Equity in national value chains

In general, enterprises that lead value chains are the ones who are favored the most by the effort done by all the participants of these productive spaces. Achieving equity in value chains implies enabling that each participant can fully retain the share of value s/he generates and with that facilitate the capitalization of the base of the productive apparatus and help strengthen domestic market.

 

When national production develops (particularly if it is promoted with public policies and resources) it not normally distinguishes how it impacts differently those who participate in the productive process and the diverse population and territorial contexts. Thus, for example, the tourist sector or the food chain or the metal industry can be promoted, without specifying how the eventual results will be distributed among different actors of those sectors, being those large, medium, or small ventures, enterprise owners, workers, the national or local State, communities, territories where the new activities are located. Instead, if we were to focus on how value chains are structured and function, including the type of relations that prevail among different participant actors, we could address both difficulties and challenges that chains face in the markets, as situations of inequity and underutilization of mobilized resources, and the externalities that are generated (some of them positive as with multiplying effects and others negative, such as unintended though foreseeable effects if they were analyzed with rigor). That is, there are common problems that the value chain faces as a whole, there are internal equity problems that affect the capitalization of large part of the participant actors and the potential of the productive chain, and there are advantages or disadvantages in the communities and territories where activities are located.

In this short article, we do not mention the challenges that have to be addressed  at the level of the entire productive matrix (the whole productive system including all the value chains). That is, going from the level of individual value chains to the economy as a whole to identify what is worth promoting more intensively and what to firmly regulate considering disequilibria and bottlenecks that might be generated.

Leveling powers

The level of equity within a value chain, that is, how efforts are compensated and operational conditions for each participant established, is determined by the power each actor has. Thus, enterprises that lead value chains have more power to impose their own interests of maximizing profits, something that with few exceptions they always practice. If we were to transform the power structure of each value chain securing a more equitable weigh to the entire scaffold of ventures that makes production possible, internal collaboration and sustainability of the whole would increase.

Unlike enterprises that lead value chains, small and medium participants face numerous challenges associated with their smaller scale and the relationships of subordination, frequently of submission, that are imposed on them. A severe restriction is their inability to capitalize at the pace leading enterprises do. This generates a growing internal disequilibrium with serious consequences in terms of the difficulty of suppliers to diversify the buyers of their products, to register and compensate their workers fairly, to achieve a technological development that might allow them to grow in competitiveness and increase the value they add to their production.

Therefore, if the objective were to promote an organic development in value chains and enhance their impact on communities and territories, there would be no sense in focusing just on measures to favor leading enterprises but rather we should care for the development and compensations of the entire group of participants (each segment of the productive fabric with its own problems and circumstances), as well as the positive and negative impacts over the social and territorial contexts in which chains operate.

Transforming power relations between actors so different in size and influence requires the intervention of a mediator capable of leveling the negotiation field within value chains. This implies regulating negotiation spaces for prices and commercial conditions in each value chain. In another text, we address this critical issue.

With that, conditions could be generated so that all the participants enhance their capitalization, manage to upscale their production, increase their competitiveness, reduce their dependence on few buyers and fully exercise their working, fiscal, and environmental responsibilities. Ultimately, it is about having participants of a value chain not only generating more value with their effort but also retaining and allocating it to their own development while, at the same time, contributing to the wellbeing of their community and the protection of the environment.

Support systems

Enhancement in terms of internal negotiation spaces within value chains need to be complemented by efficient support systems to small and medium suppliers. These systems can be structured around two types of intervention: one in managerial assistance, such as through medium-size developers of inclusive ventures, and another bringing short and medium term financing through specialized trusts.

Support systems are needed because markets do not generate these types of actions, they rather tend to accentuate economic concentration. It is the State together with a large variety of social entities promoters of development who can assume that critical transforming role.

Sectorial differences

There are value chains where monopolies are disastrous as it tends to be with food, health, cultural and communicational chains, among others. Other sectors such as aluminum and steel mills require large scale, even more if they plan to compete internationally. In the first ones, there are huge spaces for innovation and achieving much more equity and effectiveness; in the second ones, State regulation is required to prevent the value appropriation through abusive prices sustained by their monopolistic position.

Global value chains

Global value chains are ways of organizing transnational industries that powerful concentrated groups adjust according to how circumstances evolve to preserve their deeply rooted purpose of maximizing profit no matter who might disagree primarily large population majorities. Global value chains condition the evolution of the world economy as circa 80% of world’s commerce is done through or between their subsidiaries.

Businesses of global value chains are strategically managed from their headquarters, while their production is done in different countries through subsidiaries and subcontractors. For that, they chose locations where they find working advantages (low salaries and weak unions), suppliers that accept represed prices, low transport costs or proximity to consumers, favorable tax systems and free financial flows to secure profit remittances and capital flight. Development in communicational and corporate programming facilitates the coordination in real time of multiple decisions despite being dispersed around the globe.

Beyond declarative statements, interests of value chains are dissociated from the interests and needs of countries where they operate.  Their purpose is maximizing whole corporate profits and not of just one subsidiary in particular. This way, headquarters are the ones to impose the rationality and directionality of investment or disinvestment decisions, entrance to or exit from different markets.

Thus, global value chains have huge power vis-à-vis national or local governments who are permanently blackmailed with the possibility of delocalization of activities, with the consequent loss in jobs, incomes, and taxes. These large global chains and their subsidiaries can also count on the complicity of local actors that help to protect their interests by decisively influencing on public policies and regulations.

Anyhow, even in these contexts (better with popular-base governments) there are non-negligible margins for decisional sovereignty to address transformations in the structure and functioning of the economic system, being from the national perspective or coordinating actions at the regional level. New types of regional value chains need to be explored, not those that ignore their social and environmental effects and just replace one submission for another in terms of extraction and concentration of value. This other strategic perspective enables integrating economic actors in national or regional structures with better sustainability conditions, far from  the greed of unbridle profiting without caring for the wellbeing of communities or the protection of the environment.

Political support for transformations

Movements and governments that secure support for these and other transformations do not spring from nowhere but rather through multiple political efforts. Development based on the predominance of general wellbeing and protection of the environment is not achieved without reconfiguring the local power structure, one of the biggest challenges that face countries and regions.

Advancing in that trajectory requires work in several dimensions, including, though not limited to, the following: (i) critical cultural fight for molding common sense towards a more sustainable and fairer referential utopia; (ii) the alignment of the diversity of non-antagonistic interests that nest in the popular field; (iii) the pressing need for dismounting one by one all the prevailing mechanisms for value appropriation, those openly expressed and those which are unveiled; (iv) transformation of value chains around sustainability and equity as organizing principles; (v) transformation of national productive matrix to raise and prevent structural bottlenecks that lead to recurrent systemic crises that punish our countries. They are not simple but rather complex challenges, even more within captured democracies.

Interests of majoritarian sectors are diverse and dispersed, hard though not impossible to align. Instead, Interests of privileged minorities, though not completely homogeneous, tend to converge or at least know how to tactically align themselves. Thus, concentrated sectors exercise their power to disunite and fracture most popular fields, detracting support from transformational attempts; they tend to destabilize and discredit anyone who threaten their interests. For this we need to add deceptions and lies to mold subjectivities and manipulate public opinion; there are also narcissisms, pettiness, the greedy who are accustomed to step on heads, the every man for himself motto, many fears, bravery and cowardliness mixed, alienations and nihilisms that infringe upon social clarification and organization. A whole pack of characters and values that helps establishing economic and cultural submission.

Is it necessary to say that these processes and situations can be transformed? That there have always been oppressors and that sooner or later they were removed? There are no set in stone narratives and what today is presented as A universal, permanent, and sole truth, tomorrow will be reminded as one of the various mechanisms that were used to subdue majorities.

Fighting for other courses require deepening understanding and strengthen social organizations, with a critical ingredient: having capable, honest, brave leaderships committed to equity, justice, and sustainability. It is just knowing to choose them.

 

If you like this text, by filling up the form that appears in this page you can subscribe to receive once a month a brief summary of Opinion Sur English edition.

Leave a comment