This evening in his State of the Union address, U.S. President Barack Obama is expected to continue his argument that growing inequality is the defining challenge of our time and that actions must be taken to reverse this trend. In recent months, Pope Francis, UN Secretary-General Ban Ki Moon, and more than 700 leaders from the World Economic Forum have joined a growing consensus: The global economy isn’t working for everyone.
At the same time, little has been said about how the exclusion of billions of people from meaningful economic opportunities will significantly affect long-term business prospects. Although the economy has grown significantly over the last half-century, lifting nearly a billion people out of poverty and bridging huge divides in average incomes between countries, it has left many individuals without opportunities to improve their lives.
More than 1 billion people are still living in extreme poverty, structural unemployment is preventing entire generations from accessing jobs, and women in most parts of the world still face significant barriers in entering the labor force. These facts all translate into untapped opportunities for business to create value—for itself and society. Opportunities include accessing the best talent, building the most productive workforces, ensuring stable and predictable supply chains, and attracting consumers who have sufficient spending power.
As the primary engine of the global economy, business has a fundamental role, responsibility, and self-interest in ensuring that the economy works for everyone. For this reason, BSR is kicking off Business Leadership for an Inclusive Economy—an initiative that catalyzes business action to enable and empower all segments of society to meet their needs, shape their futures, and achieve their potential. In doing so, business can help build a more resilient economy that is capable of withstanding and mitigating financial, social, economic, and environmental shocks, and creating the conditions for healthy, thriving companies.
In this first article, we offer perspectives on the complex challenges and significant opportunities that await business in building an inclusive economy. In forthcoming articles and working papers, we will provide more details on the changes business must make to achieve this vision.
A Tale of Two Economies
In the last half-century, the world has made incredible strides in economic and social progress. We are living longer and, on the whole, are richer than we were 50 years ago. Nearly a billion people have been lifted out of extreme poverty in the last 20 years. The world is on track to achieve at least three of the eight Millennium Development Goals, and we have made substantial progress on the others. Nearly every country has improved its human development status since 1990, and in the next 40 years, billions more are expected to join the global middle class, with most of this growth in emerging economies.
However, focusing on national and global averages obscures the reality within individual countries, whether developing, emerging, or developed. In many countries, the number of people living in poverty has stayed the same or even increased, and gaps in incomes, health, and wellbeing are growing between segments of the population. Oxfam’s recent briefing paper on inequality found that the wealth of the one-percent richest in the world amounts to 65 times the total wealth of the bottom half of the population. In fact, people in the lowest income segment across countries share similar struggles in accessing economic opportunities.
Even with our recent global progress, more than 200 million people remain out of work, and entire generations of young people in developed and developing countries are experiencing structural unemployment. And for those who have jobs, many do not earn enough to meet their needs—including the more than 60 percent of workers in the developing world who earn less than US$4 a day and the more than 2 million people in the U.S. who earn less than the federal minimum wage.
Vulnerable communities, which the World Bank defines as “a population that has some specific characteristics that make it at higher risk of falling into poverty,” face some of the greatest barriers to inclusion. These groups include the disabled, migrants, and in some cases, women. Increasingly, however, other groups at the lower end of the middle-class spectrum are at risk of being excluded from the economy and its benefits. This is particularly true in advanced economies.
The effects of climate change exacerbate the challenges of creating an inclusive economy. Although all are affected by climate impacts, the poor and other vulnerable communities are hit the hardest because of their dependence on natural resources for their livelihoods, poor access to products and services, and limited influence over decision-making. All actors must do much more to ensure that the economy offers widespread benefits and opportunities if we are going to meet the needs of a population estimated to reach 9 billion by mid-century on our already resource-constrained planet.
The Business of Creating Opportunities
As the trends above all indicate, we are at a critical juncture on our path to economic and social progress, one that presents significant risks and opportunities for business. In its 2014 Global Risks report, the World Economic Forum identified severe income disparity and high structural unemployment and underemployment as two of the top five greatest global risks. A growing number of economists predict that continuing to exclude large segments of the population from the economy will not only lead to fewer and fewer opportunities for the people falling behind, but could actually stall progress for everyone, including business.
In particular, companies suffer when exclusion affects the availability of skilled workers, productivity of the labor force, and social stability. In recent years, widespread labor unrest in China has disrupted manufacturing operations in the country. Community disapproval everywhere from South America to West Africa has resulted in increasing numbers of delays at large-scale oil and gas projects. And the tragic loss of lives at Rana Plaza last year demonstrated both the serious human toll and the impacts on business of excluding large segments of the population from empowering and fulfilling economic opportunities.
There are also incredible gains available for those companies that widen the net of economic, social, and other benefits to more people. This is especially true as global demographics and economic powers shift: In the next 40 years, 70 percent of global population growth is expected to be in 24 of today’s poorest countries, and by 2050, Brazil, China, and India are projected to account for 40 percent of global output. The market for healthcare products and services for people at the base of the economic pyramid is currently estimated to be US$158 billion alone, and banking revenues from small-to-medium enterprises in emerging markets are expected to grow to US$367 billion by 2015 (from US$150 billion in 2010).
In countries with declining populations, building the workforces of the future is a business imperative, and there is mounting evidence that investments to create healthier and well-paid workforces pays off in increased productivity, efficiency, and consumer spending. Additionally, the evidence already shows that investing in generating economic opportunities for women leads to positive outcomes in households, builds resilience to economic shocks, and promotes sustained economic growth.
Toward an Inclusive Economy
Increasing trade and investment, technology advancements, and private sector employment have all helped make progress in the last half-century possible. At the same time, the architecture of global supply chains and business operations has contributed to some of the conditions that make it difficult for people to escape poverty and exclusion. There is little dispute that business activity will continue to be a critical driver of economic and social progress. However, going forward, companies will need to make a stronger commitment to embrace both their responsibility as actors in the economy and their role as enablers of economic opportunities to ensure that the future of our economy brings about widespread benefits for society and in turn, more opportunities for business.
Business can lead in numerous ways, and we’ve seen many BSR member companies set an example through supplier engagement programs, product innovations, and community investments. Under Business Leadership for an Inclusive Economy, we will build on our more than 20 years in the sustainability field, our intimate knowledge of business drivers and operations, and our understanding of the policy and stakeholder landscape to catalyze business action.
Over the next three years, our focus will be on promoting systems-wide solutions that dismantle barriers to inclusion and expand the factors that enable and empower everyone to contribute to and benefit from the economy. Respect for fundamental human rights, including principles of dignity, participation, non-discrimination, transparency, and accountability, are fundamental to achieving our vision.
At BSR, we believe that the challenges before us can be translated into opportunities for business and society through leadership and commitment by the private sector. We also know that business cannot tackle these challenges without partnerships with civil society, government, and the individuals and communities who remain excluded from the economy. We invite our member companies and partners to join us in driving this initiative forward. To make the economy work for everyone, we need to make everyone work for the inclusive economy.
BSR will share more on our plans and progress on our Business Leadership for an Inclusive Economy initiative in upcoming articles and papers. To learn more about this initiative, please contact Jessica Davis Pluess and/or Peder Michael Pruzan-Jorgensen.