The case for inclusive growth

As Chinese factories close, the post Tiananmen Square “growth pact” between the government and citizens is fraying at the edges. Shutting factories and unemployment was not in the equation. And the power of disaffected people is clear in a democracy too. Take the last Indian elections when, despite growth at 10.4% in the previous quarter, the ruling government was ousted.

Meanwhile, in the Developed World, Fat Cats apologise and unemployment rises. Before we get wrapped up in the moral outrage let’s be careful that our focus is not to rebuild a better yesterday. This crisis is being played out against a massive rise in global population and serious gaps between the rich and poor. The case for inclusive growth needs to be heard. Faced with depressed demand we cannot afford to ignore the potential for all sorts of products and services in emerging markets and the Majority World.  

Recession is prompting radical rethinking of the high risk / highly geared strategies of the past few years. For starters, SMEs are the engine of much of the employment in the formal sector (85% of jobs in the USA and 65% in the EU; 60% of China’s economic output and 75% of the urban work force*). Add in the sheer scale of the Informal communities all over the world and we need to rethink business models and seek hybrids that build from common purpose.

This is not about charity. This is about tapping into markets. And any marketeer will tell you that a product that answers a need is the place to start.  

In an FT supplement today Professor Christian Seelos of IESE, Bareclona urges “symbiotic business models” in emerging markets. Cautioning on ways in which many Third World countries kill off entrepreneurial and productive activity through corruption; he champions social entrepreneurs who” help build institutions and innovative business models in emerging economies  … as a basis for sustainable development”.  These people have long been undervalued but, as Yunus and the Grameen Bank demonstrate, such initaitives can have a massive impact on building capacity.

Elsewhere on this Blog, we highlight the points raised by Milford Bateman on the Balkans – that micro loans will not be enough to build the infrasstructure or, enable global players to emerge but,  the role of fresh thinking on business models is sound.

Professor Seelos goes on to highlight a number of ideas that help to build these symbiotic models. He speaks of identifying bottlenecks in the Majority World and, focussing for-profit business models on these constraining elements. This is true of all sorts of products and services.

In T L terms, this is all about process mapping industries end-to-end; observing the synergies between the formal and informal sectors and  then moving to simplify, eliminate, combine or find ways of capitalising low-efficiency processes. And this takes us into Green supply chain territory.

The opportunity to transform economic fiortunes by opening up remote rural areas to national, let alone global, markets could have a major impact on urban congestion. Elsewhere, we have argued for investment in a network of townships that would offer aggregation services to a group of dispersed villages. There are 600,000 villages in India – we can’t spread scarce funds evenly. This is similar to the Chinese policy of fixing the Ports first and moving inland as markets consolidate. You don’t climb mountains without a base camp and crampons. 

Also, the role of affordable information technologies can play a major role in this. The mobile phone opens up so many possibilities on order processing, aggregation and, market information. And enabling market access will open up fresh markets for stunned producers worldwide.

I have mentioned the creation of a network of townships that offer a range of aggregration services. Let me add one more dimension to this – the people factor and skills.

Building the capacity to achieve inclusive and sustainable growth will be driven by success in raising the levels of functional literacy and the skills base. This is the only way to move from dealing with symptoms to dealing with what Bob Geldoff has called the structure of the poverty problem. Images of dead tractors rusting by the roadside and luddites wrecking conveyor belts in a Mumbai warehouse trigger the thought. And the role of women in this arena cannot be underestimated or, forgotten. Neither can the dignity of empowering people to deal with their own life challenges. So, to add to those aggregation centres – what about performance improvement centres that will focus the needs of the local community in growing their own futures. These could be sponsored by OEMs (original equipment manufacturers) and even feature environmentally friendly simulators. There is more to learning than a text book. And competency schemes could prolong the life of machines and even generate reductions in insurance premiums …

We have touched on connectivity, the information technologies and the affordable supply chain throughout this Blog. Professor Seelos has identified new models for the future in a context of managing downturn opportunities. We need to close with the purpose of development itself – quality of life.          

For me, strategy (Corporate and otherwise) is all about imagining your future environment and then, producing the map to get there. We have to make sure that we are imagining an inclusive world where the Informal and Formal have a role to play in the same space. We cannot be content to imagine a better yesterday.

The potential for sustainable growth in the markets for so many products and services is stunning. This is not to romanticize the poor or, speak of everyone being entrepreneurs. It is simply this – we can’t afford to ignore an inclusive agenda if we are to achieve a sustainable way out of the current financial mess we are ALL in.

*China’s Small Factories Struggle, Wall Street Journal, Jan 31st / Feb 1st 2009

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3 Responses to The case for inclusive growth

  1. Tom says:

    China has requested to get environmental technology for free from the West, in order to cope with their environmental challenges. For the last 10 years China has provided the US and Europe (and also the rest of the world) with cheep consumer products, enabling us to increase our consumption. China has been subsidizing our rapid consumer growth, taking the environmental costs at home. What does the West offer back? The US offers to sell more government debt, in order to continue their consumption. For Europe, China has been a export harbour, enabling German companies to set up car factories, export more Audis than ever – giving a boom at home. With the 20-25 millions returning back to their farmer cities now after Chinese New Year, due to that they do no linger get employment in the cities. What can China offer them? What can the government do to stimulate their entrepreneur role of these people returning back to the small villages? Maybe even more interesting will be to find out, who of these workers can start new business without government support? Most of all, how can we in the West co-operate with China and not exploit or profit on their environment problems? I do believe we need some real leadership to set this global agenda.

  2. Ben Dunn says:

    This makes me think about the film ‘A Beautiful Mind’, and John Nash’s idea that individuals should do what is best for themselves AND the group. If the incentives for bankers and indeed whole economies were weighted that way, we would end up with much more of a trickle down than we do right now. Maybe even ‘Pay it forward’….

  3. Tom says:

    Yes, you are right Ben. I do believe one need to think outside the normal “commercial” BOX in order to overcome the environmental problems China and other Asian countries to face, due to providing us with cheep goods and to increase their living standard. Our payback could be environmental technology in return for the goods they provide – or one could look at new ways of trade between West and East.

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