Transformation of value chains

Value chains are not immutable in regards to the way they are structured and function. This is because value chains emerge from a group of factors that change over time; in particular they evolve according to the modifications that take place in the relations among the diverse participating actors. Usually the most powerful actors impose their interests which is materialized in the way the chain they lead is structured and functions. That there are no better options is a falsehood that they try to install to discourage transforming attempts.

 

Transforming a value chain does not imply compromising its viability but rather fairly aligning the interests of everybody who participate in it as well as the chain’s interests as a whole with those of the community they are part of. If achieved, it would be legitimate to receive the State’s support with favorable fiscal and credit terms, the provision of productive and social infrastructure, science and technology, among other backups. More vigorous and fair value chains make the productive system more dynamic and strengthen domestic demand; it also enhances their external competitiveness. In global markets isolated enterprises do not compete, rather entire productive systems do.

Every value chain should respect certain basic operating conditions, such as:

  • That everybody who participates and makes it possible is favored with its development. This means that value chain leading enterprises should not monopolize results but rather they get distributed with fairness among all participants that contribute value to the productive process, including small and medium suppliers of inputs and services as well as the State that facilitates a good part of the much needed social and productive infrastructure. To accomplish that it will be necessary to establish spaces within each chain to negotiate processes and prices so as to eliminate market power abuses and, consequently, value appropriation mechanisms that prevail in contemporary economies.
  • That the goods and services produced by the value chain do not infringe upon the sustainable development of the economic system and the health of its population, as can be the case with productions that are intensive in foreign inputs that tend to generate recurrent external sector bottlenecks or the production of foods and substances that harm those who consume them.
  •  That the activities of the value chain care for the environment and labor rights. Environmental and labor care is a responsibility shared by all the participants of value chains.

Restrictions to overcome

Those who concentrate global and local wealth have grown largely more by extracting than by generating value, what has allowed them to have extraordinary accumulation rates. Moreover, frequently they do no reinvest their returns in the country they were generated but rather they flight them abroad or allocate them onto financial speculation thus sterilizing eventual multiplying effects.

It is within this context that it is necessary to transform the concentrating behaviors that prevail in most of the value chains. The purpose is to influence, through public policies, the way value chains are structured and function, reinforcing and redirecting them towards an internally balanced growth. Indeed, it would be untenable to call for supports so that a few profit at the expense of passing over others. Counting on the firm support of the State can secure value chains that cannot access higher market thresholds the necessary conditions to get into them and successfully hold their position.

Indeed, as it happens in any transformation process, it would be necessary to confront tensions and resistances, processes that need to be managed from the political level as the market dynamic left alone inexorably leads to concentrating horizons.

Spaces for price negotiation within productive chains

  • The precedent of negotiation spaces for wages and labor conditions

We should consider as a precedent the institutionalization of the negotiation process that took place between capital and work regarding the distribution of results in the productive process. Not long ago, employers used to unilaterally imposed wages and labor conditions. The power difference between corporate owners and workers individually agreeing on their salaries was such that the results of that interaction would end up completely biased in favor of employers. To address this situation, guilds and labor unions were formed meaning to defend workers’ rights. One of their main accomplishments was instating labor vindications into the political agenda up to being able to institutionalize collective bargaining spaces for salaries and labor conditions. Despite important differences among countries and phases of political development, the achieved outcome was that there would be no negotiations between such unequal two powers, rather they would take place between employers and guilds and labor unions within negotiation spaces established and regulated by the State. That allowed for ameliorating to some degree the preexistent power differences.

  • Balancing the power of leading value chain enterprises

The economic power of those enterprises that lead value chains forces the rest of the participants into accepting unfavorable conditions for their interests and needs; those who do not accept those conditions are substituted by other small and medium ventures willing to relinquish value to be hired.

How can these abuses of power be corrected? One possibility is with the establishment of negotiation spaces for prices and commercial conditions among participants of a productive chain, including the participation of the State as regulator and custodian of those spaces. The way of structuring those spaces is diverse as it is not the same case a chain with a monopolistic leadership (just one leading enterprise), or those that count on certain number of leading enterprises, or those much more open that have a large number of leaders.

It is also necessary to specify certain parameters within which negotiation can take place. Thus, for example, a basic criterion is to assure that everybody who participates in a productive chain can be favored by obtaining a fair share of the results. It is also true that what is fair for some is not for others, thus, we should associate fair participation with accessing a rate of return that would let any producer to grow over time and not remain stagnant barely surviving. This growth can take place individually or by increasing the productivity scale and thresholds through the association of small producers in some kind of inclusive venture.

On the other hand, the benefits that the parties might claim cannot risk the viability of the own productive chain, which does not mean condoning the concentration and extraction of value. Rather, it implies that leading enterprises will have to give up part of their extraordinary rate of return to enable the growth of the rest and, with that, reaching towards an organic development of the entire productive chain. That is, there will be limits and margins in those negotiation spaces that it would be dangerous to ignore, even more with the asymmetric globalization that has been imposed to the world that makes the fights for competitiveness develop also at an international level.

The viability of establishing spaces for price negotiation

It is not easy to align diverse interests, some of them antagonistic, particularly when the most powerful are able to co-opt or dissuade some with perks in detriment of the rest. Even worse, if the incumbent government, in charge of regulating and ensuring the smooth operation of those eventual negotiation spaces, could tilt over in favor of enterprises that are leaders of productive chains.

Some solutions demand transforming parts of the prevailing structures in certain productive chains. Thus, for example, if there were a level of commercial intermediation that would appropriate a disproportionate part of the value generated by producers, that particular situation would not be solved by disputing the rate of return of leading enterprises; it will be necessary to dismount as well the power that certain brokers detent favoring new commercial channels with some kind of participation of the producers in it. This generally happens in the case of food productive chains where price differences between what the producer receives and what the final consumer pays can be up to 30, 50, or 100 times the original price.

Additionally, productive chains are not autonomous islands separated from the functioning of the economic system and, in particular, from the national and regional productive matrix. Some chains orient themselves preferably towards satisfying the domestic market while others to exports; some chains mainly use national inputs while others strongly depend on imported inputs and equipment; there are chains more intensive that others in the use of labor force; also chains more closely related with the cutting-edge technological development than others; productive chains that are appendices of international corporate networks and productive chains that are spaces where a national, responsible entrepreneurship orientated towards reinvesting returns in its country emerges and gains experience; productive chains that operate in the real economy and others where financial speculation and capital flight prevail. Therefore, there are no universal recipes for the attempts at transforming value chains, rather a careful construction of always singular answers and adjusted to the particular circumstances of each situation should prevail.

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