Revista Mensual y Gratuita
Nº101, January 2012
Southern Hemisphere countries have not generated the contemporary crisis, nor are they dealing with its most destructive effects but we must protect ourselves from its lashes that may affect the development trajectory. Several governments seek to adopt measures that reinforce the lines of defense without sacrificing the course towards an organic growth with social and productive inclusion. The challenges are not minor and every policy is in fact perfectible; it becomes necessary to protect those flanks that might be most exposed as soon as possible and with all the effectiveness the situation calls for.
After decades of instability, several Southern Hemisphere countries grow today at a steady pace mainly because of a crucial transformation in their development strategy. Without isolating themselves from the world, they were able to adjust the course boosting a dynamic growth of the domestic market and its exports thanks to the adoption of a series of policies and to taking advantage of favorable national and international circumstances. They placed the main focus on two powerful engines of growth: a strong funding of public investment and a more equitable income distribution. At the same time, they faced with exceptional vigor the removal of factors that had been to a large extent sterilizing national effort; among others, the tremendous tax evasion, the over indebtedness of the public sector, a grim predominance of financial capital and a dangerous media concentration. All this took place with a favorable international context due to the strong growth of China, India, Brazil and other emerging economies, which significantly increased the demand of several exports improving prices and volumes sold.
Engines of growth
A strong public investment in productive and social infrastructure was therefore one of the main engines to drive the new course. The construction of roads, port facilities, communications, hospitals, health centers, sewage, drinking water and other facilities, put the economies in motion, encouraging the private sector to also reinforce its own investments. This way, the level of domestic investment increased quite significantly although, as explained below, it was not enough to cope with the explosive growth in consumption.
The expansion of the domestic demand was a direct result of the effort set in improving income distribution and promoting local production. This improvement implied that large segments of the population that had been left behind could get greater access to the consumer market and that value chains that generate goods and services of national origin were developed, for which increasing volumes of workforce, equipment and supplies were required. Several policies and measures converged to make that growth in domestic demand possible; among them, a strong wage recovery and the increase in registered labor; a redirection of public expenditure towards education, sanitation, health and productive infrastructure; the granting of subsidies to poor families; a very strong support to small and medium-sized productive ventures; greater credit availability for the entire economy; a promising scientific and technological development; exchange rates that encouraged exports; a more stable institutional context and notorious declines in social conflict. This ensemble of measures and circumstances improved national competitiveness.
At the same time, a strong reduction of external indebtedness was accomplished, which put a hold on one of the toughest restrictions that bounded countries’ development potential. In the case of Argentina, this happened through a forced restructuring of the external debt and, in other cases, through not-so-voluntary agreements with creditors.
However, the march towards a fair and sustainable development still has several challenges to solve, such as more firmly protecting the environment; reinforcing national competitiveness; improving the social and economic productivity of public expenditure; abolishing regressive tax systems; to keep facing the tremendous evasion that limits public sector’s role as promoter of development; eliminating poverty and destitution of millions of fellow countrymen including, within this perspective, reorienting public subsidies to build virtuous trajectories in which the granted benefits generate self-sufficiency (except for those permanently vulnerable population sectors). In all cases it will be necessary to dig deep into each community, sector and moment’s singularities. For example, there are sectors where the competition between actors is considerable which moderates prices and profits; there are others of oligopolistic and even monopolistic structure where some companies set prices and conditions that generate extraordinary returns for them at the expense of the rest of the society. One way of facing this situation is facilitating that more competition arises but, when this is not achieved or it is not possible due to the nature of the good or service provided, it is essential to establish regulations that prevent abuses and the extraction of values that belong to weaker actors, whether they are suppliers, companies that demand those inputs, distributors or consumers. A strategic aspect of utmost importance is working upon regional agreements with other countries of the Southern Hemisphere so as to help each other in terms of technology, commerce, finance and investments’ complementation. In this perspective, some concrete measures could be, among others, redirecting imports in order to favor neighboring countries and equivalent measures that will boost our exports; investment decisions based on agreements to integrate different sectors within each region; joint commercialization of complementary products, establishing new regional financial entities and strengthening the existing ones.
Along with the threats that emerge from the crisis in Europe and the United States, there is a subject that affects the entire reality of the new courses. In the heat of emergencies, voices guided by their own interests take advantage of legitimate fears and induced panics to smuggle decisions that implicate serious and extremely costly trajectory deviations. The conventional solutions, many of them driven by financial capital that profits from the crisis, find in those conjunctures favorable environments to impose themselves as if they were the only ones available, and that is not the case. It happens that even in emergency and the urgencies it is possible to embrace fast and effective decisions that do not affect our midterm course.
Thus, for instance, efforts to sustain productive supply should not result in a greater social and territorial income concentration. In order to avoid it, it is indispensable to back with active policies the whole spectrum of the domestic productive apparatus and not just the most consolidated actors. This is to say, while boosting employment generation and productive supply, special care should be given to promoting sustainable capital formation at the base of the productive apparatus. How to accomplish that is what is analyzed in the upcoming lines.
Protecting what was achieved by consolidating the course
The vigorous growth of Southern Hemisphere countries was initially sustained by an idle or very underused installed productive capacity generated during decades of neoliberal policies. However, after some years of strong growth rates, the margins of available installed capacity narrowed down and in some sectors disappeared. Hence the inflationary tensions that emerged due to the pressure that increasing consumption puts on a supply that is unable to grow with the same dynamism if only using the existing installed capacity; and, moreover, when it is not possible to complement the domestic supply by resorting to massive imports without compromising the trade balance. In this new phase of consolidation of the chosen course, fresh investments that expand domestic productive capacity are required.
Here is where government firmness once again matters. It occurs that individual companies when confronted with storms and exposed to town criers of disaster driven by their own interests, privilege short-term and find they can get returns without increasing production (that would imply midterm investing) but prices instead: the relative lack of supply enables it. But it also occurs that, not long down the road, almost all of their cost items will tend to adjust to the new price reality eliminating those speculative returns. Of course that, anyway, in that initial phase of inflationary tensions they manage to accumulate surpluses through speculation and if, besides, they happened to have the capacity to keep anticipating their price adjustments to those of the rest of the economy, they will have found a mechanism to accumulate without investment; at least until the system implodes and they all end up caught in that eruption.
The individual company cannot solve this dilemma by itself; it is the State’s role to take the measures and implement the regulations that will allow individual interests to align with those of the socioeconomic aggregate in such a way as to ensure not only the equity but also the sustainability of everyone’s development. To do so, it will be necessary to implement a whole range of complementary measures; such as, for example, carrying out price and wage agreements and ensuring their full compliance; establishing credit and tax facilities that will allow new investments to be induced and profits to be reinvested; negotiating with those who import to support some export facilities; firmly punishing commercial speculation and especially the financial one that does not add value to the real economy.
There is, however, another crucial ensemble of measures that cannot be ignored by public intervention: those that make the most of policies seeking to increase the productive supply as an opportunity to promote new mid-sized, high productivity economic units that integrate small producers from the base of the social pyramid.
Capital formation at all levels of the productive apparatus
It has been stated that at the Southern Hemisphere countries’ current development phase it is critical to promote investments that generate jobs and productive supply. This is essential for countries to keep moving towards an organic growth, one of the pillars of sustainable development. These jobs and productive supply must be of the right productivity and competitiveness; decent jobs and productive supply that can access the domestic markets, be sustained by its own means and, if possible, project itself abroad.
In general, this sort of jobs and productive supply is generated by large and medium size companies. These actors are capable of undertaking new investments as long as their estimate foretells a good return or, at least, that they will be able to safeguard their companies and market shares without major losses. They might take in invocations from the public sector but they will remain expectant until they are convinced that they will achieve the profits that justify making new investments; it is a segment of the productive apparatus that is very sensitive to expectations but which, nevertheless, is necessary to put in motion. In this front, governments are already operating with a series of measures and negotiations that will hopefully result in successful outcomes.
However, we must not neglect another equally important way of promoting employment and productive supply, although it may entail other challenges. It is about setting in motion the immense base of the domestic productive apparatus in that same direction: the universe of small and micro enterprises, which are the most numerous segments of the domestic productive apparatus and the one that creates the most jobs. Nevertheless, the jobs and productive supply that small and micro producers are capable of generating are usually of low productivity, poor compensation for the effort invested and high rates of bankruptcy. It happens that small units operate under low levels of competiveness: they count with scarce capital and present considerable gaps regarding larger actors on management, technology, appropriate contacts, access to information and markets. Therefore, it is quite difficult for them to accomplish a sustained accumulation capable of financing their capital formation, which is what would allow them to strengthen returns and grow organically.
So, how to address the apparent contradiction between the need to mobilize the immense base of the productive apparatus, traditionally bound to very low productivity activities, and the requirement for jobs to be decent and productive supply competitive?
There is a diversity of responses that attempt to solve this dilemma. The efforts are multiple and diverse and, in principle, none should be discredited because each one provides its own contribution according to what is known, who are involved, what resources they rely on and what the socioeconomic context in which those efforts are deployed is. Therefore, what is proposed does not rule out or demerits other initiatives that, moreover, add experience on which it is possible to keep building.
Before moving on, it is worth stating that a productive mobilization of these majority sectors of society contributes not only to generating employment and productive supply but also improves income distribution, reinforces social cohesion, reduces the need for subsidies enhancing public expenditure’s productivity, gives greater backing to democratic governability; all that with a lower coefficient of imported components than the other sectors. Less sensitive to speculative expectations, given these small producers would receive the necessary support they would decidedly turn to increasing their production, reinvesting a fair amount of their returns to finance their capital formation.
How to make a vast mobilizing opening?
A strategy oriented to mobilize in a sustainable way broad sectors at the base of the socioeconomic pyramid demands to properly identify the challenges that are to be faced, choosing the best spaces to intervene and to develop, accordingly, measures and regulations.
To make this type of small producer mobilization effective it is necessary to face, simultaneously, scale, productivity, sustainability and socioeconomic inclusion challenges. The non capitalized producer small scale  limits their ability to take action and access opportunities. It has been pointed out that they count with limited management capacity and lack of contacts, technology, information, knowledge on markets and financial resources. In order to overcome their backwardness they need to access those critical factors.
Solving the scale does not imply only grouping small producers; this may or may not help. There are small producers’ associations that seek to increase the scale of functioning and, in spite of that they do not achieve results that could allow them to access trajectories of sustained accumulation. What is proposed is not to replace existing associations but instead to complement them with a new form of socioeconomic organization capable of allowing the integration of small producers into medium-sized productive units that will function with acceptable productivity in promising markets.
They are inclusive ventures that, using modern business engineering, manage to articulate small producers with strategic partners in productive units capable of accessing superior opportunity thresholds. In previous Opinion Sur articles we have characterized inclusive ventures  and addressed the matter of how to organize and assist them .
The participation of a strategic partner in an inclusive venture can solve different deficiencies that burden the small and micro production but, at the same time, it entails several challenges. To begin with, the inclusive venture must attract a solid strategic partner; none would accept participating if they did not foresee getting reasonable returns. This implies the business will have to be structured in such a way as to ensure an appropriate compensation for all those who participate, including the strategic partner, in concordance with the value each one really contributes and not because any dominant position. Thus, to accomplish a fair level of returns, the inclusive venture will have to be structured around a profitable activity oriented towards a promising market and it will have to adopt an effective way of functioning.
The challenge of ensuring that efforts and profits are distributed equitably and that none of the inclusive venture’s participants enforce conditions that make it unviable, demands thinking of a third type of participant in addition to the small producers and the strategic partner. That other participant (or subset of participants) may be a local government, a development agency, a college, a trust fund dedicated to invest in the base of the productive apparatus, some companies committed to social and environmental responsibility, a foundation. Perhaps the ideal would be to count with an appropriate combination of those actors.
Those actors, guarantors of the inclusive venture course and viability, would have a double role: (i) as members of the inclusive venture board they would participate in taking strategic decisions (competitiveness, ownership structure, profit distribution) and (ii) facilitating access to funding, contacts, information, management, knowledge and other issues within their fields of specialty.
Something worth highlighting: integrating strategic partners to inclusive ventures also gives way to a series of other opportunities. For one thing, these ventures generate environments where new business leaderships can deploy their management capacity; and they do so in productive contexts in which a great diversity of cultural patterns prevails. This opens an opportunity for more entrepreneurs to arise and for them to be carriers of abilities and values to serve neglected social sectors.
It is also an opportunity for many other actors linked to production to get involved and commit their efforts and experience in support of sectors hit by our societies. That input constitutes an invaluable asset and, despite not too few would like to contribute to a fair development that would bring a better environment of peace and security, not often there are appropriate channels to offer management skills, knowledge, information, ways to structure businesses, of accessing markets and financing. National and/or provincial productive inclusion campaigns could be conceived mobilizing, among others, businessmen and larger companies, polytechnic and business schools, scientific and technological institutes, business and labor organizations, development agencies; each one sponsoring one or several inclusive ventures and placing special emphasis on the formation of leadership within the small producers that are linked to the inclusive venture.
Conclusion: protecting ourselves preserving the course
It is necessary to adopt measures in order to protect ourselves from eventual lashes of the crisis that is striking affluent countries. There are some that, shielded in a sense of emergency, attempt to smuggle measures that will ensure their privileges; they go against countries’ interests. Today it is of the utmost priority to increase jobs and productive supply: with installed capacity close to being fully used, it is imperative to promote new investments: it is a condition of sustainability for our emerging economies. However, there are also other sustainability conditions that are about transforming the concentration process: we need new but also socially and geographically diversified investments. The thing is, if they are successful and hopefully they will be, the new investments will reinforce existing nodes of accumulation whilst, in order for them to be materialized, a context of stimulus the entire society ends up financing will have to be facilitated. If this is the case, then it is right that a significant share of the new investments is generated by financing the capital formation at the base of the socioeconomic pyramid.
In those vulnerable strata, the generation of jobs is considerable although of low productivity; somewhat more modest is their contribution to the goal of increasing the productive supply while the amount of bankruptcies is usually significant. All things considered, investing in small units is advisable to maintain a well-toned domestic market even though the right precautions must be taken as to ensure sustainability over time. This is why we propose new, more effective and sustainable ways to invest at the base of the productive apparatus promoting inclusive ventures and establishing developers specialized in organizing them.
When the political determination to transform the concentration growth into a sustainable and inclusive development exists, the sorts of investment to be promoted must contribute to the macroeconomic aim of increasing jobs and productive supply but, at the same time, ensuring that the chosen course is preserved. There are no excuses for reproducing concentration through promoting a concentrated matrix of new investments.
 Quite different is the case of small producers and independent professionals with high or medium levels of capitalization regarding material resources and knowledge.
 Inclusive ventures to abate inequality and poverty, Opinion Sur November 2009
Opinion Sur Collection
Introducing three new additions to our collection
Getting out of the Crisis towards a sustainable development
STORM: The ways of the crisis and the ways out of it
International Crisis: Adjusting the Course and Improving the Systemic Functioning