Sudhir Venkatesh and the rise of the “other” BoP

By | March 29, 2009
Photo credit: Jim Wilson/The New York Times

Even as we observe and study those who live on irregular and unpredictable incomes in the lower income strata of the developing world, articles in the media this week catch our attention to inform us that these challenges are not simply for the 'poor' but in fact, being faced by people in the richest parts of the world as well. This New York Times article "Cities deal with a surge in shanty towns" show the scenes we're far more accustomed to seeing in urban India or Africa are now visible in Fresno, California. Here's a context setting snippet from this 26th March 2009 article,

As the operations manager of an outreach center for the homeless here, Paul Stack is used to seeing people down on their luck. What he had never seen before was people living in tents and lean-tos on the railroad lot across from the center.

“They just popped up about 18 months ago,” Mr. Stack said. “One day it was empty. The next day, there were people living there.”

Like a dozen or so other cities across the nation, Fresno is dealing with an unhappy déjà vu: the arrival of modern-day Hoovervilles, illegal encampments of homeless people that are reminiscent, on a far smaller scale, of Depression-era shantytowns. At his news conference on Tuesday night, President Obama was asked directly about the tent cities and responded by saying that it was “not acceptable for children and families to be without a roof over their heads in a country as wealthy as ours.”

As we've often discussed, a great majority of the work in the area of social and economic development, social entreprenuership and "design for social impact" are usually among the far more 'glamourous' poor in teeming India or crisis ridden Africa. Yet one man continues his ground breaking work in understanding the informal economy (hidden or underground as the case may be) in the urban 'slums' of the world's richest nation. And his insights are becoming increasing visible in the media as the challenges to deal with these same issues spreads across the world.

Sudhir Venkatesh, a Professor at Columbia University, has just been interviewed by Forbes magazine on the 25th March 2009, and one snippet stands out about the impact and influence of the interstitial space between the formal and informal, as we'd discussed earlier in this blog. From the article titled "The Other Chicago School",

The underground economy includes a vast array of people providing services that are off the books but otherwise legal. Venkatesh enumerates those having a harder time in the face of the recession: office cleaners, squeegee men, informal security guards, "canners" who scavenge for recyclables (there's less consumption now, so less to recycle) and nannies whose employers have been laid off. And as business contracts, underground workers face certain problems unique to their status. They have no unemployment insurance or other benefits, and, with little protection from law enforcement, they tend to resolve disputes by physical means.

Venkatesh prefers to leave detailed prescriptions to policymakers but nevertheless ventures a few. Microcredit loans, as well as education on risk management and planning, could help shift some black market entrepreneurial zeal above ground. He heartily approves of the proposal by Barack Obama–a fellow pickup basketball player at the University of Chicago when Venkatesh studied there–to expand the Earned Income Tax Credit to give a bigger break to low-income parents. Sales taxes also hit the poor hard, he says; one way to help would be to let them use prepaid cards to buy goods tax free.

Venkatesh is struck by how much the black market resembles the wider society in which it is enmeshed. In the same Parisian banlieues that erupted in riots in 2005, he observed an "almost aristocratic," highly centralized criminal operation. In the ghettos of Chicago, by contrast, he observed underground workers convene an ad hoc court to solve a dispute. His dismisses the "culture of poverty" theory, which suggests that poor blacks in America don't work because they don't value employment. "People in America want to work," he says. They do so ever so industriously, even when they're breaking the law.

This culture of entreprenuership has been observed among the low income demographic across the world, a recent post "Entreprenuership for survival at the Base of the Pyramid" states,

For those of us living in developed countries, the idea of
entrepreneurship is very romantic and idealistic. It's often thought of
in the vein of "Making your dreams come true!" and "You can change the
world!"  I would almost go so far as to say that entrepreneurship as we
know it in the developed world is a luxury. (Not that this is bad or
anything.  This is just the form that entrepreneurship takes in very
rich and stable countries.) 

Not so in the developing world.  The motivation for entrepreneurship in the developing world is often for survival, not business opportunity.  An interesting point made in the Global Entrepreneurship Monitor in 2006
was that "early-stage entrepreneurial activity is generally higher in
those countries with lower levels of GDP." Why is this? The report
further elaborates that many in the developing world "are pushed into
entrepreneurship because all other options for work are either absent
or unsatisfactory (necessity entrepreneurs)."

In this context, there seems to be an indication that Venkatesh's work provides excellent rationale for the design and development of policies or processes that enable innovation or entreprenuership among the urban poor in the developed world as well, as a necessity for survival not simply a "luxury" for the Bay Area denizens. From a 2007 NPR interview "Urban poor cope with help from the informal economy",

The book just does an outstanding job of providing information on the way people have to make ends meet and how people survive," Wilson said. "And the importance of using different strategies."

Off the Books portrays a neighborhood where economic need blurs the lines between legitimate business and criminals. A beauty parlor rents out its space to drug dealers to run dance parties. A pastor lends money to help start a gypsy cab service.

It's also a world where business owners cooperate with one another to a surprising degree. They lend one another money and workers, and swap information about money-making opportunities. Venkatesh talks about a pastor he met who ran a school janitorial service. He was given the chance to take a contract in another neighborhood — one that would have brought in a lot more money.

"But he won't do it because it's the ghetto that enables him to survive, and he feels that if he goes out to a neighborhood where he doesn't know anyone, he's not going to have friends, he's not going to have friends who support him," Venkatesh said. "I mean, it's a very peculiar sort of thing to watch."

Venkatesh says that is one of the big downsides to the underground economy. People who work off the books for long periods can end up afraid to leave that world and isolated from the broader economy — which limits how much money they can make. He says that's an issue that society will have to address if it ever wants to bring real growth to the inner city.

In summary, two key points come to mind after evaluating the information gathered here:

One: That social networks (in the real world) are the key to survival – trust, community as insurance and credit, all the elements of close knit social behaviour observed at the BoP in the developing world are echoed in the nuances of Venkatesh's observations, underlining the critical importance of these values.

and crucially, imho,

Two: That all the learnings and development work being done for the BoP elsewhere now really require the realistic evaluation of their portability back to the developed, where the system are already in place, unlike in the emerging markets, as some of the snippets above demonstrate, and work against the needs of the earners in the informal economy.

Interestingly, taking a leaf from CK Prahalad's recent observations in BusinessWeek about dominant logic and the cross pollination of innovations from the emerging markets to the developed world, what are the lessons from the decades long focus on improving the plight of the poor in far away places that can provide insights to the design and development of solutions and systems for the 'emerging' BoP right here at home?

One thought on “Sudhir Venkatesh and the rise of the “other” BoP

  1. Joe Mellin

    Hi Niti,
    My name is Joe and I have sent you a few emails last summer. I am just finishing up my masters project in focusing on Entrepreneurial Systems, in the design program at Stanford.
    I just wanted to send you an response regarding your blog post “Sudhir Venkatesh and the rise of the ‘other’ BoP.”
    I want to preface this by saying that I had planned to start a career in doing development / wealth creation based work for the BoP with the idea that I could have the largest impact and also by doing so, accrue skills that could be of use if the developed world ever was in need.
    Over the past months, and seeing the tent cities arise I have realized that that time has come sooner than I had expected and I have decided to start a for profit social venture to create jobs for the informal labor force, mostly day laborers, by connecting them with home owners.
    In response to your question: what are the lessons from the decades long focus on improving the plight of the poor in far away places that can provide insights to the design and development of solutions and systems for the ’emerging’ BoP right here at home? – I wanted to outline the learning I have gained from my past experiences working with the BoP that are informing my current venture-
    1) The Poor Make Good Decisions
    From my experience working in a variety of organizations servicing the BoP that the way the organization can best serve the BoP is to decide what the individuals in the BoP need and either give it to them or work to make it cheaper. From watching this work, I have come to believe that this can be reduce the effectivity of the organization because they get attached (either by donors or public perception) to the Solution that they are providing and therefor often work to on suboptimal methods of improving the lives of individuals in the BoP.
    From this learning I believe that if a venture wants to focus on the improving the lives of individuals in the BoP, it should focus on poverty itself and trust that the individuals will make the decisions best for them to alleviate the long term symptoms of poverty (health care / education) as soon as they are financially able to.
    2) To Be Effective, Be Inclusive
    In order to be effective in a part of society or a community, it is important to understand the current infrastructure and community network. This is less focused on the BoP but more on designing with a community which you are not apart of. The wheelchair manufacture I work for in the Philippines trained up 10 physical therapist to seat users and 1 year later all but one had immigrated to the U.S. and had used the new skill on their visa application. So if the manufacture / donor had understood the dynamic of social mobility in the philippines it could have structured its seating model differently so that it could have seated more users.
    So in my venture, instead of looking to compete with social norms, I look to work with the norms and enable them to be more effective. With day laborers this means understanding the system of Day Worker centers as well as the micro organizations of “bosses” facilitating the hiring of other laborers.
    3) That Joy And Honor Are Not Class Based
    This was only shown to me as being non-obvious by the questions around Slumdog Millionaire, about how could someone that is so poor be happy? One of the main learnings I gained from working both for nonprofits and for-profits was witnessing the difference in a individual between when they are given something and when they purchase a something.
    I found that when someone was given something there was an excitement and happiness but also a distrust and wondering of how else could one take advantage of the situation. In this situation there are two levels, the organization and below them the individual. While with purchasing and the exchange of value, the entities (organization & customer) are equals in a relationship, this give the individual the power to give feedback but also that they are valued. While this is not as focused on joy, I believe that his transactions of value are building blocks of honor.
    From this I am designing the venture to create a service that the individuals decide is of value and that they pay for it, as it will make them more money then it costs them.
    Anyway, thank you for all your hard work on great posts such as this one.


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