Wanted: inclusive business

With more severe poverty and inequality to begin with, worsening unemployment and lack of significant improvement in reducing poverty and inequality negate our otherwise impressive economic growth performance of late. Nowhere else in our neighborhood is the imperative for inclusive growth more urgent and more acute than in the Philippines. It requires getting the least endowed among us to participate more and benefit more in the economy’s growth. The lowest income groups, the so-called “Base of the Pyramid” (BoP), make up 42 percent of all Filipinos (38 million) if we count those who live on less than the internationally-applied threshold of $2 per day. They are the marginalized in our society, mostly dependent on economic activities in the informal sector marked by intermittent work and incomes from either nonregular jobs or unstable livelihoods. Their access to many goods and services that the rest of us take for granted is also limited.

Inclusive growth thus entails providing the opportunity for those at the BoP to have more regular jobs and more stable livelihoods. To do this, we need more growth to come from stable and geographically dispersed small and medium enterprises. We also need more growth coming from industries that inherently use more labor, hence able to create more jobs. Moreover, greater growth should come from industries with strong multiplier effects owing to inter-linkages with other domestic industries, either as sources of inputs or users of their products.

Government can provide a favorable enabling environment through the right policies and public investments. The competition bill, long pending in Congress, is critical to overcoming the excessive concentration of economic power in the country. So is overcoming constitutional restrictions on foreign equity participation in key industries, currently cornered by the few familiar names in Philippine business, to the detriment of the Filipino public. And inclusive growth will not come about until the Bangko Sentral ng Pilipinas succeeds in operationalizing its avowed commitment to inclusive finance, meaning wider access to financing for small farmers, SMEs and inclusive businesses (more on this below). Even with laws requiring banks to devote 25 percent of their lending portfolios to agri-agra endeavors and 8 percent to SMEs, these sectors have nonetheless remained starved of credit.

But inclusive growth does not rest on government alone. It can push or pull all it wants, but unless the main propellers of the economy in the private sector move responsibly, inclusive growth will remain as elusive as it has always been through the years. In particular, we need big business to conscientiously and consciously do its share by paying more remunerative wages, and investing directly in known inclusive growth drivers like agriculture and manufacturing. And we need them to deliberately integrate the BoP into their value chains—as suppliers (new sources of inputs), consumers (new markets for affordable goods and services), distributors (new distribution networks) and/or employees (new decent income and employment opportunities). It’s in this way that they become an “inclusive business,” defined by the Asian Development Bank (ADB) as a profitable core business initiative that creates shared value. Unlike traditional social enterprises and corporate social responsibility

efforts, inclusive businesses create or expand access to goods services and livelihood opportunities for the poor and vulnerable, in commercially viable and scalable ways.

Jollibee is a well-known example. It has sourced onions and other raw ingredients from organized small Nueva Ecija farmers, and now reportedly does so from over 400 farmers in six communities nationwide. The company could more easily integrate vertically into commercial-scale farming of such inputs; yet it opts for a more inclusive value chain. Similarly, Manila Water purchases various materials and fixtures from enterprises they helped BoP communities in their service areas to set up. Both companies invest in organizing and training their source communities to be able to meet their quality requirements. Generika has pharmacy chains nationwide, providing low-cost generic medicine along with diagnostic health education/services to the BoP. Through active education and marketing, it lowers health costs for the BoP by urging them to switch to nonbranded approved medicines that are just as effective. Julie’s Bakeshop was established in Cebu City in 1981 and became the country’s largest bakeshop chain by 1998 with over 210 branches nationwide. It has embarked on a Bulilit Kiosks Program that engages the BoP either as distributors or suppliers, wherein inexpensive modular bakeshops could be set up for a minimal investment in areas not reached by their usual stores. Human Nature sources all raw materials for their cosmetic products from local farmers, while providing regular jobs for BoP workers. These firms are among 70 documented so far by the ADB, which, together with partner Asian Social Enterprise Incubator Inc., has taken on the promotion of inclusive business as a mission. They have so far convened two annual Inclusive Business Forums in the Philippines.

What is clear is that inclusive growth is not something government or public development institutions could bring about by themselves. Business itself, especially big business, must make a deliberate move to become inclusive, if inclusive growth is to be more than just another passing buzzword in the development jargon. And we all have a better country to gain for it.

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