IN RECENT weeks business, labour and the government have presented a united front to fight economic uncertainty and stagnation. Too many people are excluded from meaningful economic activity in SA, manifest in high levels of unemployment (catastrophic for the youth) and inequality.
The toll of exclusion is felt in many other economies across the world. International Monetary Fund economists Ravi Balakrishnan, Chad Steinberg and Murtaza Syed have found that even in Asia, economic growth is now accompanied by rising inequality. In addition, the higher the level of income inequality in a country, the less economic growth contributes to poverty reduction.
The nature of the economic bargain behind American success is also under threat. As many authors including Joseph Stiglitz and Rana Foroohar, have argued, capitalism seems to serve super-elites in a country that once prided itself as the land of opportunity.
The resounding response from mainstream economists has been a prescription of inclusive growth that benefits the poor as much as, if not more than, the wealthy. It is also becoming increasingly clear which government policies favour inclusion. Public investments in infrastructure, early childhood development, quality basic education, a sound social safety net and transparent institutions are likely to boost widespread productivity.
For societies with a history of economic oppression, measures to open up opportunities that were once the preserve of the few and progressive policies that prioritise the needs of the poor, are an important part of the inclusive growth agenda.
Not enough is said of how the private sector can further the goals of inclusive growth. Some arguments cast business, implicitly or explicitly, as an obstacle to inclusion. This is particularly so for the financial services sector, which bears most of the scorn for excessive remuneration. The financialisation of the economy is often not seen as a structural problem facilitated by government policy, but as something the sector alone should be held responsible for.
Inclusive growth means nothing if it’s not backed by the most important economic decision-makers in modern economies. The draft King IV code on corporate governance rightly argues that the responsibility of business has to go beyond financial performance and “isolated corporate social responsibility” activities. Inclusive capitalism must be brought into the boardroom and the shop floor.
Most South African businesses proclaim a commitment to sustainable value creation and the importance of maintaining a social licence to operate. Yet Marikana happened. The bread and construction cartels happened. African Bank happened. A lot of good also happens, but in a country that is one of the most unequal in the world, discontent is no longer containable; the private sector has much more to contribute.
A global survey by the UN Global Compact found that boards struggle to engage with broader social, economic and environmental concerns due to the unclear financial effect of these issues (until they become very expensive), lack of sustainability expertise on the board and short-termism, among a variety of other factors.
In an increasingly complex world with high stakeholder expectations, it is businesses that integrate inclusion and diversity into their business agendas that will thrive. Including sustainability metrics in executive compensation, seeking board members with sustainability expertise and diverse world-views, having employees as owners and active participants in governance, and genuine stakeholder engagement are some of the suggested measures for more effective governance.
This week I will speak about inclusive capitalism at Trialogue’s annual conference, which has the theme Collaboration for Impact.
• Makhaya is the CEO of Makhaya Advisory
This column was first published in the Business Day