Policarpio, Jerome S.

20058568 MSEM

GSECOMAN 08/11/2018

Digression 1: Inclusive business in a non-inclusive developing economy

As defined, an inclusive business is a sustainable business that benefits low-income

communities. It is a business initiative that, keeping its for-profit nature, contributes to poverty
reduction through the inclusion of low-income communities in its value chain. In simple words,
inclusive business is all about including the poor in the business process be it as producers,
entrepreneurs or consumers.”

Fundamental to inclusive business is the belief that commercial drivers, including

expanding markets for products and services and maximising profit, can be aligned with
development outcomes. Inclusive businesses find profitable ways to engage the low-income
segment into their business operations in a way that benefits the low-income communities and
creates sustainable livelihoods. This can include directly employing low-income people,
targeting development of suppliers and service providers from low-income communities and
providing affordable goods and services targeted at low-income communities.

Non inclusive growth causes unequal distribution of growth in an economy.

Many developing countries have experienced extended periods of slow or no growth. In

some cases, a country’s leaders are simply confused, and do not understand what needs to be
done. In most cases, however, the ingredients of an effective “growth model” are well known,
and the problem is a lack of political or social consensus about how to implement it.

Achieving a higher growth equilibrium is rarely a gradual or incremental transition. It

requires a discontinuous leap in expectations and policies, and a fundamental shift in the
political and social consensus. When these shifts occur, leadership plays a crucial role, by
providing citizens with an alternative vision, based on common values, that all stakeholders can
support. Such leadership can come from above, from below, or from a representative group. But
as the persistence of low-growth equilibria in many countries shows, it often doesn’t come at all.

The spillover effects of non-inclusive growth are already evident almost everywhere, to
varying degrees, in the form of social polarization, policy gridlock and incoherence, and a
generalized loss of public trust. In this respect, developing countries’ experience holds
potentially important lessons for policymakers and various stakeholders in advanced
economies.

There has been some progress in identifying the factors causing economic inclusiveness
to decline in the last three decades. This is important: only by understanding the nature of the
challenge can we develop more effective responses to it. If we misdiagnose the problem with a
flawed or rushed analysis, our response will be ineffective, and probably even
counterproductive.

That said, the analyses conducted so far have not yet generated widespread awareness
of the threat that non-inclusive growth poses to productivity and economic performance as
conventionally measured. The adverse economic effects of non-inclusive growth grow and
multiply slowly over time, and will continue to do so in the absence of collective action—usually
but not necessarily manifested through government—to shift prevailing distributional patterns.

Some would disagree with this proposition, because they believe that the factors behind
economic performance and dynamism are independent of distributional patterns. But I would
remind them of the second lesson from developing countries’ experience: non-inclusive growth
patterns undermine trust and eventually governance, in turn undercutting policymakers’ ability to
sustain policies and strategies that support high growth.

To put it bluntly, insightful analysis has its uses, but change will not happen without a
widespread social and political convergence around shared values and objectives—something
that is sorely missing in many countries today. People need to trust one another and their
leaders, and they need to agree on how to assess and respond to polarizing economic and
social trends.

At the same time, continued inaction will fuel alienation, creating a vicious circle of
distrust and paralysis that will have to be broken before effective action can occur. There are
already many important initiatives dedicated to various dimensions of the inclusiveness
challenge, which include not just income and wealth inequality, but also automation, artificial
intelligence, and the future of work. Despite their good intentions, it remains to be seen if any of
these initiatives will pave the way for effective policy responses.

The value of insightful analyses of such complex problems should not be discounted.
But we cannot assume that getting the diagnosis right will be sufficient to overcome political
gridlock. The other key ingredient is direct engagement. Restoring public trust will require a
deep and sustained commitment, and a new consensus that is broad enough to overcome the
political and social divides that are now legion across advanced economies.

From this perspective, the proliferation of commissions and other initiatives that are
structured around inclusion, which might seem excessive and redundant under less polarized
circumstances, is actually very encouraging. Convening diverse voices from business, industry,
labor, government, academia, and civil society—and doing so as frequently as possible—is
exactly what is needed right now.

The engagement aspect of the inclusive-growth mission may seem a bit nebulous,
especially next to concrete analysis. Nevertheless, it is crucial. Bringing together people who
disagree or even distrust one another is the first step toward building a foundation for collective
action in the future.