Mr. Alexis Papachelas is a guest editorial writer to The Business Thinker. He is currently the Executive Editor of the long standing and highly respected daily Greek newspaper “Kathimerini”.

The Cyprus crisis is deepening the cultural gap between the north and south of Europe abruptly and dangerously.

Here in the south, we feel a confirmation of the stereotype of Germans and Finns as being rigid and obsessive and playing the game according to the toughest of terms.

Up there in the north, the stereotype of southerners as being incapable of facing up to reality and clinging in vain to their lifestyles and a generous state funded by foreign money is taking deeper root.

The European project has been derailed by the first big crisis, obviously because it was designed with only the good days in mind. The chasm between south and north is hard to bridge because, thankfully, we are all democracies.

As impending German elections push Chancellor Angela Merkel to take a more extreme position, the vote in Italy and public opinion polls elsewhere show that anti-systemic forces are gaining ground.

It will take a lot of hard work and some visionary leadership – which as yet is nowhere to be seen – to salvage the ambitious European project, whose main objective was to refute the lessons of history that see the continent either at war or in the grips of a major crisis every 40 years or so.

Greece, however, is a particular case, a country that since its birth has been torn by the dilemma of whether historically, culturally and politically it belongs to the East or West.

Dr. Aneel Karnani is Associate Professor of Strategy, Ross School of Business, University of Michigan. His interests are focused on three topics: strategies for growth, global competition, and the role of business in society. He studies how firms can leverage existing competitive advantages and create new ones to achieve rapid growth. He is interested in global competition, particularly in the context of emerging economies. He studies both how local companies can compete against large multinational firms, and how multinational firms can succeed in these unfamiliar markets. Karnani researches poverty reduction and the appropriate roles for the private sector, the state and civil society. He is interested in how society can strike the appropriate balance between private profits and public welfare in tackling major societal problems.

The ‘base of the pyramid’ (BOP) proposition, famously popularized by C.K. Prahalad and other business gurus, assumes that there is much-untapped purchasing power at the base of the pyramid, and urges companies to make a fortune by serving the poor masses. The Economist magazine, given its market-oriented ideology, has been a strong advocate of the BOP proposition. On the opposite side, I have long been a skeptic, and in my book Fighting Poverty Together I argue that while private companies should try to market to the poor, the profit opportunities are modest at best and I suggest a cautious approach. In a recent article ‘The limits of frugality: Making things cheaper is not the same as making profits’ The Economist starts to walk back from its earlier support of the BOP proposition.

The Economist article acknowledges that it is politically correct for many executives to espouse the BOP proposition, because it serves an ideological purpose by showing that capitalism is inclusive, rather than only for the middle classes. “Whether their firms profit as a result is less clear.” The article goes on to cite examples of several firms in a variety of industries including mobile telephony, consumer goods, insurance, and consumer finance that have failed to profit from targeting the poor.

Dr. Aneel Karnani is Associate Professor of Strategy, Ross School of Business, University of Michigan. His interests are focused on three topics: strategies for growth, global competition, and the role of business in society. He studies how firms can leverage existing competitive advantages and create new ones to achieve rapid growth. He is interested in global competition, particularly in the context of emerging economies. He studies both how local companies can compete against large multinational firms, and how multinational firms can succeed in these unfamiliar markets. Karnani researches poverty reduction and the appropriate roles for the private sector, the state and civil society. He is interested in how society can strike the appropriate balance between private profits and public welfare in tackling major societal problems.

This is an interview based on his book “Fighting Poverty Together: Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty” he gave to iMpact of the University of Michigan. Prof. Karnani authorized us to publish it in the Business Thinker.

Despite global efforts to alleviate poverty in the past half century, it remains a vexing social problem. Livable wages and lack of access to the basics — clean drinking water, sanitation, roads, and security — remain far too elusive for far too many. Recent efforts such as microfinance and base of the pyramid (BoP) ventures may generate attention, but they don’t achieve the objective, says strategy professor Aneel Karnani. Efforts should instead focus on ensuring that governments provide access to essential services while creating a climate in which businesses create jobs. Nonprofits, meanwhile, should serve as catalysts and watchdogs.
In his book, Fighting Poverty Together: Rethinking Strategies for Business, Governments, and Civil Society to Reduce Poverty (Palgrave Macmillan), Karnani argues this alignment across multiple sectors is critical for raising the incomes of the poor.

In the following Q&A, Karnani discusses why he thinks this approach is more effective than microfinance and BoP outreach.

Mr. George Friedman is Founder and Chairman, Stratfor, a private intelligence company located in Austin, TX.

This article is published here in by permission of Stratfor.

The European economic crisis has taken different forms in different places, and Cyprus is the latest country to face the prospect of financial ruin. Overextended banks in Cyprus are teetering on the brink of failure for issuing loans they cannot repay, which has prompted the tiny Mediterranean country, a member of the European Union, to turn to Brussels for help. Late Sunday, the European Union and Cypriot president announced new terms for a bailout that would provide the infusion of cash necessary to prevent bankruptcies in Cyprus’ banking sector and, more important, prevent a banking panic from spreading to the rest of Europe.

What makes this crisis different from the previous bailouts for Greece, Ireland or elsewhere are the conditions Brussels has attached for its assistance. Due to circumstances unique to Cyprus, namely the questionable origin of a large chunk of the deposits in its now-stricken banking sector and that sector’s small size relative to the overall European economy, the European Union, led by Germany, has taken a harder line with the country. Cyprus has few sources of capital besides its capacity as a banking shelter, so Brussels required that the country raise part of the necessary funds from its own banking sector — possibly by seizing money from certain bank deposits and putting it toward the bailout fund. The proposal has not yet been approved, but if enacted it would undermine a formerly sacred principle of banking in most industrial nations — the security of deposits — setting a new and possibly destabilizing precedent in Europe.