Inclusive ventures to abate inequality and poverty

Although it may entail confronting none too few challenges, it is possible to set up promising, productive ventures that benefit poor communities based on an appropriate ownership structure, a well-selected strategic partner, excellent management, and modern business engineering. Inclusive ventures are part of the search for new ways to shape economic activities; they represent the sort of economic player who aims to combine equality with efficiency and responsibility. The global crisis has exacerbated inequality and poverty in the world; the hardships that affect a large part of the population remain, and some of the circumstances that led to the crisis are being reproduced. Despite several worthy efforts, it has not been possible yet to steer the systemic course toward sustainable development. However, increasingly weighty opinions, analyses, and strategic proposals are surfacing in the search for new directions. This is the time to strengthen that process by conceiving socio-economic tools and structures, which will help to implement at a concrete level newly minted solutions. Inclusive ventures are part of that search for new ways to shape economic activities; they represent the sort of productive player who aims to combine equality with efficiency and responsibility.

1. Strategies for the abatement of inequality and poverty

Let us recognize that inequality and poverty can be brought down; but it cannot be accomplished with a ‘special program’ separate from the regulations that guide the course and systemic way of functioning. On the contrary, it will be necessary to integrate that objective into all aspects and levels of socioeconomic policy and practice; starting with macroeconomic policies, through mesoeconomic behaviours (particularly of those leading value chains), including an effective support for the base of the social pyramid and an ongoing work on social values and individual attitudes. (1)

(i) Solutions through the provision of better social services

Some solutions aimed at abating inequality and poverty have to do with providing the base of the social pyramid with better education, health, security and housing services, among others. This can be achieved by means of a more appropriate and effective allocation of public spending coupled with firm changes in the tax structure so as to free our southern hemisphere countries of the high regressive nature that tends to characterize their tax systems. It is equally important to secure monetary stability as it is well known that inflationary situations provoke important income transfers among sectors and people, punishing the most vulnerable and aggravating inequity.

During social emergencies countries resort to subsidizing disadvantaged families in order to cover in some manner their most basic needs. Subsidies demonstrate the failure of the economic system to provide productive inclusion to that huge population mass. And, although necessary in order to confront the critical situation of disadvantaged families, if subsidies are kept in effect for long periods of time, the result negatively affects the work ethic and facilitates the establishment of a system of patronage disastrous to the workings of democracy. Those sorts of subsidies should not be proposed in perpetuity, but rather as a transition from the emergency toward more sustainable solutions.

(ii) Solutions geared toward generating employment and income through economic growth

Other solutions, that do not substitute the previous ones, are geared to generate employment and income for the sectors of the base of the social pyramid. Conventional policies (that are not less important for being conventional) intend employment and income to be produced from and as a result of the growth of the economy as a whole. The growth of some economic agents and sectors generates multiplying effects that radiate throughout the productive networks they operate in. With that impulse, suppliers, distributors, tradesmen, workshops that add value to the final product are benefited. All of them, in one way or another, grow to some extent under the influx of the economic expansion.

This means to say that economic expansion “in some way” and “to a certain extent” spills over the economy as a whole. The problem lies in that those “ways and degrees” are not distributed homogeneously; in general, they are rather modest or even inexistent for the sectors of the base of the social pyramid. Hence, the challenge of “extending” in a coordinated way the multiplying effects of the economic growth to the disadvantaged sectors in society was brought up; in order to achieve it, a series of restrictions that hinder, deviate or sterilize those beneficial effects need to be removed. The focus of this approach is related to what we call the mesoeconomic responsibility of productive chains’ leading firms and the promotion of what are identified as inclusive businesses.

(iii) Mesoeconomic responsibility and inclusive businesses

If businesses do not take on as theirs the responsibility to help generate genuine employment and if they limit their social contribution to paying taxes and participating in philanthropic projects, it will be very difficult to abolish inequality and poverty; it is unlikely that the public sector and civil society organizations alone can accomplish it. This does not mean transforming the entrepreneur into a development organization, but it does mean recognizing what he/she is: an agent who influences development. The primary yet not exclusive responsibility of the entrepreneur is to ensure the economic viability of his company. However, his business decisions impact on his mesoeconomic milieu, that is, on the functioning and results of other businesses and other economic players; ultimately on the generation of more and better genuine employment.

In fact, in the trajectory of a business on multiple occasions different alternatives can be considered when facing a specific decision, all of which can bear similar results for the company but whose impacts outside the business itself can be quite different. If the company were not concerned with what happens outside its immediate sphere of action, it could make a choice based on an analysis of profitability only focused on its interest in the short term and despising the indirect impact of its actions. But if the company gained awareness that its choices in terms of business decisions (technological, commercial, organizational, etc.) had –as they do- differential side effects in its market and community, then it could incorporate those indirect effects in its decision making analysis in order to try to add more rationality and mesoeconomic impact. It is worth clarifying that it is not about adding a new cost item to the business calculus (at least not a significant one), but to generate new benefits to the context it operates in which, directly or indirectly, in the short or long term, will end up benefiting the firm itself, its productive network and its community.

This is a critical work front in promoting an economy that is more socially and economically sustainable. This concept is rooted in the acknowledgement that the problems of inequality, poverty, and unemployment are not the exclusive domain of those affected and of the current governments: it is the co-responsibility of the organizers of production. Therefore, the solutions to such a complex problem involve the various levels of government, as well as the entire universe of entrepreneurs and the under and unemployed themselves.

(iv) New strategic criteria for abolishing inequality and poverty

From the aforementioned emerges a new body of basic criteria to guide the efforts to abolish inequality and poverty: (i) support to the disenfranchised and vulnerable cannot be limited to covering their subsistence level during emergencies; what they require are the conditions to mobilize themselves as producers; (ii) the public sector fills the crucial role of putting into effect appropriate macroeconomic policies which assure the full mobilization of all available productive factors, facilitate capital formation in the population segments at the base of the social pyramid, and thereby their better integration into the national economic system; it is responsible for establishing a good regulatory framework which offers security and equal conditions to productive initiatives; (iii) entrepreneurs can and should take on an even more crucial role in the creation of genuine employment opportunities, extending their sphere of responsibility to consider the impact of their business decisions on other agents in their mesoeconomic environment. Thus, the creation of genuine employment is not only a macroeconomic goal and therefore the sole responsibility of the public sector; neither it is only the microeconomic result of each individual company or civil society organization effort: all of this counts and a lot, but the mesoeconimc responsibility of corporations, particularly those that lead production chains, now has to be added.

The mesoeconomic view affords more pragmatism and viability to business co-responsibility, as it is not a question of overloading the workforce of any given business, but of marshalling the economic power which it exerts in its value chain to help to generate more and better jobs. In this way, suppliers, distributors, and contractors who add value to the end product, could benefit from the knowledge, contacts, access to markets, and administrative know-how of companies with a much larger reach and scope.

In some cases this type of mesoeconomic initiative to support small entrepreneurs crops ups spontaneously without the need of any further backing than that of clear rules to ensure they will be implemented with justice and equity. In other cases, especially in regions and localities that have widespread unemployment, this is not enough and new initiatives will have to be promoted. Here is where another battery of instruments capable of promoting the productive mobilization of huge disadvantaged population sectors will be required, including local funds to support productive investments, inclusive business developers, and social and environmentally responsible angel investor networks.

2. Another step forward: Inclusive Ventures

Inclusive businesses emerge therefore with the backing of some value chains leading companies who seek to improve the impact of their business decisions on other agents of less magnitude; in this way they are expressing their mesoeconomic responsibility.

Another strategic area of entrepreneurial action is that of new inclusive ventures. This refers to establishing newly minted production units that integrate currently scattered small producers, using modern business engineering available in today’s market. It is about forming medium-sized economic organizations that, due to their scale and management ability, are able to access more promising opportunities.

What business structures can be used to integrate small producers from the base of the pyramid into a midsize organization (which would characterize the venture as an inclusive one)? Among many other modes, it’s possible to use a franchise formula, a cooperative, an export consortium, a central service provider which services a network of producers, an agribusiness or a community supermarket that acts as a locomotive organizing and channelling the production of small farmers. It is about promoting, more than just an inclusive ‘business’ (its existence, welcomed), but an inclusive ‘venture’.

In an inclusive venture, small and micro producers would participate of its property and results without harming but rather reinforcing an effective management. For that purpose they should tend to associate with strategic partners that bring over state of the art knowledge and technology, access to contacts, markets, modern ways of structuring and managing ventures. In contemporary economy non-financial value added (knowledge, information, belonging to a network of relations, modern business engineering) are as or more important than financial capital. Hence the aim is not to consecrate poor people “ghettos” but rather to facilitate small producers to become a constitutive part of successful productive initiatives, giving origin to a new type of economic player. The idea is to close a huge gap that is economic, but also about knowledge and social and environmental responsibility. These are the foundational pillars of an inclusive venture. We will introduce other most important traits by means of an example.

An example is worth a thousand words

Some weeks ago I was invited to present the inclusive venture initiative to an outstanding group of local governments, community organizations, small producers and universities (2). In that meeting, a group of indigenous producers of the Ecuador highlands presented a valuable experience of solidarity-based economy. These are farmers who possess ancestral knowledge concerning food, much of which remains unknown in westernized urban markets. They pointed out that that food has a high nutritional value and is produced organically. It is sold in fairs and local stands in small communities by “caseritas”, women who take care of the sales points in a traditional way: eventual buyers approach them, assess quality and bargain prices. In the course of the purchase process other non-commercial topics are tackled (local events, family circumstances, the weather, etc.).

Farmer representatives resented the fact that city dwellers were not buying their fresh, diverse, organically grown products, but instead they would go overboard to buy the offers of urban supermarkets where, moreover, ‘there is no one with whom to make conversation’ (people just go, choose their produce, put them in the shopping cart, go to the register, pay, and leave; there are no “caseritas”).

We reflected upon the situation they described trying to identify a way out. Even though something can be done with urban consumers regarding the nutritional profile of the food they buy, it is not easy to establish, and even worse to sustain, their loyalty towards the food offered by the indigenous communities. The issue is that the convenience of finding the whole range of products of domestic consumption in a single place of easy access is an attraction very difficult to outdo. The new habits, home infrastructure to conserve food and contemporary acceleration tend to replace the small daily purchases by larger weekly or fortnightly ones.

The question that opened new pathways for analysis was if it would be worth it to explore establishing a “community supermarket” in the city. That is, based on the asset of having a community of small producers already organized as an economic initiative, then why not moving from merely production toward a modern and more efficient marketing of their products through an affiliated supermarket.

From the dialogue various items emerged to shape the eventual initiative. At the outset, the community supermarket would be the property of (i) the small indigenous farmers already organized around the experience of economic solidarity, buying their participation in the ownership with facilities linked with their roles as suppliers, (ii) municipal and provincial governments, (iii) a strategic partner with supermarket experience. The strategic partner should add financial value as well as modern business engineering expertise, efficient management of an inclusive venture, and access to other sources of funding.

The way ownership would be structured should guarantee an efficient management, exercising full social and environmental responsibility. Running economic initiatives demands an operational agility that does not fit with frequent mass assemblies. Thus, appropriate stages and modalities of management supervision need to be established, as a way to reconcile an effective owner’s follow-up with the managerial flexibility required to insure an efficient decision making process.

The community supermarket would integrate the habit of dealing with ‘caseritas’ in the fresh food section. They would be the contact person with the customer regarding locally produced fruits and vegetables until the conclusion of each purchase, although payment would be carried out at the checkout registers. For the remaining non-perishable items the usual supermarket processes would be adopted.

The small producers would channel their production to the supermarket, adjusting quality and presentation formats to the requirements of urban customers. In this way they would have the double benefit of placing their production at a fair price and of participating in the community supermarket yearly results.

The community supermarket will also be an accumulation node; were it to be successful, it would amass a surplus which can be assigned to various purposes; some of them related to the permanent improvement of the physical plant, others to expanding coverage by opening new shopping outlets. But part of the surplus could be allocated to other businesses in the same value chain. For example, the need to cut and package broccoli was noted as one way to add value and get better compensation to their production; to get it done it would be necessary to set up a small packaging plant that might be financed with investments from the supermarket and the producers themselves, as well as with loans. This framework would make viable a promising project that today cannot be implemented.

It was also made explicit that the contact between different cultures brings about challenges and tensions that need to be appropriately addressed. The perspective of the small production, where almost all of the executive functions are taken on by one person or family, is not the same as that of an economic organization of larger size, where specialized division of functions becomes a must. The nature and sensitivity of the programming and coordination of activities is very different in each case.

Likewise values, attitudes, reactions towards success and failure differ. It will be necessary to work on establishing understandings and overcoming misunderstandings, transforming the cultural diversity of the players who are coming together into a very valuable asset.

An example is an example and it neither establishes nor confirms any theory; nonetheless, it does give an idea of the potential and the challenges that an inclusive venture presents. As always, the result of an innovation depends on who is leading it, on how it is structured, and on the level of efficiency it is able to achieve. It does not help to fall into a naïve voluntarism or to be sceptical of every innovation guided by a cynical determinism. Essentially, it is about having a clear course and objectives, being creative, to line up interests, and getting organized to access opportunities in a sustainable manner.

Yet, who is in a position to promote the establishment of inclusive ventures and how could that entity proceed? It will be necessary to analyze different options, define methods for action, and evaluate advantages and disadvantages of each alternative. This author proposes the establishment of inclusive ventures developers, something that merits to be addressed in a subsequent article.

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Notes:

(1) Among many other sources which posit a comprehensive approach, see this author’s book Un país para todos, Colección Opinión Sur, 2006.

(2) Regional Meeting of Local Governments, organized by Fundación Esquel in the city of Riobamba, province of Chimborazo, Ecuador, September, 30 and October, 1, 2009.

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Encuentro regional de gobiernos locales: herramientas para fomentar emprendimientos

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