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Democratizing Commerce: The Challenge for the 21st Century

3/26/2007 --

C.K. Prahalad will deliver the April 3 Distinguished University Professorship lecture—the highest honor for U-M faculty.

ANN ARBOR, Mich.—From world wars to civil rights to the fall of communism, the 20th century was about gaining political freedom. The current century, however, is all about economic freedom, says C.K. Prahalad.

Prahalad, the Paul and Ruth McCracken Distinguished University Professor of Corporate Strategy at the Ross School of Business, believes that economic development with social equity is one of the most significant problems facing mankind this century.

He will address "Democratizing Commerce: The Challenge for the 21st Century" in the Distinguished University Professorship lecture at 4 p.m. April 3 at the Rackham Amphitheater. Distinguished University Professorships are the highest honor accorded faculty members by the University.

"The economic benefits of rapid globalization are asymmetric—a large number of people find that they cannot access these benefits while a small number are able to," Prahalad says. "Over 5 billion people are seeking access to the benefits of globalization both as micro-consumers and micro-producers."

Prahalad argues that we should not shy away from globalization but harness it to the benefit of all.

"In order to do this, we have to rethink the model of governance—the way society provides legitimacy and a mandate to the large corporation in how it conducts its activities," he says. "A new form of governance with checks and balances will evolve that will actively integrate the role of civil society and the global corporation in a new social compact. The emerging markets may provide the testing ground for this new model."

In his ground-breaking 2004 book, "The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits," Prahalad contends that private-sector businesses can help alleviate poverty and, at the same time, make a profit by turning the poor into consumers and developing viable markets for innovative products and services in under-served and long-neglected areas.

"What is needed is a better way to help the poor," he says. "A way that involves motivated participants on both ends and incorporates innovation to achieve sustainable win-win scenarios where the poor are empowered and the companies providing products and services to them make a profit."

Such a way, he says, already exists and has gone well past the idea stage as private enterprises are beginning to successfully build markets at the bottom of the economic pyramid as a way of eradicating poverty.

In analyzing more than 50 years of failed efforts by governments, aid agencies, donor nations and others to solve the problem, Prahalad identifies and counters common misconceptions about the purchasing power, delivery infrastructure and buying habits of the poor that have discouraged companies from entering those lowest markets in the past.

"One dominant assumption is that the poor have no purchasing power and, therefore, do not represent a viable market," says Prahalad, who points out that, collectively, China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa and Thailand are home to about 3 billion people and a Gross Domestic Product (GDP) in dollar purchasing power parity of $12.5 trillion.

"This represents 80 percent of the developing-world population and 90 percent of the developing-world GDP," he says. "The GDP of these nine countries, in terms of purchasing power parity, is larger than the combined GDP of Japan, Germany, France, the United Kingdom and Italy. This is not a market to be ignored.

"These consumers get products and services at an affordable price, but more importantly, they get recognition, respect and fair treatment. Building self-esteem and empowerment is probably the most enduring contribution that the private sector can make."

For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847