Inclusive development: critical links that cannot be ignored

Quite often well-intended inclusive development strategies do not properly consider some critical links of the transformational effort. This can become an obstacle for or sterilize a large part of those efforts contributing, without setting out to do so, to reinforce actors who are against the transformation. This article points out some of those critical and ignored links offering examples regarding measures to increase the productive supply. The promotion of a transformational development of sustainable and inclusive nature is structured in several complementary fronts, among others, the following:

(i) macroeconomic policies that promote economic, social and environmental sustainability;

(ii) sectorial and territorial policies that complement and specify that purpose;

(iii) direct support to the ensemble of social actors, particularly low income vulnerable sectors.

It is certain that interventions that seek to transform socioeconomic processes differ from those that mean to preserve or restore them. The differentiation is expressed in terms of the chosen course as well as the way of functioning that is adopted in order to advance. Therefore and only as an example, let us see how one and another strategy faces the need to achieve the objective of fiscal solvency.

A transformational development seeks fiscal solvency by reforming the tax structure to make it really progressive (those who have more pay more), with better allocation (in terms of justice and effectiveness) of public expenditure and through restructuring the level and composition of public indebtedness so it will not compromise the adopted trajectory.

On its part, an approach seeking to preserve or restore an order that concentrates wealth and opportunities intends to achieve fiscal solvency (i) without affecting the privileges and inequalities that are inherent to regressive tax and public expenditure structures nor (ii) limiting or conditioning the payment of the external debt even when that would severely affect the viability of the country’s sustainable development. So when public accounts are not balanced affecting fiscal solvency, the restoring strategies resort to cutting back public expenditure that is considered expendable (budget allocations of social expenditure and basic infrastructure), they do not modify the tax structure burdening those who have less and, instead of restructuring an unsustainable public debt, they refinance it cycle after cycle under burdensome conditions.

These strategic differences that the chosen example makes explicit take place in each and every one of the macroeconomic, sectorial, territorial policies and even more at the level of support of low-income vulnerable actors. To the affront and injustice that poverty means it is therefore added the phenomenal waste of productive potential and what its restoration would imply for the national development and its domestic market. Ethic, social, economic and political considerations sustain this appreciation [[[A Country for All->http://opinionsur.org.ar/Desarrollo-inclusivo-criticos], Chapter 1]].

Essentially imperfect markets

In the context of the enormous concentration process of assets and incomes prevailing in the world, almost every market has become essentially imperfect. Certain actors have become so powerful that they occupy hegemonic positions with the capacity to use and abuse the market power they have. This way they manage to extract significant amounts of value that other actors generate but cannot retain. This way the concentration processes are established and largely reproduced.

What is the implication this has for an inclusive development strategy?

A process of inclusive development has to guarantee not only fiscal solvency (as it was mentioned in the example) but also economic vigor, fair complementation between sectors and territories, a satisfactory balance in its external trade, allocate national savings in investments of the real economy, currency and internal prices’ stability, income distribution improvements, effectiveness in providing social services, productive infrastructure, strengthening democratic governability and political representation, among many other challenges. To achieve this we need to act with the existing actors and try, at the same time, not to turn our backs on the need to transform the course and way of functioning.

Here strong tensions, eventual contradictions and possible deviations emerge regarding the planned trajectory. The core of the issue is that well-intended measures are adopted looking to reach the transformation objectives but several of them are gridlocked in their implementation for not considering certain critical links in the economic process, such as counting with economic actors that, looking after their own issues, work for the country. Let us analyze a concrete example related to the need to guarantee the domestic supply without generating inflationary pressures.

Domestic supply and inflationary pressures

As the population grows, its incomes improve and consumption increases it becomes necessary to raise the national production and the supply of certain imported products that are not produced in the country (especially strategic equipment and inputs). Which means it will be necessary to guarantee a fair supply of the domestic market and a level of exports that will help avoid an eventual shortage of foreign currency.

To face this challenge the country adopts productive supply promotion measures. Financing is facilitated to increase production and exports, fiscal facilities are granted, resources are allocated in technical assistance, job training, science and technology to support production, infrastructure in roadways, communications, transport, irrigation systems, ports, energy, etc. This means the circumstances of the social and economic context are improved. At the same time measures to promote the demand are implemented (higher wages and pensions, consumption financing, among others).

But, who are those that are capable of taking advantage of the context improvements that are achieved with the effort of the society as a whole? One could say everyone and, up to a certain point, we would not be mistaken. But the truth is that some would be in a better position than others to take advantage of the effort the country made: they are the strongest actors, better equipped, with experience, capacity to export, scale, contacts, knowledge, modern management, the ones who lead productive chains. The rest operates subordinated to the hegemonic actors of productive networks in imperfect markets.

Therefore, even with that entire range of measures to promote demand and allegedly productive supply, it often occurs that those who lead productive and/or trade chains prefer not to increase their investments as to improve their supply (and with it drag along thousands of small and medium scale producers) but instead, taking advantage of a stronger demand, they seek to maximize results by increasing prices which their dominant position in the price formation process allows them to do. Thus the efforts to promote productive supply and consumption become largely ineffective: instead of expanding the supply, promotional measures make it easier for hegemonic companies to extract more value from their suppliers, consumers and the State itself which is the one that using public resources improved the context they operate in. The outcome is twice as negative: on one hand because concentration is reinforced and, on the other, since the supply does not accompany the induced increase in demand, because inflationary pressures eventually emerge.

Even though governments count with instruments to face these situations (regulatory, fiscal, financial) they see their margins to take action limited since, contradictorily, they depend on hegemonic actors to sustain the economic process and, significantly more, when they face difficult contexts and struggle not to be destabilized.

Does this mean promotional policies should not be applied? Not at all; they are well-oriented, but they just need to include other measures to also face certain critical links in the productive process that have not yet been appropriately considered.

Productive mobilization of vulnerable sectors and emergence of new actors

It has been pointed out that in essentially imperfect markets with dominant actors that usually abuse their market power, large price gaps are generated between what small and medium scale producers receive for their products and what consumers have to pay to get them. Those gaps represent the abusive extraction of value that takes place throughout the entire production and trading process. How can that harmful extraction of value be eliminated? With a firm regulatory intervention complemented -not replaced- by the establishment of financing and trade channels that are capable of generating more balanced structures of generation and retention of value and, with it, that new different economic actors can emerge and develop effectively and sustainably.

Productive ventures with transformational potential

It is important that new economic actors emerge as part of the national productive apparatus but, even more so, that those new actors combine the effectiveness to generate economic value with a firm behavior of social and environmental care. Entrepreneurs who carry values of responsibility towards the communities they belong to and the inclusive development of the country they operate in; economic actors that are careful of not generating with their actions harmful collateral effects, unwanted externalities.

This means it is not about launching more irresponsible actors into the market. Better rules and regulations will be indispensable but it will also be necessary to work on the ethical-cultural front to transform attitudes of greed, selfishness, neglecting others, seeking to replace them with responsible behaviors based on the conviction that individual wellbeing acquires meaning and foundation in the context of a general wellbeing that we all contribute to generate. The transformational effort needs productive ventures that are vigorous and successful but that operate bearing in mind the general wellbeing and environmental care.

In low-income vulnerable sectors there are, of course, talents, capacities, need to work but they do not count with other factors needed to productively mobilize and access opportunities. It is not often that they count with financing and technological assistance but even when sometimes those critical factors are at their reach, other kinds of restrictions keep them from integrating successful productive ventures and, much less, be involved in their construction and set in motion. These are restrictions that have to do with information, contacts, knowledge regarding options to structure ventures and manage them successfully, access to strategic partners and markets. All these factors are closely related to the scale of the productive venture. Not counting with these factors, small-scale ventures can only face activities of low productivity in very poorly promising sectors of the economic activity. Merely a handful of these ventures manage to access a modest accumulation process that allows them to expand their capital formation but even they are vulnerable to changing market situations, much more than larger size units that can resist due to having stronger spines.

Facing these circumstances, productive inclusion strategies should combine supporting small individual ventures with other medium scale people-based productive solutions, a scale that would allow differentiating critical entrepreneurial functions (general management, production, commercialization and sales, administration, and finance) and therefore be able to face competitiveness challenges. In this regard there is already a number of solutions that, generically, we call productive ventures with transformational potential and can serve as important references. Although still incipient, there have also been established a variety of support mechanisms for this type of ventures such as developers [[[Inclusive venture developer s->http://opinionsur.org.ar/Inclusive-Venture-Developers].]], accelerators and incubators. Here lies a strategic space for a large-scale intervention combining public, private and development entities.

Alternative financing and trade channels

Every economic activity requires being able to access certain investment and
work capital financing. Since usually there are no entities dedicated to financing productive investment (medium and long-term) of ventures with transformational potential, it will be necessary to establish investment funds that specialize in that type of units. As for the financing of work capital it is possible that, at the beginning, commercial banks will not be interested in or know how to operate with these different clients so the responsibility would rest upon public banking and cooperative banks.

As for the trade chains of the different products it will be necessary to identify how they work and how each link retains shares of the produced value for themselves. If each trade chain’s structure is not known and, particularly, who takes what, it will be difficult to outline an effective intervention. This demands adjusting the adopted measures according to the behavior of the different levels of stockpile, processing, wholesale distribution and retail sales. In order to avoid market abuses it will be necessary to establish or reinforce appropriate regulations [[[Market power abuses->http://opinionsur.org.ar/Market-power-abuses?lang=en].]] complementing with the opening of alternative channels as to reduce strengths of those who hold oligopolistic positions in deeply imperfect markets. There is a variety of possible specific measures including promoting the establishment of communitarian supermarkets (with shared ownership between producers, strategic partners and development entities), locomotive agro industries with a similar ownership structure, permanent or itinerant fairs of producers, sale facilities of nonprofit organizations, large wholesale markets to which special windows are added for retail consumption, among other modalities.

Scale and wide range of solutions

A couple of final comments refer to the dimension and wide range of solutions that these efforts should contemplate.

Transformations inherent to an inclusive development are many and substantial since they are not limited to solving the situation of small pockets of poverty but of important segments of our societies, between 20 and 60% of the economically active population depending on countries and regions. Pilot or demonstrational projects offer their own experiences and in that aspect they are welcome, but the challenge is about promoting thousands of productive ventures with transformational potential and as many alternative channels of financing and commercialization as the markets’ imperfections should so require. Thusly we are referring to large-scale interventions and as such that they would need to be central and not marginal or cosmetic components of any transformational effort.

Closely related to the aforementioned, it will be negative to propose a single formula for approaching these challenges since the diversity of actors and situations will require different promotional modalities. The same solutions are neither viable nor effective to problems and processes that are always singular. Therefore it would be advisable to encourage multiple original interventions even when, it cannot be ignored, some common denominators could be identified.

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