Opinion Sur
Redistributing incomes produced in a concentrated way as well as de-concentrating wealth generation facilitating capital formation in popular sectors constitute two complementary strategies in order to deepen social inclusion.Economic concentration and income redistribution
In a context of concentrative growth, an option to achieve social inclusion is redistributing a share of the incomes generated by the concentrated economic system towards popular sectors; for example, adopting a more progressive tax system and a better social allocation of public expenditure. This way, the economic system keeps generating wealth in a concentrative manner while the State seeks to apply compensatory measures: it gets incomes through debt and taxes it imposes and allocates them to finance productive and social services and infrastructure that improve the quality of life of popular sectors. As long as the economy functions correctly and whoever rules has enough political strength to maintain this income transference, redistributive policies will promote social inclusion.
However, diverse circumstances attempt against the purpose of compensating and not transforming concentration. To begin with, economic power manages to evade a fair share of its tax obligations so it significantly reduces the level of available incomes to redistribute; plus, it has great influence on the definition of fiscal (imposing regressive tendencies) and public expenditure (orienting assignations according to their interests) policies.
On the other hand, the amount of taxes that fall on those who do not evade has clear limits: the tax burden should not make national production unviable, nor should the levels of indebtedness overcome the capacity to repay the contracted debts. The fact is that in a highly competitive context, whoever is left behind in growth and innovation risks being displaced by more dynamic actors of other countries. Meaning, if the fiscal burden affected national capacity to compete and the State could not reinforce the viability of companies and small producers by improving the socioeconomic environment, then the model based on generating concentrative incomes so as to then redistribute part of them would deteriorate (see the European case) and could end up collapsing.
In that context, financial capital and great multinational corporations manage to extract the best results since they can choose in which countries to operate and they have countless mechanisms to minimize tax payment, such as under invoicing what they produce in favor of subsidiaries based in tax havens [[The day this article was written, the Argentinean fiscal authority suspended the local subsidiary of one of the largest international grain traders accusing it of evading taxes for 1.2 billion pesos (256 million dollars) through ‘harmful operations of triangulation’. The grains were sent to China and India, but the local subsidiary under invoiced the merchandise to a Uruguayan trader located in the Free Trade Zone that later billed the real client for the full amount. The profit was kept by the trader in a jurisdiction where there is no Income Tax committing the crime of fiscal evasion that ultimately punishes the Argentinean population. How many other similar criminal operations may have already been conducted without being detected!]]. They manage to evade national regulations and compete with advantages by evading a great part of the income redistribution weight.
This way, the logic of a process that generates wealth in a concentrative manner and then redistributes a segment of thus produced incomes, faces severe limitations that may affect the process’ own base of support: this means, the capacity of generating enough incomes to sustain the redistribution over time. Here lies a tension inherent to every concentration process: it seeks to preserve the profit margin of privileged sectors, it needs to ensure the economic viability of the system that sustains the privileges and has to finance social needs that may turn to destabilize the chosen course.
An additional goal for redistributive policies: financing capital formation in popular sectors
It is in order to specify that redistributive policies can be used to ease unwanted effects of concentrative growth without modifying its nature as well as, conversely, to accompany and reinforce efforts seeking to transform that way of growing. Such a different functionality will depend on the orientation that is assigned to national development since it is in that context that the aims redistributive policies will pursue are outlined.
Therefore, same way there are different types of economic growth, different types of redistributive policies can also be adopted, a double obvious fact that, surprisingly, is often ignored.
So we ask ourselves how parting from the field of redistributive policies one could have a bearing on promoting an inclusive economic growth that serves as the foundation for a sustainable development.
One very important transformational option is to channel a significant part of what is going to be redistributed towards capital formation in large sectors that get little or very little of economic growth’s results. The purpose is to mobilize the absurdly wasted talent and productive potentiality that lies in popular sectors and, with it, achieving several simultaneous effects: contributing to local economic development, improving income distribution and progressively reducing the dependency on redistributive policies themselves.
This transformational action is therefore characterized by (i) orienting investment resources towards popular sectors as to promote its productive mobilization; (ii) given the dimension of the challenges to be faced, the action must be of wide coverage and not limited to facing a few demonstrative projects; (iii) to ensure effectiveness, it is indispensable to establish the new ventures in promising sectors and with appropriate productivities; and (iv) this productive mobilization of popular sectors must promote responsible economic actors that safeguard the environment and strengthen social cohesion with their activities. The ultimate purpose is to achieve a massive, effective and responsible productive mobilization of today neglected popular sectors, a mobilization that constitutes itself in one of the foundations for a non-concentrative inclusive growth.
Deploying redistributive policies
Redistributive policies are managed by the State but, to become effective, they need to involve a diversity of actors and, hence, be deployed in several levels: (i) at the level of macroeconomic policies (such as public expenditure, taxes, monetary measures, investment, science and technology) as to adjust their orientation towards serving interests and needs of popular sectors; (ii) at the level of promoting changes in the mesoeconomic behavior of those leading productive chains since those actors have decisive influence on wage compensations and other labor conditions, they have the capacity to promote organic growth of all those integrating their value chain and, through their corporate decisions, they can generate positive or negative effects on the social context they operate in; (iii) at the level of direct support for popular sectors to appropriately finance and structure their access to capital formation from which to derive better incomes; and (iv) at the level of those who shape public opinion (media, civil society organizations, social movements) with the purpose of ensuring citizen backing to the adoption of a fair and sustainable course.
Measures that implement redistributive policies have different scopes. Some measures affect almost every low-income sector, such as a greater and better investment on elementary education, technical schools, health centers and hospitals, environmental sanitation and safety in their neighborhoods. Other measures have on the contrary differentiated impacts such as wage and labor conditions improvements that benefit registered workers, only indirectly informal workers and do not benefit the unemployed and homeless people who carry out occasional work to survive.
Regarding capital formation promotion in popular sectors there is a lot to consider. Economic policy generally states the need to increase investment and capital formation in diverse sectors, sometimes prioritizing those considered to be more promising and strategic for the country’s development. What is not always made explicit is which social actors will participate in that investment increase and, particularly, how popular sectors will be able to channel a portion of the national savings to finance their own capital formation thus contributing to bring down inequality and reinforce growth’s socioeconomic sustainability.
Hence it is not enough to merely determine what level of capital formation is necessary to uphold a certain level of growth, but also to consider the composition of the new capital being added to the economy. The sort of capital formation that prevails will have implications on several aspects of the social and economic structure of a country: among others, the degree of organic growth that is achieved; to what extent do the different social actors take advantage of the new investment’s effects; the different import propensity of each type of investment and, not less important, the quite distinct inclination that different actors present towards evading and falling into capital flight.
When popular sectors are aided to participate with better possibilities in the productive process, income generation and distribution constitute a single socioeconomic act, with a strong additional systemic effect: as the de-concentrated generation of popular income advances, the weight of the redistribution measures will tend to diminish or, at the very least, contain its expansion.
How to effectively channel investment resources towards popular sectors
To achieve it, support systems will have to be developed for the small and micro producer that allows them to access the best knowledge available regarding technology and management, modern organizational engineering, financial resources and appropriate commercial contacts. The issue is that large population majorities carry on activities of low productivity; many of them merely subsistence activities. Given the circumstances of scarcity of all sorts of resources, the passage from their present situation to another more promising is not an easy task and much less if it is confronted in isolation.
It is certainly critical to elevate the scale of the productive solutions, which is far from meaning ‘crowding’ small producers in heavy, poorly efficient structures lacking the necessary agility and effectiveness to sail in competitive markets. The challenge is to articulate small, scattered producers in well-managed medium scale organizations that are able to integrate promising value chains.
Therefore, redistributive action is not exhausted only on channeling financing onto majority sectors: it requires doing so effectively and responsibly, ensuring sustainability for productive solutions adopted and promoting economic actors that do not affect the environment and social cohesion.
What sort of organizational engineering could be implemented? There is a great diversity of options available.
On one hand there are the well known franchise systems, in which a franchisor convenes a number of small producers who agree to homogenize their production, buy inputs together, commercialize their activity under a single brand, adopt common management, customer service and quality levels criteria, among others. The franchisees submit to a training, supervision and quality control regime with sanctions for those who transgress it. In exchange, each of the small producers aspires to attain higher profits than those they would get acting on their own, while keeping the ownership of their assets. In a franchise oriented towards productively mobilizing popular sectors it must also be added a critical third actor absent in ordinary commercial franchises [[They can be constituted by diverse combinations of public sector representatives (local, provincial or national), development agencies, foundations, responsible corporations, universities, among others.]] and whose main role is supplying contacts, access to markets and financing, as well as ensuring equity in the distribution of profits.
Other types of organizational engineering oriented to effectively structure the productive mobilization of popular sectors include export consortia, specialized trading companies and other facilities serving networks of small producers, locomotive agro industries, second and third level cooperatives that face aspects regarding commercialization, transformation or financing the production of ground cooperatives, among other modalities.
But, who could help (i) structure these different types of inclusive ventures, (ii) identify good economic opportunities and (iii) assist them so they can make the best of them? Several types of organizations, including those Opinión Sur calls Developers of Inclusive Ventures, which are small well-qualified teams with the capacity to contribute their own effort and also mobilize technical backing and funding from other sources. There lies a very promising line of work for the public sector and development organizations geared to effectively promote capital formation in popular sectors.
