IS AN INCLUSIVE ECONOMY?
Today’s economy is in a state of disequilibrium. Technological advancement and globalization have led to unprecedented innovation and economic activity over the past two decades. However, these forces, coupled with the effects of climate change, have also contributed to a rise in inequality and social instability, leaving large segments of humanity unable to participate in the new prosperity.
Simply put, the economy is growing, but not inclusively. Inclusive economic activity respects or promotes biodiversity and ecosystem services, sustainable production and consumption, and human dignity. By incorporating inclusive practices in their core operations and value chains, businesses can support the upward mobility of suppliers, consumers, employees or other stakeholders while also creating financial and reputational capital.
By partnering, businesses, social enterprises, non-profit organizations, and individual change agents can achieve mutual benefit by participating in inclusive economic development, accomplishing a multiplier effect for positive societal impact.
A consensus is emerging across the political spectrum that creating a more inclusive economy should be a top policy priority. Referring to the economic imbalance as a “dignity deficit,”2 Arthur Brooks, president of the American Enterprise Institute, echoed humanitarian and social concerns in calling for broad-based and sustained progress in living standards, including wage and non-wage incomes, economic opportunities, security, and quality of life.3
According to the Joseph Rowntree Foundation, “equality of opportunity” and “participation in growth by all” – with a special focus on the working poor, the unemployed, and society’s most vulnerable people – form the very basis of inclusive growth.4 UNDP’s chief economist, Thangavel Palanivel, recognized multiple definitions but pointed out that there are some common features, namely: “Growth is inclusive when it takes place in the sectors in which the poor work (e.g. agriculture); occurs in places where the poor live (e.g. undeveloped areas with few resources); uses the factors of production that the poor possess (e.g. unskilled labor); and reduces the prices of consumption items that the poor consume (e.g. food, fuel and clothing).”
Calls for prioritizing economic inclusion are no longer emerging on the sole basis of humanitarian and social concerns; they are also economic. Alarmed by stagnating productivity around the world, leaders like IMF Managing Director Cristine Lagarde are pushing to make inclusion a focus of economic policy, highlighting the job losses caused by technological progress, globalization and structural reforms and the seriousness of resulting economic and social problems. The concept of inclusive economic development that used to be applied almost exclusively to the developing world is now becoming a universal global priority.
The World Economic Forum, the foremost gathering of business and political leaders from around the world, is starting to ask questions such as “can market mechanisms be developed to widen social participation in new forms of economic value-creation?” and whether “rising in-country inequality can be satisfactorily redressed within the prevailing liberal international economic order.” Meanwhile, case studies of successful inclusive business models have been emerging over the last several years, proving inclusion to be both socially and economically beneficial. As the WEF points out, we need to find a new equilibrium leveraging the same drivers that led to this current situation.
We at the Inclusive Economy Consortium believe that global value chains are central to restoring equilibrium. Technological advancement and globalization enabled the evolution of global value chains, which account for approximately 60 percent of global economic activity. We believe that inclusive solutions implemented through a value chain approach, especially when supported by partners, can support the upward mobility of suppliers, consumers, employees or other stakeholders while also creating financial and reputational capital for all involved. In other words, they have the potential to achieve market transformation towards a more inclusive and sustainable economy.
For example, Schneider Electricity, a French multinational corporation, partnered with Grameen Shakti, a social enterprise, to install hundreds of thousands of home solar systems in Bangladesh where 1.3 billion people lack access to energy. This effort was enabled by a fund with backing from various private and public institutions. As a result of this partnership, Schneider is able to provide its energy solutions to the base of the pyramid (BOP), a market valued at approximately $5 trillion dollars. Grameen Shakti is able to scale its efforts to provide energy access to those in need, and corporate philanthropic and international development institutions’ resources are successfully leveraged to enable the effort.
There is a broader consensus than ever before on the need for more inclusive growth and development models, including vis-à-vis global value chains, but this consensus, as the WEF puts it, “remains more a discussion topic than an action agenda.” Furthermore, though cases of successful inclusive business models are celebrated, they have remained almost entirely in the developing country context, little is understood about their potential in developed economies.
Without any tested formulas prescribed on the “how,” and recognizing that universal solution model is unlikely to be possible, and can run the risk of repeating past mistakes of “one size fits all” top-down economic development approaches, we set out to experiment with a networked based approach to bottom-up inclusive economic development.5 The Inclusive Economy Consortium connects those working towards this goal across sectors and professions, locally and globally, in order to share their knowledge, thus putting inclusive ideas into action.
The Inclusive Economy Ecosystem
The inclusive economy is a non-linear, complex and dynamic system involving more than the visible partnerships among companies, non-profits and governmental organizations. People, culture, and technology serve as the institutional, market, and socio-economic ‘glue’ that binds, catalyzes and accelerates interactions and innovation. The inclusive economy ecosystem is propelled by the interactions among entities playing one or more of three roles: 1) corporations, 2) entrepreneurs, and 3) enablers.
Inclusive corporations incorporate intentional social and environmental practices to increase competitiveness and foster societal well-being. Inclusive business practices can be related to employees, suppliers, distributors, or consumers. By applying socially responsible practices in core operations and value chains, inclusive corporations use their influence to accomplish a multiplier effect when it comes to their societal impact.
Inclusive entrepreneurs are small and mid-sized enterprises (SMEs) that create innovative new processes, products, or services that address and improve the quality of human life at the micro or macro level. Inclusive entrepreneurs respond to market failures with transformative innovations aimed at solving social problems while maintaining financial sustainability.
Enablers serve as a critical yet invisible actor in the inclusive economy. People, culture, and technology act as the institutional, market, and socio-economic ‘glue’ that binds, catalyzes and accelerates interactions and innovation. Enablers facilitate collaborations and connections; transfer knowledge; generate and share new knowledge; devise various forms and stages of financing; implement supportive policies; and much more.
1 M. Rosales, Dignity Pyramid
2 Arthur Brooks, the President of the American Enterprise Institute
4 Joseph Rowntree Foundation, https://www.jrf.org.uk/about-us
5 Informed by the pioneering work of Dr. Greg Dees