How Governments Can Engage Companies in Development
Of course, we do not know if Bill Clinton, provided he would run for president today, would frame his presidential campaign like this. But what we know is that today governments and donors would do good in promoting inclusive business and they have a number of policy options at hand to do so - as the newly published study “Inclusive Business Policies – How Governments can Engage Companies in Meeting Development Goals” shows. In fact, what emerged as a concept for companies to create new markets at the base of the global income pyramid is increasingly reaching the agendas of governments and donors around the world for a number of good reasons:
First, promoting inclusive business can help governments in its ambition to reach inclusive growth and achieve development goals. Over the past decade, the call for a more sustained economic growth that also benefits people in poverty has become louder - both among governments in the developed and developing world. Through inclusive business models governments can channel private-sector investment to poor communities - and thus contribute to a more inclusive economy and development. In fact, inclusive business approaches can contribute to each of the eight Millennium Development Goals (MDGs) – as the case of microfinance - that today reaches more than 200 million poor people worldwide - shows.
Second, governments can help companies to overcome markets constraints related to inclusive business. These constraints typically include a lack of information, rules, financial resources, and structure and capacity. Not only companies, also their target groups within poor populations run against barriers in these areas. These market constraints are the primary reason why most businesses remain relatively small-sized or even fail to succeed. Government, with its unique capacities, is often in a superior position to remedy these barriers. Moreover, it has the mandate to ensure enabling market conditions, and thus help tackle market constraints.
A Universe of Policy Options
A closer look at government agendas and existing practices around the world shows that policymakers have a broad universe of policy options at hand to promote inclusive business. These policies help to eliminate or alleviate market constraints and facilitate direct linkages between the private sector and poor communities.
Inclusive business policies are government decisions that directly support mutually beneficial business relationships between private-sector companies and poor people. Such policies can enable and encourage companies to include poor people in their value chains. They can also empower poor people to participate in companies’ value chains.
Policies can be clustered along four different types of instruments and provide support in three different approaches:
Enabling companies to enter the low-income market
A range of government policy instruments can facilitate companies’ entry into low-income markets by removing constraints in the business environment. This creates the enabling conditions for investment in inclusive business models. Such policies include, as most widely used options, the production of relevant data and research, as well as the establishment of business-friendly regulatory environments which, in turn, can comprise sector-level regulation, standards and overarching policy frameworks such as Ecuador´s strategy “Buen vivir”.
Encouraging companies to invest in the low-income market
Governments can encourage the utilisation of inclusive business models by increasing companies’ expected returns. Prominent instruments here include creating a legal form for business with a social mission, providing financial support such as India´s Inclusive Innovation Fund, engaging in preferential public procurement and establishing development partnerships.
Empowering poor people to engage with companies
Policies can empower poor people to engage with companies as consumers, producers, distributors and employees. For example, poor people can be empowered by the creation of a legal framework enabling their market participation. Alternately, they can be provided with financial empowerment through insurance schemes and end-user subsidies such as Tanzania´s voucher scheme for mosquito nets (see also blog Nets and Holes in Global Inclusive Business Ecosystems - A Story Ab...).
Policymaking for inclusive business: combining stakeholders, success factors and strategies
Of course, policymaking for inclusive business is not just about selecting one instrument from the universe. On the contrary: successful policy examples from Colombia, India, Kenya and Morocco show that policymaking requires above all collaborative governance throughout the policymaking-process - from agenda setting to formulation, implementation as well as evaluation.
This comes as no surprise: first, inclusive business policies often transcend established boundaries between departments (i.e. Health and Labour) and sectors (i.e. Finance and ICT), and thus require collaboration between many stakeholders; second, policymakers often lack reliable information about low-income markets, industry sectors and the needs of poor people which is why the expertise of all relevant stakeholders is needed in order to find appropriate solutions. By engaging in collaborative governance processes, all relevant stakeholders – public agencies, companies, NGOs, low-income people (or they representative bodies) – can contribute their specific capabilities to make inclusive business policies successful.
In order to drive collaborative governance for inclusive business, policymakers must take account of four success factors: dialogue, political entrepreneurship, alignment and practical evidence. These factors facilitate collaboration throughout the policymaking process and ultimately enhance the impact of inclusive business policies.
Moreover, governments are using a variety of strategies to coordinate actions and keep all partners on board. Strategies include, for example, adopting a geographic focus to poverty alleviation (Zones free of poverty programme in Colombia), focusing attention on a specific product (national health insurance scheme RSBY in India), creating an independent facilitator (Financial Sector Deepening Programme in Kenya ) and establishing local participatory processes to spur development (National Health Initiative for Human Development in Morocco).
Surely, the study is only a first step. By providing an overview of the available policy instruments for inclusive business and summarizing insights from policies currently applied, it sheds a ray of light into a still undiscovered field. What policies have the biggest potential to promote inclusive business? What options remain underexplored? How can governments facilitate collaborative governance and how can donors best support them in this endeavour?
Many of the ideas presented here merit further exploration and, more importantly, experimentation. So, let´s get started!