Fields, Factories and Workshops (1899) was written by the Anarchist Prince, Peter Kropotkin but it was not written for an exclusively anarchist audience. Made up of a series of articles, he explores alternatives to the crowded cities; the sweatshops and dark satanic mills of his day. He offers ways in which industry can combine with agriculture and, how the informal economy – characterised as choosing to earn money on one side of a bar instead of spending it on the other – is entirely the creation of fiscal policy and not a moral issue. Many of the ideas that are developed strike a chord today with population growing from 6 to 9 billion by 2050 and 75 per cent of this number living in urban space. This demographic explosion, the accelerated depletion of scarce resources and, environmental impacts is forcing an examination of assumptions that were shaped by the developed world. Above all, the global push for better, cheaper and faster supply chains is challenged by notions of inclusivity and, human values over value and the race to the bottom price.

Here we go again ...

Globalisation may have connected producers with consumers but, value addition usually goes to the most powerful link in the chain such as the major International Retailers; High Street brands or, even local agents aggregating capacity and pricing to producers and farmers upstream. These small scale actors do not have the know how, the technology or the market access that can secure their position. Few of these suppliers have any notion of the full price that consumers are paying in the developed world and, few consumers have any notion of the conditions under which their purchases are sourced and produced.

Malcolm Harper’s Inclusive Value Chains (2009) uses a series of case studies to highlight the lack of an effective interface between the informal and the formal economies – hotels lacking fresh fruit whilst street hawkers offer it in abundance outside – and, a number of illustrations of how conventional supply chain thinking falls short. A case study from ITC highlights a project integrating small farmers in Punjab with Spencers – a new format retailer. Another, illustrates how the traditional company Namdharis with its proud philanthropic traditions has developed its seed production business to link small farmers in Karnataka to markets abroad. Other inclusive value chains or streams are developed for fisheries, honey, coffee and poultry.

Inclusive value streams in the emerging and developing world are often asymmetrical in nature with products moving from small scale informal suppliers – farmers or micro enterprises – through to modern supermarkets or high street outlets. This is not about neat flows of materials, information and cash so much as a more complex eco system of suppliers – a village of craft workers producing goods – blending with another eco system of consumers using and re-cycling products. This breaks with the end-to-end linearity of all manner of supply chains in the developed world and emphasises the role of aggregating capacity in an inclusive way at one end to create viable market access at the other. Kropotkins ideas are useful to this inclusivity debate. Here are a few of his ideas set against current challenges:

  1. Globalisation and the race to the bottom. Kropotkin challenged the logic of Adam Smith’s Wealth of Nations and the endless division of labour rejecting the logic of creating an industrial caste system of specialist trades workers and ultimately the division of the whole of humanity into national workshops having each their own speciality. For instance, that the Russia. Hungary and Ukraine of his day were pre-destined to be the bread baskets for the manufacturing nations such as Britain – destined to produce the world-market with cottons, iron goods and coal. Fast forward to today and, a relentless specialisation is generating profits for the few and collateral damage elsewhere.
  2. Values over value. Perhaps the most fierce critic of the inequalities that Kropotkin highlights and the market fundamentalism that Adam Smith’s invisible hand typifies is … Adam Smith and his earlier work The Theory of Moral Sentiments (1759). In the Wealth of Nations, he ascribes human nature as motivated by selfishness and, in the TMS, he emphasises the role of sympathy. Adam Smith is mis-read if the earlier work is ignored. Amartya Sen, the Nobel Laureate, is a major proponent of a more balanced view.  In his brilliant The Idea of Justice (2009), Amartya Sen, the Nobel Laurate, makes plain that the distribution of the benefits of global relations depends not only on domestic policies or individual companies but of a wider global community – even without waiting for the global state. Sens earlier works such as Ethics and Economics (1987) assert that there is simply no scope for dissociating the study of economics from that of ethics and political economy. And efficiency is no platform to dismiss inclusivity.There are those that would focus this as a critique of the Washington Consensus – a term coined by Williamson (1989) to sum up the drive to catapult failed soviet states and others low on growth into fully fledged market economies. Economists disagree on many things but, at the collapse of the Berlin Wall, there was a working consensus on the need for “shock therapy” to eliminate government interventions and distortions so as to create a private property based, efficient, open and competitive market economy. Then, in 2000 Economics students at the Sorbonne cried enough – things had gone too far. In their view, Economics has been reduced to one theory that illuminates a few facets of the subject well but had begun to suppress other theories that challenged this neo classical economic framework.  The student body characterised their course as autistic economics; an approach that reacts to crises not by evaluating their underlying assumptions but instead by adding layers of complexity to preserve them.Stiglitz echoed these dissenting views, with his Globalisation and Its Discontents (2002); Making Globalization Work (2006) and now Freefall (2010) all challenging the paradigm that has allowed of no other perspective. And others, well summed up in Justin Yifu Lin’s Economic Development and Transition (2009), like China, Vietnam and other Asian transitional economies adopted a dual-track approach. This was based on the need to deal with the impact of the market on failed and non-viable state firms. This means a shift from a pure play economic decision to a more inclusive agenda. Which leads us to …
  3. Triple bottom line. There are those that push the logic of lowest cost producers as being in the best interest of shareholders – making sure that margins are protected and enhanced and efficiencies in the system are driven by waves of continuous improvement. This narrow market fundamentalism is being exposed increasingly by the lack of growth in developed economies and the need to enter emerging and developing markets. And then, as supply chains become stretched, the need to understand the full cost of a given product in social and environmental terms opens up a pure play on economic cost as flawed. This triple bottom line perspective creates a more balanced view of the impact of consumerism on society as well as the benefits to the individual. It was Kropotkin who defined economics as “a science devoted to the study of the needs of men and of the means of satisfying them with the least possible waste of energy.” Prescient.

Market fundamentalists have tended to engineer growth in the developed world through access to cheaper raw materials and production further afield. This one way street leads many in the developed world down a blind alley. The fact is that there is much that can be learned from emerging and developing economies. Nokia have launched mobiles with multiple address books – to cater for phones used by an entire village. Haier have developed robust washing machines – because farmers in remote rural areas were using them to clean vegetables for market. Unilever are educating whole villages about personal hygiene and, this opens up markets. And P&G are sending trainees to live in Chinese villages to learn about how people live their lives. For there is a fortune at the bottom of the pyramid.

Which brings us to human capital and the fundamental need to address the massive skills shortages all over the emerging and developing world. Stiglitz (2006) “Countries that don’t invest widely in education find it hard to attract foreign direct investment in businesses that depend on skilled labour. At the other extreme, high levels of inequality, especially as a result of unemployment, can result in social unrest; crime is likely to increase, creating a climate that is unattractive to business.” After all, development is about transforming lives and not just economies.

As indicated elsewhere on this Blog, this means making products that are affordable and adaptable to local context – shifting the emphasis from selling in what works in the developed world to creating and delivering what is needed where it matters. These markets are not about the next quarter; they are about investing for returns over the long haul. The development of a viable Bottom-of-the-Pyramid market for all sorts of brands and, the development of new products relevant to these markets could make or break the majority of the Fortune 500 in the coming years. There can be no greater incentive than the question “to be or not to be” for Boards and shareholders all over the developed world. This is why the inclusive agenda is one that makes perfect economic, social and environmental sense. As Kropotkin concluded: “these are the horizons which the above inquiry opens up to the unprejudiced mind.”