Sell it or give it: getting products and services to the world's poor.

Hugh Whalan makes an interesting case about for profit businesses that sell to poor consumers in the developing world.  He argues if a business can be profitable selling a product or service to the poor, that will drive entrants into the market spurring innovation and competition, both good things for consumers.  However, ethical questions arise around what is being sold to the world’s poorest consumers.  Frequently poor customers are exploited because they lack other options, a.k.a. the poverty penalty.  If a business is providing what Whalan terms a “meaningful” product or service to the poor at a reasonable price then the market could have some advantages, but if poor consumers are being sold a product that is unnecessary and perhaps harmful (i.e. Coca-Cola), then perhaps straight charity would provide a better solution.  

Are markets better at meeting wants and charities better at meeting needs?  The fact remains, humans are irrational and consumers are going to buy things they want but not necessarily what they need. Instances of this are everywhere, including the developing world.  Whalan’s example is that Coke bottles can be found in remote areas that lack access to basic healthcare.  Similarly, the Envirofit case study stated that BoP households in India (those living on between $2-7 per day) spent a surprising amount on tobacco and alcohol.  An exact percentage of income spent on alcohol and tobacco was not mentioned but the authors though it significant enough to mention.

So is the solution to let folks buy spend income on what they want and give them what they need? 

Not necessarily. Charity has the best of intentions but doesn’t always have the desired effect because recipients can take it for granted, assigning a lower value to something that’s given.  As we learned, Martin Fisher, co-founder of Kickstart, discovered this when he introduced the Moneymaker and Super MoneyMaker water pumps to subsistence farmers in Africa.  Initially, the pumps were given for free.  But Martin discovered that farmers valued the tools less when they were given the pumps.  It wasn’t until Kickstart began charging a price for the Moneymaker and Super Moneymaker that the product began to see diffusion.

Based on the Kickstart example, Whalan’s argument is strong on two fronts.  First, the idea that market forces are better at attracting resources than charities is not in question.  Entrepreneurs are chasing money, whether those dollars are in the developing world or Silicon Valley.  If more entrepreneurs saw the potential in developing markets, then there would be a flood of resources to solve social problems.  Second, consumers in the developing world, though poor, are extremely discerning and frugal, irrational human behavior not withstanding.  When a poor farmer buys something, he or she sees real value in, he or she intends to use the item.  Profit seeking capitalists and value sensitive poor combine to prove that selling meaningful items in the developing world makes more sense than just giving those same items away to those who need them.