Saturday, November 22, 2014

Capitalists for Inclusive Growth

LONDON – In 2012, the Pew Research Center found that 85% of self-described middle-class adults in the United States believe that it is more difficult now than it was a decade ago for people like them to maintain their standard of living. The share of Americans who say that they are in the lower-middle or lower class has risen from a quarter of the adult population in 2008 to around a third today. And Pew’s research found that only 63% of those surveyed believe that hard work leads to success, down from 74% in 1999.

These statistics, which represent popular sentiment in the world’s largest economy, should raise significant concerns for governments and business leaders elsewhere, particularly in countries challenged by stagnant growth and rising levels of youth unemployment. Indeed, in January, the IMF revised its near-term outlook for eurozone growth downward, to -0.2% in 2013. Meanwhile, official data from Spain indicate that the jobless rate rose to 26% (almost six million people) in the last three months of 2012, the highest figure since the mid-1970’s, with the rate of youth unemployment reaching 55%.

The need for growth – specifically, the kind of inclusive growth that can provide jobs for the vast number of out-of-work young people and combat rising levels of income inequality – has never been more vital. Nevertheless, today’s debates about how to achieve sustainable, inclusive growth are too narrowly focused on the role of governments and policymakers. The role of the private sector – with its multinational reach, vast piles of cash, and ability to innovate – has been neglected.

There are three main areas to which business should turn its attention if capitalism is to function in a more inclusive way and meet society’s most pressing needs. First, companies should work to overcome skills/jobs mismatches by investing in vocational training and apprenticeships. Companies like Rolls-Royce and British Gas operate impressive apprenticeship schemes that add value for their businesses by creating a pipeline of talented recruits. Other initiatives have been established to scale up these efforts by engaging multiple companies to create entry-level positions for the significant number of young people who are currently unemployed.

Second, just as a collective effort is needed to strengthen the skills of national workforces, so, too, an industry commitment is required to support small and medium-size enterprises (SMEs) as part of the wider business environment. In its 2011 fiscal year, Hewlett-Packard used more than 600 SMEs in its supply chain in the United Kingdom, representing nearly 10% of its spending on suppliers. HP aims to increase this share to more than 15% by the end of 2013 with the addition of a further 150 SMEs, thereby fueling what it rightly regards as the engine of UK economic growth.

Similarly, in March 2012, a consortium of large corporations led by IBM created the web-based Supplier Connection to make it easier for small businesses to become suppliers to large companies. Currently, the members of Supplier Connection purchase more than $150 billion in goods and services annually through their global supply chains.

Finally, public corporations must be managed for the long term, and should be rewarded by investors for being more inclusive. For example, Unilever has rejected the short-term pressures of capital markets by ending quarterly earnings reporting and broadening its focus to advance greater social interests, rather than just the interests of its shareholders.

But enlightened companies require enlightened investors. The Ontario Teachers’ Pension Plan is exemplary in its commitment to supporting the best governance practices in the companies in which it invests, and it has reaped large benefits from this approach: the Plan has earned average annual returns of 10% since its inception in 1990.

The idea that underlies all of these initiatives, and the notion of inclusive capitalism itself, is that companies must be managed for the long term. Companies that follow this approach are concerned with the skills of their future workforces; seek to build loyal and productive supplier bases; and make investment decisions based on sustainable value creation, not short-term profitability.

There is no contradiction between delivering high returns and adopting a long-term approach. Furthermore, as companies begin to adopt these practices, a rising tide will lift all boats: with greater support, SMEs, which currently account for 99% of businesses and two-thirds of private-sector employment in the European Union, will be able to invest in research and development, and to hire more employees.

In turn, large companies will receive the benefits of faster innovation, rates of youth unemployment will fall, and the hollowing out of the middle class – and its faith in future living standards – will be reversed. It is this type of profoundly positive influence on prospects for shared prosperity and inclusive growth that currently eludes national governments.

  • Contact us to secure rights


  • Hide Comments Hide Comments Read Comments (17)

    Please login or register to post a comment

    1. CommentedMario Ramos

      Change, Improvement and Merit combined with love, faith, integration, integrity and energy. A blue way forward for inclusive sustainable growth

    2. CommentedEdward Lambert

      This is such an important topic that it is crucial to have a model that explains the dynamics of "non-inclusive" growth. Well, I have research that describe a "non-inclusive" growth model.

      Let me know if I can help...

    3. CommentedC. Jayant Praharaj

      Capitalism needs to be made inclusive. It has tended to be very exclusive when left to itslef. And the prospects of capitalism becoming inclusive through the kind of private sector measures listed here are slim to none. Capitalism would have become inclusive far earlier if it was in its intrinsic nature to support substantial and meaningful inclusive paradigms.

    4. CommentedZsolt Hermann

      "Inclusive growth" is an oxymoron the way humanity tries it today.
      The key is the final purpose and there are only two directions there is no middle ground.
      Today growth is done for self-benefit, increasing profit, for constant quantitative growth.
      This creates a pyramid system where the bottom of the pyramid works and consumes for the profit of the peak of the pyramid. The increasing social inequality, the gradual loss of the bottom half and the collapse of the system is built into it, since it has no natural foundations.
      Only with the purpose of working, "growing" for each other, for the well being of the whole, since all individual's profit and prosperity depends on the whole can create a a sustainable system, where the parts mutually supporting and complementing each other.
      In such system parts are still different from each other, according to their contribution to the whole each receives what it deserves, but they do not get excess, they do not accumulate more than what they deserve, thus they do not destroy the system like cancer does.
      Superficial adjustments without changing the foundations and purpose of the whole system cannot help.

        Commentedradek tanski

        Wow you rewrote your whole prose. Did you have it saved somewhere incase the site lost everything?

    5. CommentedDennes Longoria

      Here, I got the actual quote: “We can't solve problems by using the same kind of thinking we used when we created them.” -A.E.

    6. CommentedDennes Longoria

      But if the paradigm that creates the solution is still one of what's important is the Investors' pockets and not the welfare of humanity then it surely will fail because it's like Einstein said, that you can't solve a problem from within the framework of the problem itself...need a new mindset.

    7. Commentedudi cohen

      economy, world wide and particularly in developed countries, based on services which require limited resources in order to maintain itself is doomed for catastrophe and no small organised initiatives, lacking 'job security', employment horizon, solution to the rising of inequality income (- i even assume it may give it a boost) or even producing jobs in the same scale and velocity jobs are vanished of the radar this days of low tech work, will prevent the inevitable in the long run.
      by the way, it mentioned that companies using more and more 'outsourcing' and was implied that that will be the new engine for the economy, so regarding this i would say that it just a zero sum game and even minus because the social conditions, usually, not similar- no free lunch in this world.
      there is no other way then capitalism but we must not forget that capitalism was what brought us here and for that i think that capitalism the way we know it is no longer relevant - it was needed in order to get us to here civilised and technologically- and it's time for new approach.

    8. CommentedEdward Ponderer

      Ms. Forester de Rothschild's provides a model for the salvation of the capitalism which unfortunately is flawed on several points of foundation. Firstly, using the American example, what she fails to notice is that while in recent years, the real income of the upper 1% has tripled, while that of basically everyone else has fallen. From the statistics I have seen, that 1% now receives approximately 40% of income in the US, and possess 50% of all stocks and bonds. This before we hit the hyperinflation that the system is heading to that will wipe out the savings of common people who cannot afford the risks in lifesaving investment which are merely a manageable statistical science for the very wealthy.

      There are no new markets -- consumers with additional sources of real funds -- unless martians have landed. This not to mention the deadly pace of vast production of consumables who needs, even desire, is a psychological artifice created by an army of media marketers. What "growth" there is is that of weeds in a dying garden.

      What I would have like to have seen would be a leader in the present system of the stature of Ms. Forester de Rothschild have the courage to stand up and admit the failure of the Capitalist system, as Mikhail Gorbachev had in admitting the failure of the Communist system. Heaven help us all if he was also adamant in such fluff, informing us that the Politburo just needs to be more sensitive to peoples perceptions (misconceptions?) that they lack hope for a future in the present system. That 5 year plans should include a bit extra budget for training, etc.

      We need to move on, in parallel with the present -- face it, dying-like-a-cancer-ridden-body system. We need to do this before we face popular uprisings and the all-too well understood horror of complete social collapse. This towards integral education, and a new, more natural system of local and global networking based upon work on basic human relationships. Mutual self-help promotion of values of mutual responsibility are crucial, through the very marketing methods developed to sell any product or service in the present system.

      We need to move on to a realistic system of reasonable production, with limited work hours but the ability to purchase basic necessity and reasonable comforts. One where entrepreneurial leaders are not disgraced or threatened, but rather are rewarded in measures of popular social honor, acclaim, and and real prestige that they have never before enjoyed, in exchange for needless billions stashed away for a "rainy millennium."

      The days when we can afford to ignore that human ego with unaltered primal goals let loose in any political-economic framework, communist, capitalist, or otherwise, will always work its way to the top and set up whatever necessary alliances and oligarchies it take to maximally exploit everything and everyone below. The globe is finite, and in a finite body, cancer will ultimately kill all -- including itself.

    9. CommentedTomas Kurian

      This is an excellent point. System, which is not under threat does not need to moderate itself or evolve.

      But the entrepreneurs themselves cannot bridge the built-in rules that force them to cut costs and look for cheapest labor. The role of state is irreplaceable in providing missing buying power (stemming from unspent profits and personal savings).

      In my theory ( I am explaining the basic contradictions causing the system to gradually deteriorate(chapters 9-10) and also possible solutions ( chapters 17-18).

        Commentedradek tanski

        Capitalism is all about constant fast evolution to adapt to the landscape. Socialism is about hitching a lot of extra mouths onto it, so that they can also get the benefit of someone elses work and ingenuity. Its the other way around, capitalism is not under threat of stagnation, it has merely won the latest round. But the socialists are coming for it the moment there is a world government. Capitalists will again have to be persherons for social priveleges like being able to take a gap year, get a free baby sitter, not to mention state dinners, politicians perqs...

    10. CommentedCarol Maczinsky

      Companies are not responsible for creating jobs. It is an issue of regulatory conditions and the only problem is that the balance between work and capital was undermined and the relation between income and effort. In addition the end of military subscription in Europe further strengthens unemployment.

    11. CommentedFrank O'Callaghan

      After the anti capitalist revolutions of the first half of the 20th century, there was a need for capitalism to have the security of the consent of the population. Put crudely, Russia, China and others had overthrown the system. FDR and the New Deal in the US, the NHS and the welfare state in the UK, and other social welfare reforms in the western countries effectively bribed the crucial mass of the populace onto quiescence.

      The external threat to capitalism has gone. Now there is a greater and more deadly threat. It is the same as caused the revolutions of the last century. Inequality and the failure to distribute the fruits of production has brought us to the brink.

      Are we going over?

        Commentedradek tanski

        Completely agreed about the bribery. But if you look at it from the other point of view, its blackmail of the able by the useless simply because of physical proximity. Globalization has removed the ability of physical proximity to be a tool in blackmail. Its not a bad thing. Its a triumph of brains over brawn.

    12. CommentedProcyon Mukherjee

      Some very good thoughts on the responsibilities that corporates must take towards job creation as it cannot be relegated as a tertiary responsibility that governments and the polity have to sort out. But it leaves me with a sobering thought that if the aggregate model of the economy thrives on exporting capital and importing low skilled jobs and the corporate objective is still linked to maximizing market cap, which can be done through a plethora of strategies, but none what-so-ever is remotely dedicated to job growth (it would be quite interesting to put side by side the market cap growth of S&P 500 and the job growth of the same group in U.S. over the last three years).

    13. Commentedradek tanski

      Capitalism is inclusive of the useful and exclusive of the not. It's just a different word for evolution. Arguing that capitalism should provide for those that cant provide for themselves is a hard ask. Getting rid of the pressures from economically obsolete voters, who don't restrict their breeding, is the problem. No solution how that's to happen yet.

    14. CommentedZsolt Hermann

      "Inclusive capitalism" is an oxymoron.
      When one works for profit, when the system is driven by the idea of constant growth all the symptoms we experience today are automatic, built into the system.
      The whole world economy works like a pyramid, or Ponzi scheme. In order for those at the top to keep increasing growth and profit, they need new and newer layers to join the bottom of the pyramid. But of course it is impossible.
      Since the same people are required to produce and to consume, way beyond their necessities and means, and as globalization slowly removes the remaining free markets, and cheap labor, not to mention the depleted natural resources the system is not turning self-destructive.
      Moreover moving markets and production to cheaper areas seriously weakened domestic production and consumption, as the article itself shows the middle class slowly becomes lower class, we are in a vicious cycle.
      But those on top are not "evil" people, they simply execute what their inherent human nature dictates them.
      We are all self-centered, we are all egoists, but those on top have much greater desire, hunger than those at the bottom of the pyramid.
      All of us would be surprised how we changed if suddenly promoted to an important political position, to the top level of a bank or big company...
      What the present system breakdown should prompt is an awakening, realizing it is our own inherent human nature that is driving us towards the cliff and beyond.
      We will never find true solutions until we start changing our own nature.
      Everything else would fall into place, human ingenuity, our capability to adapt is unparalleled.
      Only the inbuilt operating software needs adjusting.