion, droughts and floods.

A sense of hopelessness grows and is fruitful soil for terrorism and criminality.

Nature’s economy consists of the natural systems and resources which support the money and the traditional economies. Indeed the latter could not exist without the former. Some of the resources provided by nature are finite, such as oil and minerals; others such as fisheries, soils and fisheries are renewable, if caught in time. The greatest danger to sustainable development is that these resources will in some locations go past the point of return. In China, for example, water tables are falling and the combination of land clearance, over-ploughing and overgrazing to meet growing food demand is creating "dust bowl" deserts. This kind of problem is replicated all over the developing world. And the wealthy world has its problems of depleted fishing grounds, grain and meat yields which have been falling since the 1980s, and crops which are no longer responding to increased use of fertilisers and pesticides. And there is the scientific consensus that climate is changing due to carbon emissions.

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Opportunities in all three economies

The various economies are on a collision course with the wealthy developed world, which requires vast quantities of raw materials and commodities sourced from the traditional economies or produced in the emerging markets. Aiming to help emerging markets in developing countries, and to fit in with the needs of the developed world, international agencies, banks and corporations have funded massive infrastructure projects, such as dams, irrigation projects, highways and power stations. These often devastate parts of the natural economy, even though they offer improved access to raw materials. These efforts have been at the top end of the developing world, "working" with governments in the areas involved, with scope for corruption and often causing a glut of raw materials and a fall in commodity prices. This in turn weakens the local currencies and terms of trade; purchasing power falls and debt grows larger. What was intended for their benefit, ends up worsening the situation of developing countries, because it is based on the thinking of the developed industrial world and not on indigenous requirements of the traditional economy.

Hart and his research collaborators nevertheless see significant opportunities for developed business in the problems of all three economies. Its technological superiority can help reduce waste and pollution, replenish depleted resources, and build the skills of the 4 billion poor, and develop new structures which fit with the traditional economy. Seizing such opportunities will require a readiness to think outside the box, no longer viewing the global market as a single monolithic entity, and understanding how globalisation has been to the detriment of the traditional economy, though, re-thought, it need not be. The profit of Western business will come from understanding the real needs of the massive group of potential customers in the less developed world.

Hart gives examples of companies that have begun to reduce their corporate footprint on all three economies. They look for breakthroughs rather than incremental advances, for reducing the material content of their products, for utilising inevitable waste in other processes. Dupont have based a large part of their investment on these principles. A large carpet firm has recycled waste to make new materials. SC Johnson have accessed a waste dump to utilise its output of methane.

Some companies operating in the emerging markets have looked to meet growing demand in ways that don’t deplete the natural systems, or exacerbate the migration to urban areas. In some cases they have leapfrogged over some of the steps that would have been followed in the developed world and have been able to innovate without the incubus of thinking in ways inappropriate to a less developed situation. Biotechnology is seen as having a place, so long as it is not used to prevent the traditional role of saving seed from this year’s harvest for next year’s planting or to add heavy expenditure in an annual re-buying of seed. Pond based fish farming has been developed by one firm with ingenious methods of water recycling and introduction of new breeds.

Companies need to question everything when seeking to bring benefit and make profit within the traditional economy. There needs to be deep listening to understand how the poor and disenfranchised can make good customers, with their real needs met, involving local talent, creating employment opportunities and building capacity in the local communities. But simply transplanting business models from the consumer society will not do. Also the benefits have to be created while preserving the existing strengths of the current business, which will continue to generate shareholder value. This is an area which will need careful research, as shareholders are not likely to be enthused by loss of near term gains in favour of long term gain. Much effort will be needed in communicating with them and the financial analysts about the ultimate cost of not considering the fortune at the base of the pyramid.

Examples are given of companies who have operated in all three economies, growing profits and reducing risk through pollution prevention; enhancing reputation and legitimacy through product stewardship; accelerating innovation and repositioning through clean technology; and looking for the most appropriate markets for the sustainable innovations that are being developed.

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Creative destruction

The first part of the book has laid the groundwork for what follows. Hart traces how the development of business and industry has always been a sequence of periods of incremental development, interrupted and redirected by radical breakthroughs, which have led to revolution and the creative destruction of the status quo. Continuous incremental improvement no longer meets the threats and opportunities of the search for a sustainable world, in which the business world can both contribute benefit and make a profit.

The earlier stages of "greening" were of the continuous improvement genre, but most existing products and processes fail to answer the criterion of "meeting the needs of the present without compromising the ability of future generations" (and less developed societies) "to meet their own needs". The call therefore is for "creative destruction". A major disruptive force is abroad: if we cooperate with it, it could be our salvation. If we cling to the status quo, we are leaving a sad heritage for our children and grandchildren.

The revolution involves companies in transforming themselves in radical ways, completely rearranging the use of their core competences and building on them to acquire new ones, which may make the old ones obsolete. It is easier to move into new clean technologies in unspoilt territory and adapt traditional approaches in an environment where the conventional Western framework does not exist and therefore cannot obstruct the leapfrogging into new products and methods. The technologies of tomorrow are more easily incubated in traditional economies where there is no conservatism in favour of methods and mindsets that companies have operated under for years. They can then often be sent back to the developed world as proven approaches, to help overcome sustainability problems there and become platforms for new growth industries.

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Examples of new directions

Examples of creative destruction and new starts are given, such as a chemical company serving the textile industry which developed new dye products from which any effluent would be such that fish could live in it, as required by new State legislation. From this platform they developed a whole range of products low in toxicity, bio-degradeable and energy efficient. From North Carolina, a German purchaser of the firm was able to leverage this clean textile dye technology throughout its extensive textile operations in Asia. The original company used the sale proceeds to focus on bio-based sustainable chemistry for manufacturing and service industries. The earlier experiences had built up intellectual and physical capital to make possible the leap into new technology.

Another company used liquid carbon dioxide to reduce water based waste streams and replace a large proportion of the organic and halogenated solvents used and released each year. Dupont was able to adopt this method. A chip manufacturer was also able to improve its operations by adopting this technique, reducing costs as well. All these and many other examples show how the shift to exploration, innovation, creative destruction and corporate imagination necessitates a move beyond conventional modes of business analysis, which focus on existing alternatives. The author says we must start with a clean sheet and embrace the logic of whole system thinking, where we can design super-efficient products which cost less to build than the original unimproved versions.

Further examples are given from the car industry and some revolutionary fuel cell work being done by General Motors, building them into the structure of the car. If GM were to unite this technology with their mini-vehicles for the Chinese markets, they could incubate a whole new renewable fuel infrastructure in China. In years to come the various distributed energy processes, such as bio science, nano-technology, new materials, wireless IT, solar energy and fuel cells could replace current resource expensive methods and dramatically reduce the size of the human footprint on the planet. And much of this would best be developed by large companies working in a traditional environment. Uncluttered by pre-emptive concepts in such conditions, new ideas could more easily take root and be exported from such a "laboratory" back to the developed world. For some firms, blind adherence to yesterday’s technologies could spell doom.

Some universities are working in this area in conjunction with business. The University of Carolina’s Kenan-Flagler Business School has established The Base of the Pyramid (BOP) Learning Laboratory. It is a consortium of corporations, NGOs and academics interested in learning how to serve the needs of the poor in a way which is culturally appropriate, environmentally sustainable and profitable. Since the advent of the BOP Learning Lab, the World Resources Institute, the World Business Council for Sustainable Development, and the United Nations Development Fund, have launched major programmes focused on the role of the private sector in alleviating poverty and catalysing sustainable development, not merely serving the wealthy at the top of the economic pyramid.

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The Grameen Bank and other stories

No consideration of connecting traditional economies and local poor communities to some of the benefits of advanced economies, without their serious defects, is complete without reference to the work of Muhammad Yunnis, the founder and managing director of the Grameen Bank in Bangladesh. He is probably the most celebrated pioneer of the micro-credit movement. He organised the lending of small sums to women to enable them to start up as entrepreneurs, meeting the needs of their village communities. The women were linked in groups who helped to keep each other up to the repayment of the loans, as their enterprises made small profits. The plain fact is that very few did default – 1.5% out of 2,500,000 customers. The enterprise was a miracle of trust and persistence.

Hart tells the story of GrameenPhone, which has brought telecommunications to the poor of Bangladesh. It built a nationwide cellular network and loaned money to women who were established as independent entrepreneurs to sell mobile phone services. This gave them a living income to spend on the health and education of their children. The local small farmers were able to pay small fees to find the prices and markets for their products, saving themselves long journeys and a lot of scarce money. It was also eco-friendly in that it was not built on landlines. After five years in 2004, the company had a subscriber base of more than 2 million and provided telephone access to more than 50 million people, including half of the Bangledesh rural population. Even in 2003 the net profits were $74 million on revenueS of $300 million and the phone ladies were making $1000 a year, which put them in the middle class in their country. The service has also expanded to the provision of village internet kiosks which enable farmers to avoid being cheated at auctions and do business in a more professional way.

This example goes to show that the BOP movement does not turn sophisticated Western companies into local village shops. This is the marriage of sophisticated technology and strategy with the simpler needs of less developed communities in a way which lifts up the less sophisticated communities to a more satisfying way of life. It begins to erode the great divide between the rich and the poor in the world – and does it in a way which is environmentally friendly.

Another example is lighting technology employed by one lighting company in conjunction with research from Stanford University. It provides lamps unconnected to the grid, which can transform life in villages and shantytowns. They are based on solar photovoltaics with light emitting diodes. Philips and other companies are also involved in a similar venture in India and South East Asia.

These are but a tip of the iceberg. It should be made clear that the ideas illustrated are different from outsourcing the producing of goods and commodities from wealthy countries to poorer ones to get the benefit of low labour costs. This does little to benefit the BOP countries in the ways most needed and in fact leads to excess capacity and global deflation.

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How can MNCs reach the BOP?

A chapter on reaching the base of the pyramid gives further examples and shows how effective strategies will generate not only corporate growth and profits, but also local jobs, incomes and solutions to social and environmental problems. By creating new potential in poor communities, companies can identify and pursue previously invisible opportunities. To be successful in these new markets, however, companies must adopt new business models with as much enthusiasm as for technological innovation.

The question is also raised as to what it is that MNCs have to bring to the party as compared with more local organisations like Grameen. The answer Hart gives is:

• few local entrepreneurs have the managerial or technological resources to create the needed infrastructure.
• MNCs are well positioned to bring together the range of actors required to reach the BOP, such as NGO’s, entrepreneurs, communities, local governments and even development agencies.
• MNCs, with their unique global knowledge base, have an advantage that is not easily accessible by local entrepreneurs.
• Many of the innovations for the base can be adapted for use in the resource and energy-intensive markets of the developed world.

It is emphasised that the opportunities in the BOP are not simply about basic needs such as food, textiles and housing, but also about financial services, affordable cellular communications and computers. Hart believes that we have to move on from implicitly assuming that the rich in the developing countries will be served by the corporate sector, while governments and NGOs will protect the poor and the environment. He is convinced that this divide must be broken down, linking the entire human community around the concept of sustainable growth and development.

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Redefining development in poorer countries

Part three of the book considers how the various bodies, institutions and governments concerned with development in the less developed world have generally approached the issue from the wrong angle. They have been concerned with modernisation, to bring these countries up to Western standards and mindsets in which the defining factor is simply raising income and GDP per capita. Such a perspective hinders the real work that needs doing with due regard to local cultures; it frustrates the imagination necessary to help build healthy communities, starting from where they are and going with the grain of their mindset, rather than imposing something alien. Globalisation has tended not to hear the voices of the marginalised, speaking in their own accents about what they would regard as the good life. We have imposed our own categories and we work within the constraints of our existing core competencies.

Hart tells briefly the story of Ladakh, a remote tribal area in the Himalayas, whose inhabitants had lived a self contained existence, largely undisturbed, for centuries. In their isolation they grew crops and used water for irrigation on a sustainable basis. Nothing was wasted or thrown away. Crime was virtually non existent and there was a natural sense of mutual responsibility. They worked only four months a year and their life appeared to be suffused with a joie de vivre, according to Helena Norberg-Hodge, who used to spend six months a year there.

Then the Indian Government decided to develop the area, open it up to tourism and build an infrastructure. Health centres and schools were established in even remote villages. All very good we might think. A growing police force followed, with courts and banks and radio and television. Traffic increased, and with it pollution of the clear mountain air. The sudden influx of Western influence developed a sense of inferiority in the local people and a sense of need to get some of the money the tourist spent so freely and share some of the luxury. The old community largely disintegrated. Cash crops superseded efficient subsistence farming. The young men migrated to the cities in search of a waged existence. The extended family retreated; mutual aid gave way to aid from afar. A sense of powerlessness descended and alienation made the area a potential victim of the extremism rampant in Kashmir of which it was a part. The old culture was lost, which with all its limitations was more sustainable for the Ladakhis. This is a powerful warning parable of what happens when poverty is described purely as income poverty. Even though an income component will develop in such societies it is not the defining factor. The standard of living can be quite high where GDP is quite low. Life behind the statistics may be quite different.

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The implications of redefined development

It is the Western organisations that need creative destruction of long held perspectives; for the local villages a more incremental approach is needed. The West has to understand and enter into partnership with indigenous society and its culture. It is not either/or but a sensitive recognition which does not destroy in the effort to build. If these lessons are learned then the chance that opportunities will be optimised will be greater, with benefit to the locals and profits for the companies from the developed world.

In order to do this the companies investing in the poorest communities need to understand, from within, the ways and culture of the local people. To do this would mean that companies would have to send some of their most innovative and imaginative managers into these areas so that they might learn from within and be equipped to develop the best methods which would help and make profit.

A living parable of this is found in the true story of the way in which Muhammad Yunus, founder of the Grameen bank, dealt with the problem of beggars in Bangladesh. He requested every employee of the bank to recruit one beggar to become a client of the bank. They had personally to confront the reality of the poorest of the poor. As at October 2004 they had recruited to the bank 23,000 beggars and enabled them to get out of the humiliating handout livelihood. One limbless beggar moved from his cup in the street to setting up a stall selling bananas, cakes and drinks, installed though a $50 loan from the bank.

Dupont has included a diversity of stakeholders from the poorer countries in their deliberations. The Indian subsidiary of Unilever (Hindustan Lever Limited – HLL) insists that all company employees spend six weeks living in the villages, actively seeking local consumer insights and preferences as they develop new products. Faced with the fact that Levi Jeans were out of the reach of most people, Arvind Mills devised "Ruf and Tuf" "do it yourself" denim packages for one sixth of the price. The opportunities can include some non-essentials that add to the enjoyment of life. Why should developing countries be deprived of these – but it will have to be their way, not one imposed by Western concepts.

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A revolution in thought and action

Such approaches would require a revolution in thought and action in many companies, but the harvest could be rich. And, anyway, as a matter of survival we have to face up to the stark reality that we need decisive action to achieve a sustainable world in terms, of both a peaceful, cooperative society and a renewable natural environment.

Illuminating tables summarise the steps a company has to take to join this vast project of changing the poverty stricken world and making profit at the same time. Managers would need to be involved in research into local needs in these countries, learning how globalisation had so far not worked well for them and what needed to be corrected. They would then work with local stakeholders to identify potential sites where learning could take place, leading to new business models which would generate new sustainable approaches that would facilitate capacity building in local communities. Selected managers would then go out and immerse themselves in suitable locations, to understand the needs and apply the right simple technologies to the situation as part of a co-invention partnership with local people.

This theme of co-invention is stressed in later chapters of the book and examples are given of a Nigerian invention of preventing food spoilage by using two earthenware pots fitted into each other to provide a cooling system which has revolutionised life in a near desert region. A Mexican cement firm developed ways whereby people could construct extra rooms to their poor homes and worked with them to apply the methods. In Kenya a company developed new beehives and technologies for bee keeping which considerably enhanced the viability of bee farming. The Bata shoe company has entered into local partnership with an organisation in Bangledesh to add low cost shoes to the wares traded by Grameen’s entrepreneur ladies, with training to help them include the new lines. In Latin America help from more advanced companies made available knowledge and advice, whereby people gained legal title to the homes they had lived in illegally for years.

Often work in the poor areas involves cooperation with the informal sector which has none of the protection of registration and legal documentation and just tries to get on with things, but often suffers at the hands of unscrupulous local people wielding power, or the depredations of corrupt officials. Companies thus involved, build social rather than legal contracts. That may sound worrying, but nothing is going to be easy.

Nevertheless, Hart believes it essential for companies to develop the skills to make the transition from being alien forces in the world, with strategies which extract natural resources, plunder rural villages and accelerate the rush to the cities, to becoming native to the places in which they operate. It can all sound like an impossible dream to believe that Western companies will devote such effort for what may at first seem like an uncertain return. It is encouraging to know that some like Unilever, Dupont and Philips, among the giants, have made a start. But to save the world economy, a major effort is needed and whether that will be forthcoming in time may strain credulity. So, of course, did the Grameen ventures at first, but now we can remember the story of the 23,000 beggars. Hart implies that we cannot allow it to be regarded as impossible with the future of future generations at stake.

It is a question of meeting unmet needs, which is where business has always found its opportunities, and here is the biggest reservoir of unmet needs in the history of humankind. Business writers speak of the demand for goods and services reaching saturation point, sooner rather than later, and they ask where will the new markets and new customers come from? Stuart Hart, and others of the same perspective, are offering one answer, if companies have the will and the courage to take it.

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Closing challenge

Hart closes his book with a challenge about how the type of sustainability he has been discussing, can come about in the real world of budgets, quarterly earning reports, discounted cash flow analysis and the discipline of the investor community. He answers that leaders in companies will need to avoid top down bias, think as disrupters, "reinvent cost structures, transform the meaning of scale, and align the organisation" and the effort will need to far surpass anything that has been done so far. Entire business processes will have to be rethought, with an emphasis on functionality not just on the product itself. A way will have to be found to ensure that the traditions of organisational structure and formal systems do not kill new ideas as soon as they are born.

Readers who are not in top leadership positions may also be encouraged by his words in this last chapter:

Creating a sustainable global enterprise is not about waiting for the magic bullet to be handed down from senior management. Instead, it is about hundreds or even thousands of people in the organisation deciding to commit to the pursuit of their personal vision and action plans, with global sustainability as the driving force.

No summary is totally neutral, even if only because one is selecting which parts of a book to emphasise, as you can’t cover everything. But it was particularly difficult to summarise this book without being stirred to see the need for action, if the future is not to be blighted for our grandchildren and great grandchildren.

This book summary should be read in tandem with the one by Kevin Barham on CK Prahalad’s book The Fortune at the Bottom of the Pyramid. This has even more detailed case studies than Hart’s book. The two together make a compelling case which we will not easily put out of our minds, particularly if we bear in mind our regular comment that there is no substitute for reading the whole book. The difficulties of implementing the policies proposed may seem insuperable, but so may be the consequences of ignoring them.

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