Inclusive capitalism

Inclusive capitalism is a term composed of two complementary meanings: (1) poverty is a significant, systemic problem in countries which have already embraced or are transitioning towards capitalistic economies, and (2) companies and non-governmental organizations can sell goods and services to low-income people, which may lead to targeted poverty alleviation strategies, including improving people’s nutrition, health care, education, employment and environment, but not their political power.

History

Inclusive capitalism originates with philosophical questions that predate modern day capitalism. These questions regard people’s motivation. Are people motivated by what is best for their own self-interest, for the good of society or perhaps somewhere in between? Different philosophers have advanced their own ideas about these questions, including Thomas Hobbes (1588–1679). Hobbes thought “[m]an was motivated by his appetites, desires, fear and self-interest, seeking pleasure and avoiding pain […] His main desire, and the most important of natural laws, was self-preservation and the avoidance of death” (Curtis 1981:327). Hobbes’ assertion would become the foundation for capitalism, which espouses an exclusive rather than inclusive nature of people.

Hobbes’ ideas influenced Adam Smith (1723–1790) who thought governments should not repress people’s self-interest in the economy. “Smith never suggests that they [people] are motivated only by self-interest; he simply states that self-interest motivates more powerfully and consistently than kindness, altruism, or martyrdom” (Buchholz 1989:21). In the 17th and 18th centuries notions of morality (theology) and value (economics) separate, leading Smith to advance a new theory of value based on divisions of labor rather than value being defined in a religious context of working for God (Wilk and Cliggett 2007:50-51). For Smith "value cannot be measured by money, because sometimes money is artificially scarce [...] because all labor is of equal value to the worker, labor is the best measure of value" (Wilk and Cliggett 2007:51-52). Thus the concept of capitalism is rooted in an idea of human nature being inherently self-interested and the value of goods and services are derived from labor.

Karl Marx (1818–1883) critiqued capitalism by analyzing the division of labor in Europe from an historical perspective. He argued that people’s human nature, more specifically their ideas “were largely a product of class, economic structures and social positions. Ideas justified or rationalized the economic structure at any one time – they did not cause that structure” (Wilk and Cliggett 2007:97). Marx concluded that the division of labor contributes to perpetual inequality between the masses of low-income workers (proletariat) whose numbers are far greater and wealth far less than the minority and more powerful upper class (bourgeoisie) who are often politicians and business owners (Marx and Engels 1970). Marx’s historical perspective focused on the role of politics in contributing towards and legitimizing modes of production that created separate socioeconomic classes.

“The division of labour inside a nation leads at first to the separation of industrial and commercial from agricultural labor, and hence to the separation of town and country and to conflict of their interests” (Marx and Engels 1970:43). The term “town” in this sense can be understood as the centers of political power and economic decision-making and the people who live in towns possess comparatively more power than those working in the countryside. According to Marx, those with the most power are included in the benefits of capitalism and those with less power are excluded from such benefits.

Karl Polanyi (1886–1964) used a more cross-cultural approach to understanding different types of economies, including those based on capitalism. He began by describing the term "economic" as a combination of two separate meanings. The first is a "substantive meaning" that refers to the relationship humans have with one another and to the earth. The second is a "formal meaning" that deals with a "means-ends relationship" which focuses on economizing one's means to maximize one's ends (a "logical" and mechanistic understanding of what it means to be a human and participate in an economy) (Polanyi 1957:243). Polanyi charts how reciprocity, redistribution and exchange have been conducted in different cultures across time (Polanyi 1957:250-56). Polanyi concluded that in some cultures economic transactions involve deep human relationships and rely on decision-making for environmental preservation and social cohesion. In others cultures, economies serve more of a function or utility of increasing capital where transactions are based less on the aim of social cohesion and environmental well being. The contemporary use of the term “inclusive capitalism” arises from the historical understanding of the essence of human nature and its role in economic decision-making.

Contemporary understanding

It is inconclusive who coined the term “inclusive capitalism.” Using different electronic databases to query this term (e.g. JSTOR, OCLC Academic, Web of Science, Google Scholar, etc.) a Google Book search identified one of the oldest occurrences of the term appears in a 1943 Urban Land Institute publication (Urban Land 1943). Two contemporary scholars who have popularized the term individually and through collaborative publications are C.K. Prahalad and Allen Hammond.

C.K. Prahalad is the Paul and Ruth McCracken Distinguished University Professor of Strategy at the Ross School of Business in Michigan. Prahalad opens his 2005 book The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits by asking “Why can’t we create inclusive capitalism” (Prahalad 2005:xv). He uses the term “inclusive capitalism” to invite readers to “commence talking about underserved consumers and markets. The process must start with Bottom of the Pyramid consumers as individuals […] New and creative approaches are needed to convert poverty into an opportunity for all concerned. That is the challenge” (Prahalad 2005:xvii). The inside cover of the book asserts that Prahalad coined the term “Bottom of the Pyramid” whereby the pyramid represents capitalism and those benefiting from it are the majority of people at the bottom who are all poor.

Allen Hammond is Vice President of Special Projects and Innovation at the World Resources Institute: a Washington, DC-based, non-profit, environmental, think tank created in 1982 through a $15 million donation by the John D. and Catherine T. MacArthur Foundation of Chicago (World Resources Institute website 2008). One of Hammond’s earliest publications that discusses the idea of inclusive capitalism without explicitly mentioning the term is a 2001 article titled Digitally Empowered Development published in the journal Foreign Affairs.

In the article, Hammond describes how technology in the 1990s has led many people to experience greater wealth and allowed for their overall quality of life to improve. He also notes that billions of people continue to live in poverty in countries developing their capitalistic society. In order to address this exclusiveness of capitalism a new capitalistic model should be used, argues Hammond. “What is needed instead is a bottom-up model that makes credit, communications, information, energy sources, and other self-help tools […] The idea behind this new development model is that basic services should generally be provided by businesses -- sometimes directly, sometimes in partnership with governments or networks of non-governmental organizations (NGOs)” (Hammond 2001:98). Privatizing public services is a central idea of inclusive capitalism, suggesting government policies have largely failed poor people and businesses and non-governmental organizations should assume a greater role in poverty alleviation.

Prahalad and Hammond co-published a 2002 article in the Harvard Business Review that advanced their ideas of using market-based solutions for poverty alleviation through a hypothetical case study of development in India (Prahalad and Hammond 2002). In 2004, they advanced their ideas in another co-authored publication, this time highlighting three misconceptions of poor people commonly held by companies. The first is that poor people have little buying power when in fact “low-income households collectively possess most of the buying power in many developing countries” (Hammond and Prahalad 2004:32). The second is that low-income people do not like change when in fact they often receive little opportunity to choose among a variety of products and services. The third is little money can be made by selling to the poor. The “world's poor-families with an annual household income of less than $6,000-is enormous. The 18 largest emerging and transition countries include 680 million such households, with a total annual income of $1.7 trillion-roughly equal to Germany's annual gross domestic product” (Hammond and Prahalad 2004:32).

Critique

A critique of the ideas behind inclusive capitalism begins where Hammond and Prahalad end: “Blocs of poor consumers increasingly have the power to reject what a multinational corporation wants to buy or sell; via their governments, they can also empower a non-traditional competitor” (Hammond and Prahalad 2004:37). Inclusive capitalism as used by Hammond and Prahalad divorces political power from economic empowerment. It is not concerned with improving poor people’s political condition, allowing those in poverty to have greater political control and representation in government. It does not endorse macroeconomic changes through government policies that ensure higher wages, equitable access to housing, education, nutrition and health care across socioeconomic classes, particularly for poor people. Inclusive capitalism maintains political accountability in contributing to poverty is limited to not doing enough to encourage private enterprise (1) to create more jobs for low-income people; (2) to allow poor people access to financial capital for entrepreneurialism, (3) to enable poor people the opportunity to purchase a variety of goods and services. No consideration is given to governments and companies that benefit from having low-income and poorly educated populations who provide necessary labor.

In 2007, Hammond and a team of researchers from the Inter-American Development Bank, the World Bank Group’s International Finance Corporation and the World Resource Institute concluded that poverty afflicts four billion people worldwide, many of whom are living in capitalistic countries or countries transitioning towards capitalism (Hammond et al. 2007). Poverty is defined as “those with incomes below $3,000 in local purchasing power” (Hammond et al. 2007:3). Based on this evidence, the lived experiences of most human beings is that they are living in countries practicing different degrees of capitalism, which has proven itself to be highly exclusive. The opening pages of the 2007 report by Hammond et al. reveal additional funding for the report came from Intel, Microsoft, Royal Dutch Shell and Visa International. This suggests that crony capitalism and inclusive capitalism may have overlapping interests.

An alternative understanding of capitalism and how to make it more inclusive is offered by anthropologists, historians, medical doctors, and sociologists (Davis [2006], Farmer 2003, Goode and Maskovsky 2001, O’Connor 2001 and Yelvington [1995]). These social and medical scientists use ethnography, economic data and political history to document intentional public policies supported by business interests to maintain the status quo of low-income populations. Governments and businesses collude to prevent low-income populations with access to affordable housing, health care, education and nutrition because they divert resources to maximizing profits from middle- and upper-income populations. Making capitalism more inclusive certainly includes Hammond’s and Prahalad’s suggestions of encouraging companies to sell goods to poor people at affordable prices. However, inclusive capitalism must address political considerations that maintain structural inequalities within any economy.

Hammond and Prahalad champion information and communication technologies (ICTs), such as cell phones, computers and the Internet as powerful tools for poverty alleviation. Ethnographic data from anthropologists and sociologists reveal widely available and affordable ICTs provide qualitative improvement in the lives of low-income people, but not quantitatively improve their livelihood and wealth (Slater and Tacchi 2004 and Horst and Miller 2006). The research of these anthropologists and sociologists indicates that measurable improvement in poor people’s lives is not likely to occur without comprehensive government policies that simultaneously encourage living wages, affordable housing, access to nutritious and low-cost food, high quality and inexpensive schooling, health care and public transportation. While these public policies may be delivered by businesses and NGOs, government oversight does not need to be removed for a more inclusive capitalistic economy.

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