InReview – Issue 43

Capitalism at the Crossroads: The Unlimited Business Opportunities in Solving the World’s Most Difficult Problems by Stuart Hart; Philadelphia, Wharton School Publishing, 2005; 288 pp.

Stuart Hart is S.C. Johnson Chair of Sustainable Global Enterprise at Cornell University’s Graduate School of Management. In Capitalism at the Crossroads, Hart challenges conventional wisdom as proclaimed by the book’s subtitle. His book is a catalyst to overturn some common assumptions. For example:

Assumption: People in poor countries live in subsistence and/or barter economies and have no cash to spend on store-bought products and services. Therefore they do not constitute business opportunities.

Fact: People in poor countries do spend money for essential goods and services, such as telephone calls, electricity, or medicines. But they often pay inflated rates — to moneylenders, to corrupt officials, or other exploiters, because there’s no other game in town.

Hart suggests capitalist enterprises can devise “the other game.” Non-Government-Organizations (NGOs) alone don’t have the resources to make their efforts sustainable. Nor do smaller, nimble for-profits. Hart argues that giant multinational corporations do have the resources, but must overturn their assumptions about how to localize a business and measure its success if they’re to make a difference — and a profit — at the “bottom of the pyramid,” the two-thirds of humanity without basic goods and services. His book illustrates how this can work.

Take electricity, for example. Two billion people have no access to dependable electricity because the developed-world model (large, centralized power-generation and a complex distribution grid) is too expensive. At the same time, rich countries are seeking alternatives to this politically volatile model, which relies on fossil fuels (coal, oil, gas) or nuclear technology. Renewable, decentralized alternatives, such as solar, wind, fuel cells, and micro-turbines, are still too expensive to compete with conventional systems. Where they do exist, they require huge state subsidies, and lack the mass market needed to build scale efficiencies and lower costs.

In rural areas of less developed countries, with no electrical power system, families spend up to $10 per month on dangerous, polluting, and inefficient technologies — candles, kerosene and batteries — to generate occasional electricity at a whopping $5 to $10 per kilowatt hour. Producers of renewable energy technologies could target this huge market to incubate and refine these technologies. The producers could bring down costs and eventually compete in affluent markets also.

Hart introduces an NGO (Light Up the World Foundation), a university, and their joint commercial venture, which is doing just that. They’ve developed a self-contained, solar powered LED lighting system that sells for $40 (less than current spending of 10-15 percent household income), and is far safer and more reliable. A more sophisticated system costing $500 has been so successful in rural India that Philips Electronics recently launched a competing pilot venture.

Hart also shows how Unilever changed its business model (and product design) dramatically and began profitably meeting the needs of India’s poor for laundry detergent in 2004. The company’s Indian subsidiary had trained 10,000 village women micro-entrepreneurs to distribute its products.

Hart’s otherwise well-written book has a poor index and lacks a bibliography (though each chapter has thorough references). That said, Capitalism at the Crossroads is a prophetic word and a must-read to those of us at the top of the pyramid. Hart admits the challenge is formidable, but he offers a clear, user-friendly road map for business leaders with the vision and drive to test the waters of this huge, needy market and let the mechanisms of capitalism create innovative, sustainable enterprises that will do good and do well.

Reviewed by Karen J. Freeze, University of Washington.

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Conspiracy of Fools: A True Story by Kurt Eichenwald; New York, Broadway Books, 2005; 742 pp.

Kurt Eichenwald has written for the New York Times for over 17 years, is a two-time winner of the George Polk award for excellence in journalism, and author ofThe Informant, a best-seller about high level corporate corruption at Archer Daniels Midland.

Conspiracy of Fools is a detailed chronicle of the rise and fall of Enron. The front of the book contains a list of the key individual players from Enron, Andersen, various banks, etc. Nearly 40 pages of endnotes cite interviews, public records, and newspaper articles to support the book’s account. At this length and level of detail, one may assume this book would be boring. Not so! This is a page-turner worthy of an excellent fiction writer. I had already read two accounts of Enron, so I knew the issues well. Yet this one made the airplane miles fly, by capturing the story in a readable, suspenseful way.

Eichenwald paints a picture of a company so entrepreneurial that each division had its own objectives, competing as much with another division as with outside competitors. Enron’s focus was always on finding ways to make money regardless of consequences for the marketplace. For example, in September 1996, the state of California deregulated its electricity markets, but the new laws were not aligned with Enron’s objectives. The Enron executive team gathered to decide what to do, and Jeff Skilling, a senior executive who later became CEO, is quoted as saying, “If the government sets up the market, it’s going to be done wrong. Just know the rules better than anybody else. Then you’ll make money.” [p. 116] Finding and exploiting loopholes in the law was standard business practice at Enron.

At times the style of the book can detract from its credibility, despite the detailed footnotes. Scenes are recreated in the story with detail unlikely to be known or obtained from interviews (e.g., precise quotes, drink orders, raised eyebrows). The author is clearly taking liberties to create a great drama. Such details raise questions on distinguishing artistic license and fact.

In spite of this concern, however, I recommend this book highly. It offers a highly readable account of tragic events we should seek to understand.

Reviewed by Al Erisman

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The World Is Flat: A Brief History of the Twenty-First Century by Thomas L. Friedman; New York, Farrar, Straus and Giroux, 2005; 488 pp.

Thomas Friedman has won the Pulitzer Prize three times for his work at the New York Times, where he writes a regular syndicated column. He is also the author of numerous books, including the popular 1999 book on globalization, The Lexus and the Olive Tree.

Friedman’s premise is that computing and telecommunications technologies have done more than speed up the world–they’ve transformed the nature of commerce and society. This transformation has huge implications for business, geopolitics, and individual survival in a world that now operates by a new set of rules. I no longer compete only with those in my industry who are located nearby. A large company can lose out to a small company a world away. An individual in Indiana can lose a job to an individual in India or South Africa. No government, business, or individual is immune to these forces, so we had better understand them.

The book covers familiar territory for many. Certainly the interconnectedness of the world through telecommunications is not new, nor is Moore’s Law and the relentless march of new technology bringing us mobile computing and new forms of collaboration. But Friedman does a remarkable job assembling the pieces together into a coherent whole. His illustrations, interviews, and stories are a delightful way to pull the picture all together.

The book is written in multiple parts, but can be summarized in three: flattening forces that are changing the world; implications for these changes in business and society around the world; and required response to this changing world from corporations, governments, and individuals.

The first part I found to be the weakest. It provides few new insights, and some of his technology descriptions seem weak or incorrect. The third part becomes more political as he weighs in on issues of religion, politics, and education–often with insight but sometimes with vast oversimplification.

But the heart of this book is in the middle–where the implications of the technological change are worked out in terms of new structures for business and drastic changes in societies. This part of the book contains great insights and challenging ideas. It is something every business person, educator, and government official should read, understand, and discuss. You don’t have to agree with all he says to benefit from his remarkable set of ideas.

A friend said this book is like an Oreo cookie. The outside parts are O.K. but the cream in the center is outstanding. Don’t miss it!

Reviewed by Al Erisman

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Batman Begins directed by Christopher Nolan

Starring Christian Bale, on DVD

This is perhaps the best of all the Batman movies made since the first 1989 remake starring Michael Keaton. What I liked most about this film is how it goes deep into both the psychological identity of Batman, and Batman’s technology, which is an integral part of that identity. This film provides the backstage view of how Bruce Wayne becomes Batman, and how he merges the technologies that are available to him with his crime-fighting identity. “Batman Begins” provides a subtle message about how technology can become an extension of a person’s psychological identity.

Many of us rely on visible technologies such as cell phones, wireless Internet, and personal digital assistants to get through our workdays. Few of us may think deliberately about how these technologies do or don’t relate to our senses of self. For Gotham’s villains, technology is used for evil ends as an after thought. For Batman, it’s used to fight crime forcefully — albeit perhaps a bit too forcefully — but he is, after all, a comic book hero! Nonetheless, the film encouraged me to think about how I may use, or avoid, available technologies based on who I am, and who I aspire to be.

Reviewed by Gerard Beenen

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