BBC World news was aflutter today over the results of the The United Nations Children’s Fund (UNICEF) report entitled, “Overview of child well-being in rich countries.” The Brits, it seems have taken over a place normally reserved for the United States: coming in dead last in child welfare.

The report takes a more inclusive approach to the measurement, and data quality varies widely across the rich nations that it surveyed, but the UK is at the bottom in many categories. Rest assured, America is still #1 in several categories, including: relative child poverty, percentage of single parent families, and the lack of overall health and safety for children. Paradoxically, while our children report getting plenty of exercise, they are also the second fattest (it seems that those pesky Maltese children edged us out).

Another seeming paradox is that one of the most tolerant countries on earth, the Netherlands, has many fewer children engaging in risky behavior than the United States. Of course, any Dutch person you ask will insist that this isn’t a paradox at all. The point of lax drug laws is to help demystify marijuana and other drugs for teenagers. Perhaps they have a point, about 50% more American 11 to 15 year-olds have smoked pot in the last 12 months compared to their Dutch counterparts. It might be worth listening to the Dutch - they came in first in the survey of child welfare among rich nations.

Below are some of the more interesting results from the report.

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Yesterday I wrote about the shortcomings of Prahalad’s book, The Fortune at the Bottom of the Pyramid. We left with the question of whether there was even a market to discuss. Several factors make it difficult to estimate disposable income at the bottom of the pyramid (BOP). Even if it is not a fortune, there is likely much more than a nickel a day of disposable income amongst the world’s 4 billion poor.

Most people in extreme poverty live in rural areas and derive much of their diet from subsistence farming. This means that relatively little of their income is spent of food. In family or tribe-oriented societies, there is also an income smoothing effect. Kinship networks, for example, mean that if one person in a family has a high-paying position in the government, many in the family will benefit. In addition, income such as flows from non-governmental aid, international transfers from foreign nationals living abroad, and the grey economy may be under-reported in GNP figures.

In response to Karnani’s paper, the WRI’s NextBillion.net noted that:

BOP households collectively spend money, lots of it, on a wide variety of goods and services, and are clearly willing to pay for services such as connectivity, clean water, financial services, energy, health care, and education for their children, as well as food, housing, and consumer goods. The BOP is already an economic actor, not just a passive, dependent group, and its collective actions define a market.

So there let’s assume that there is indeed a market of billions at the bottom of the pyramid. Should companies try to reach it? Karnani cautions that viewing the BOP as a vast market of micro-consumers is “potentially a dangerous delusion.” Let’s look more closely at his argument.
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Distribution and Economies of Scale

Concerned about the apparent gullibility of multinational corporations (MNCs), Karnani warns that:

“Not only is the BOP market quite small, it is unlikely to be very profitable, especially for a large company. The costs of serving the markets at the bottom of the pyramid are very high…. This increases distribution and marketing costs and makes it difficult to exploit economies of scale. Weak infrastructure (transportation, communication, media, and legal) further increases cost of doing business.”

Two words: Coke and Guinness. Both have very deep penetration in West Africa. Granted these are not going to improve the health and well-being of the BOP (though Guinness bottles do read, “Guinness is Good for You“). Somehow these MNCs have overcome the challenge of distributing and marketing their products across a large geographic area.

Regardless of infrastructure and marketing costs, the market will help align buyers and sellers if the price is right for each.
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Reducing Prices at the Bottom of the Pyramid

Prahalad’s thesis hinges on the idea that attracting more competition to the BOP will drive down product prices, thus freeing up their disposable income for other purchases. This is basically how Wal-Mart has made low-income Americans feel richer even as real income has stagnated over the last decade. But Karnani takes issue with Prahalad’s assertion that the private sector can deliver high quality goods to the world’s desperately poor at competitive prices:

“There are only three ways to reduce prices: 1) reduce profits, 2) reduce costs without reducing quality, and 3) reduce costs by reducing quality…. the only realistic way to reduce price is to reduce cost. The BOP proposition is adamant that we should not reduce quality in this process.

“Unless all the current producers are grossly inefficient, the only way to reduce cost… without reducing quality will always require a significant improvement in technology. Good examples of this are found in the areas of computers, telecommunications and various electronic products. It is difficult to find examples of such dramatic cost reduction in other product categories. It is not surprising that the BOP proposition repeatedly uses these same examples. We should also note that the ultimate impact on the real income of the poor due to these major price reductions is quite low because the poor spend only a small part of their income on such electronic products. The poor spend over 80% of their income on food, clothing and fuel – products that have not benefited from such dramatic technological changes in a long time.”

Let’s evaluate that last statement and have a look at how technology might help deliver improved food, clothing, fuel, and public health.

Food: There are constant improvements in pest-resistant crops, hybrid seeds, or high volume animal husbandry. Many famers in Africa still till individual family farms by hand. Certainly technology could help them improve efficiency which would lead to lower prices.

And technology improvements in computers and telecommunications do not exist in a vacuum. There are numerous positive spillover effects that affect the BOP as producers. The Washington Post recently reported that cell phones in Congo have enabled farmers and fishermen to “…use text messaging to check market prices, eliminating middlemen and increasing profits — and preventing long trips to the market on days it is canceled.” So a technology unrelated to agriculture has helped farmers saved on input prices (transport to the market on days when it’s canceled) and output prices.

Clothes: Apparel prices have tumbled over the past decade. Much of this is due to reduced quotas on Chinese apparel imports in the U.S. and Europe. Thus, the assertion that “the only way to reduce cost… without reducing quality will always require a significant improvement in technology” is inaccurate. Clothing prices have dropped as a result of trade policy, not an improvement in technology. This does have a trickle-down effect for the world’s poor.

Fuel: Fuel has indeed become more expensive. Women have to scavenge farther for firewood. Oil prices lead Nigerians into the deadly practice of siphoning off crude oil from pipelines running through their villages. But technology can improve access to energy sources. Military applications such as SkyBuilt mobile solar power could find a market at the BOP helping medical centers or providing a short term power source for harvesting and processing crops.

Public Health: As patents expire on novel drugs, cheaper generic drugs will enter these markets. Playpump is an innovative approach to water delivery. LifeStraw promises to exploit economies of scale in order to drive down prices for its personal water filtration device.

Technology: Last week, the Wall Street Journal ran a front-page story about an American entrepreneur, Greg Wyler, who was building an Internet infrastructure in Rwanda. The focus of Terracom is to first focus on market access, then profits. Mr. Wyler might disagree with Karanani’s ideas about providing a quality product at reasonable prices for the poor. He is quoted as saying, “We’re on a mission here to see what happens when we drive prices down and quality up.”

And lest you think that Rwanda is an obvious market for an outside investor, have a look at the graph at the right.

As WRI writes in response to Karnani’s critique:

The pertinent development question is whether the BOP is well served by the present (often informal) markets, and whether there are unmet needs that could be better served by more competitive markets and broader participation by the legitimate private sector.

I believe that private sector innovation help can drive prices lower, maintain or increase quality, and help deliver goods that result in better livelihoods for those at the bottom of the pyramid. But what if multinationals start marketing products that the poor don’t need? Are BOP consumers rational economic actors? Or is Karnani correct when he says that, “The problem is that the poor often make choices that are not in their own self interest.”

More on that soon…

Statastico appreciates nurses. They know when to apply pressure, whether to put ice (or is it heat?) on a sprain, even how to keep someone conscious who might otherwise go into shock. With a rapidly aging American population and massive cost increases in the medical industry, it’s hard to understand why there is constantly talk of nursing shortages.

Sure it seems a little simplistic, but aren’t nurse wages subject to the same supply and demand forces as other wages? If there aren’t enough nurses, don’t salaries just go up to attract more young folks into the profession? Somewhat.

Nursing has historically benefitted from a captive labor market: women. Women in the post-war years had scarcely any choice besides teaching or nursing. No longer. Women now make up 48.5% of our future doctors, and earn 47.5% of the law degrees. While the next generation of women has expanded into new occupations, nursing has remained decidedly behind the times, as seen in Chart 4.

So the nursing population is aging. But is it underpaid? It depends where you are. There are indeed shortages in rural areas and numerous states have implemented programs such as loan forgiveness to lure nurses to less desirable areas.

An economic concept called monopsony may help explain why nursing shortages persist in some of these areas. Whereas a monopoly company can dictate prices to consumers because it’s the only business in town (e.g. cable TV), a monopsony is the only employer in town for a particular industry. This means that a single hospital in a smaller town might be able to dictate wages to nurses who are unwilling to relocate.

But is there a really a looming nursing shortage? In a 2001, Douglas Staiger, an economics professor at Dartmouth predicted “a 400,000-nurse shortage in 20 years.” Despite expert projections, Statastico is going out on a limb and predicting that the shortage won’t occur.

Why? The market is already reacting. From 2000 to 2004, average inflation-adjusted nursing salaries went up by 12.8%. That’s real salary, not nominal, folks. Salaries for teachers and nurses were about equal in 1986. Now full-time nurses average $60,000 annually, while teachers make about $48,000. In fact, over the last 20 years, registered nurse salaries have risen faster than teachers, professors, architects, engineers, ubiquitous lawyers, even physicians.

The high percentage of (ahem) “seasoned” nurses does tend to skew salary averages upward. But assuming that the National Labor Relations Board doesn’t scare new recruits away from nursing by preventing unionization, we’ll surely find an unanticipated source. Currently, men make up only 5.7% of registered nurses. Perhaps more lucrative salaries will lure them to the field, reducing the taboo of the male nurse.

Gender equality may yet reach the medical profession.

Notes: Teachers include primary and secondary school teachers. Academia includes all full time college faculty. All data are median salaries except for registered nurses and teachers which are average salaries.

Sources: Teacher salaries 1996-2005: National Education Association

Teachers (national) salaries 1986-1995: Pennsylvania State Data Center

Academia, physicians, lawyers, engineers & architects 1986-2005: American Association of University Professors; Original source for Figure 3: ‘‘Median Weekly Earnings of Wage and Salary Workers Who Usually Work Full Time, by Detailed Occupation and Sex, 1983–2002’’ and ‘‘Median Usual Weekly Earnings of Employed Full-Time Wage and Salary Workers by Occupation, 2000–04,’’ unpublished tables, U.S. Bureau of Labor Statistics, January 2006.

Registered Nurse salaries 1984-2004: U.S. Department of Health and Human Services; 1986 and 2005 estimated by statastic. 1986 was calculated by averaging real salaries from 1984 and 1988. 2005 was estimated to continue the 3.1% real annual increase that occurred between 2000-2004.

CPI-Inflation statistics: Federal Reserve

Access to potable water remains one of the most enduring problems around the world. Today more than 1 billion people do not have access to improved drinking water sources. This leads to 1.6 million deaths from diarrhea each year, the vast majority occurring in children younger than 5.

Multilateral development agencies have been working for decades to improve this situation. Early water projects were well-intentioned engineering gifts. The SCANWATER project, for example, simply installed gas-powered water towers on the highest hills around Cameroon. Because these projects didn’t develop local capacity to train technicians or to collect money for expensive maintenance, most of these water towers rapidly fell into disrepair.

So the key to sustainability is access, simplicity, good design and minimal maintenance. Two promising products are the Playpump and LifeStraw. As you can probably guess from the compound names, these products combine simple existing concepts with water sanitation development goals.

PlayPump is a water pump powered by children who play on a merry-go-round. The pumps are often located near
primary schools to take advantage of abundant free “labor.” Many primary schools in Sub-Saharan Africa have more than 100 students per class, so classes are taught in shifts. During this downtime, children can play on the merry go round ensuring a regular supply of water.

The PlayPump also takes advantage of the demographics that characterize developing nations, where half the population is under the age of fifteen.

In villages where girls are most often assigned the chore of fetching water, the PlayPump has the potential to reduce the distances walked for clean water, increasing the likelihood that girls can go to school.

Playpumps cost about $5000 each and can produce up to 1400 liters (370 gallons) per hour, enough water for 2,500 people. The water towers also can accomodate up to four billboard advertisements, two of which are normally reserved for public health messages, and two for revenue generation that provides for maintenance expenses. Currently a South African company is installing them with some help from the World Bank.

The second product is LifeStraw, which is produced by the Danish company Vestergaard-Frandsen. The LifeStraw is basically a lightweight handheld filtration device that can be worn around the neck. Any time someone need a sip of water, they can use this device to automatically filter out contaminants. The LifeStraw doesn’t require any spare parts, and it lasts for about one year or 700 liters. They retail in the developing world for $6, or about 1.6 cents per day. The company that produces LifeStraw has ambitious sales goals. The creator, Torben Vestergaard-Frandsen, said that, “We will be disappointed, if we do not sell at least 10 million LifeStraw a year.”

At less than a cent per liter of water filtered, LifeStraw is competitive with other water filtration systems in the developing world. That cost should come down as they ramp up production and realize economies of scale.

And lest you get the idea of ordering a LifeStraw for your homeland security kit or for camping, it’s still being reviewed by the EPA, so it’s not yet available in the U.S. One other caveat: it does not protect against Giardia, a nasty little parasite that Statastico really recommends avoiding.

What other ideas are waiting to be combined into a life-saving innovation? How about an electrical generator powered by soccer players? A playground slide that doubles as solar power? With more than 1 billion people around the world without access to clean water, invention is indeed the mother of necessity.

Sources: Statastic research, WHO, United Nations