PROFITS FOR EVERYONE!

The case for inclusive economic growth

BY Jayashantha Jayawardhana

According to the UN, the global population reached eight billion people on 15 November 2022. Although the active labour force is the creator of economic value, trickle-down economics dictates that it’s unevenly distributed.

Which is why Robert Kaplan, George Serafeim and Eduardo Tugendhat wrote in the Harvard Business Review (HBR) that while global corporations and market driven capitalism have created stupendous growth since World War II, and greatly reduced poverty levels, they haven’t benefitted everyone.

Even in developed economies, a small fraction of the population captures most of the gains; the situation is worse in developing economies such as Sri Lanka.

So arguing a case for inclusive growth (economic prosperity that’s distributed fairly across society, creating opportunities for all) is not only important but essential in both the developed and developing worlds.

To be fair, corporations tried to upgrade their traditional CSR programmes to deliver positive economic returns while enhancing the quality of life in low income and distressed communities. But most of those initiatives fell short of creating inclusive growth.

Kaplan et al reveal the main reason why CSR programmes fail is because they’re too limited in their scope. They argue in HBR that “poorly functioning supply chains and systemic talent gaps cannot be solved by any single company through targeted local solutions such as building a new warehouse, establishing regional headquarters, selecting a local distributor or building a school, or training centre.”

“A sustainable, scalable solution requires that the company helps create a new ecosystem that replaces economically and socially inefficient supply chains with ones that are both more profitable, and capable of bringing more people into the formal economy,” the theorists surmise.

The authors identified four principles for designing strategies that can create inclusive, sustainable and profit generating ecosystems in developing nations.

Businesses should search for systemic multi-sector opportunities; mobilise complementary partners; obtain seed and scale up financing; and implement new measurement and governance systems to build commitment, monitor progress and sustain alignment among key players involved in creating the new ecosystem. Let’s consider these…

OPPORTUNITIES Instead of their traditional corporate approach to tackling socioeconomic problems through relatively specific investments in infrastructure, waste reduction, environmental protection, and local training and healthcare programmes, organisations must search for projects that generate economic benefits for themselves while creating socioeconomic gains for all other actors in the new ecosystem.

Because they benefit both the community and companies, there’s always a stronger incentive to continue implementing them… unlike feel-good social welfare projects, which are axed when business hits a trough.

Mutually beneficial projects call for diverse investments from many stakeholders, and carry the potential to scale up to other communities and regions – a rather complex undertaking.

MOBILISATION An enterprise almost certainly can’t build a transformational ecosystem on its own. It must team up with a catalytic organisation to bring together and engage actors from multiple sectors, in collaborative relationships and strategies, for the creation of economic and social value.

The catalyst can be an NGO or a project management organisation that’s firmly committed to the economic and social benefits that a new ecosystem can engender. Ideally, it has profound country knowledge, in addition to expertise in building new ecosystems on the ground such as enhanced supply chains for products or talent.

FINANCING Corporations would seem to be natural suppliers of seed financing for an ecosystem transformation. After all, these have the resources to invest in positive net present value projects and will be prime beneficiaries when projects take off.

But for most businesses – especially those with limited sustainability and CSR budgets – this is a dicey investment with longterm returns.

Advocates of inclusive growth through systemic change should look for seed capital from organisations that already have a mission to create inclusive growth ecosystems and are under less pressure to generate short-term financial returns.

COLLABORATION A new ecosystem needs collaboration between unrelated actors from multiple sectors, each with a deep mistrust of the attitudes and motives of those outside its sector.

To align multiple stakeholders around the new strategy, there needs to be a strategic map – a widely used component of the Balanced Scorecard Toolkit used to create organisational alignment around a strategy.