Social Enterprise
Making a DifferenceFall 2006
Poverty alleviation through business
Is it possible?Roberto Gutiérrez and Iván Darío Lobo
Are isolated attempts to improve the living conditions of low-income populations changing the landscape of our societies? In their introduction to this issue of ReVista, James E. Austin and Michael Chu describe some unsuccessful experiences of the public and private sectors to eradicate poverty. New approaches have been described throughout this issue. This article aims to observe the social transformations that result from market initiatives that engage low-income sectors. Do the changes at the micro level in particular experiences lead to transformations on a larger scale? The research of the Social Enterprise Knowledge Network (SEKN) into market initiatives that improve life conditions for low-income populations had, among its selection criteria for cases to be studied, the generation of social and economic value. Researchers in nine different countries have studied cases in which changes in life conditions are evident at the level of the individual experiences. Here, we first describe the type of changes encountered. Then, we examine whether these changes are bringing about transformations at a societal level.
A look at changes in life conditions
SEKN’s latest book, Effective Management of Social Enterprises: Lessons from Businesses and Civil Society Organizations in Iberoamerica (Washington DC: Inter American Development Bank/David Rockefeller Center for Latin American Studies, 2006), defined social value as “the pursuit of societal betterment through the removal of barriers that hinder social inclusion, the assistance to those temporarily weakened or lacking a voice, and the mitigation of undesirable side-effects of economic activity.” Cases selected for the current research include experiences with evidence of the generation of different types of social value.
Lowering barriers to access is one of the most visible accomplishments in some cases. Low-income sectors have gained access to some consumer goods and services. Some low-income communities have become involved in production processes. Barriers have been lowered, and these communities have obtained access to labor markets, means of production and financial capital.
One step towards inclusion is to create access to labor markets. The Argentine crisis at the beginning of this decade united a group of Buenos Aires recyclers in a cooperative called El Ceibo. With their commitment to the organization came schedules and responsibilities that some of them had never experienced before. The cooperative became a training ground for future jobs. Another group with high access barriers to labor markets are prisoners who return to society after serving their sentences. Among the few opportunities available is Recycla, a Chilean business that employs ex-convicts while they find different kinds of jobs. Recycla sees itself as a transition environment between prison and paid employment. While electronics and non-iron metals are recycled, so too the “recycling of lives” takes place.
Access to means of production has made a great difference for palm oil production workers in Peru and Colombia. In one isolated region of the Peruvian Amazon, the company Palmas del Espino was instrumental in transforming land invaders and illegal crop producers into landowners and members of an agricultural production association. Years before, in 1995, Colombia’s Indupalma had started a similar process by helping workers organize into cooperatives that initially acquired equipment and then land. Five years later, 900 workers in 20 cooperatives were the main suppliers of palm fruit for Indupalma in the country’s northeastern region.
Access barriers to financial markets have diminished in the past years due to the concerted efforts of many organizations. Nowadays, innovative financial services complement credit offerings to micro and small enterprises. For example, Cemex created a program for low-income workers in the United States to transfer savings to their families in Mexico for building or improving their households. Through different mechanisms this multinational firm in the cement industry allows cash in one country to become assets in another. Consumer credit is another field in which companies like Codensa are making a difference in the lives of 300,000 of its clients in Bogotá: half of them earn less than $300 dollars monthly, and a third without previous credit. This utility company offered low-income consumers purchase credits enclosed in their regular electricity bill. Credits can be used to purchase appliances, most of which are refrigerators, washers and TVs.
Another type of social value generated through market initiatives with low-income populations is characterized by the strengthening of weakened groups. Specific groups not only suffer from having low levels of income, but are also discriminated against because of their activities or lack of skills. Organizations working with these populations are faced with the challenges of building capacities and setting up favorable conditions for their participation in the economy.
In the Bío Bío region in southern Chile, women harvesting wild fruit were mistreated by the intermediaries who bought their produce. The women confronted a low level of income, as well as a lack of respect for their labor within their communities. Then, the nonprofit Taller de Acción Cultural stepped in to work with them. As the women organized into eight local committees and established ties with the forestry industry, respect for their labor and traditional knowledge increased significantly. Valuing their activities as gatherers has taken years, but as with other weakened groups such as artisans or recyclers, organizing brings voice and participation begets changes.
Participation has many faces: it can come through membership in an association or simply as the potential of participating in the consumer economy. In capitalist societies, citizenship is related to participation in diverse markets; an individual who cannot access the labor or consumer markets, for instance, is marginalized from society. By lowering access barriers to the market economy, businesses are addressing weakened groups. According to Codensa executives, enjoying modern amenities means “validating people as citizens.” Moving towards satisfying household needs, this utility company now offers insurance policies through their credit program. In a customer survey done by the Colombian government agency that oversees utilities, 54% recognized a better quality of service during the past ten years and 84% stated that their quality of life had improved.
Strengthening includes developing technical, managerial and entrepreneurial capabilities. For example, Cativen, Venezuela’s largest consumer retailer, employs this type of strengthening as part of its strategy to establish direct links to suppliers. Another part of its strategy is to develop long-term contracts with farmers to guarantee quantity and quality conditions. Coaching and risk management are used to favor a tighter value chain. Cativen’s business thrives while low- income sectors in rural areas benefit from capacity building and contracts.
One last type of social value generated in certain initiatives is related to environmental impact. When the largest palm oil producer in Latin America, Agropalma, started a project in 2001 in northern Brazil to engage families as suppliers, it lowered production costs and decreased the negative impact on the environment. These families live in the area where Agropalma operates, and are now able to cultivate other crops along with their palm trees which helps land recovery more than a large intensive plantation would. Migration is lower as they establish permanent links to the business.
Several cases have served to illustrate the benefits of lower barriers to resources and products, strengthened communities and diminished negative environmental consequences. Are these experiences isolated cases or is their social impact on the rise?
Do social transformations result from market initiatives that engage low income populations? It is disingenuous to use positive language about the autonomy and potential of the poor, while at the same time re-affirming their identity as the poor that by definition need to change, with outside help, and to change to become more like that outside ‘developed’ world.
—Jem Bendell, “From Responsibility to Opportunity: CSR and the Future of Corporate Contributions to World Development.” MHCi's Monthly Feature, February 2005
One key question is how to measure social impact. How do we know that societies are being transformed through business? Most of the examples described above portray low-income populations in roles other than that of consumers. When consumption is involved, how can one judge its social impact? Can one claim “empowerment” when people are provided the means to consume certain products?
Different questions arise when companies are the unit of analysis. Companies have an impact on an array of stakeholders. One small project that generates some social value cannot distract from the examination of its deleterious effects. A well-concerted public relations campaign can cover up plenty of malfeasance. At the aggregate level, what are the environmental costs of increases in outputs and consumption?
All of these are very difficult questions to answer. Another approach to the larger issue of social transformations is to consider the changing perspectives on social development throughout the second half of last century. During the 1960s, providing those in need with goods was criticized: it was said that what people needed most was the ability to procure things for themselves. “Give someone a fish and you will feed him for a day; teach him how to fish and you will feed him for a lifetime,” was a common refrain. In the 1990s, this idea evolved: knowing how to obtain the goods is a limited ability; it is key to know how to organize. From then on, poverty has no longer been regarded as the lack of material resources, but as the inability to control circumstances. Along these lines, underdevelopment means waiting for others to solve one’s problems, while development is the capacity to shape one’s future through economic, political and social processes. A strong and healthy community is one whose members organize to define their own future. Participation, organization and interdependency characterize such communities.
Social transformations take place as the capacity to organize and act collectively increases (i.e. bonding social capital), as organizations work together in networks (i.e. bridging social capital), and as they both interact with government institutions to scale up local operations (i.e. linking social capital). It is with this lens that we want to examine the impact of market initiatives that seek to improve living conditions for low-income sectors.
The following paragraphs consider the mechanisms through which these initiatives attain scale or make replications possible. One crucial feature is the creation of new organizations. As bonding social capital is nurtured, the probability that low-income communities stand on their feet increases. But organizing is fraught with difficulties and challenges. Therefore, developing the necessary skills and adequate coaching forms part of the process. Building capacity makes the existence of independent organizations possible. Low-income populations can accomplish this on their own, as in the case of the El Ceibo cooperative. On other occasions, it is in the interest of a company to promote a healthy interaction with organizations that will lower its production and distribution costs. Companies can also help other organizations by lowering some risks of doing business. Contracts are a formal way of doing this, but trust is what allows relations to develop and contracts to appear, especially in contexts in which it is costly to enforce the fulfillment of agreements.
A cluster of strong organizations is better equipped for competitive pressures to increase efficiency in value chains. Bridging social capital is at the center of solid organizational networks. Low-income populations can be part of such clusters, but they have to fight their way into those links in the value chains where most of the surplus value is appropriated. Those who benefit the most from those surpluses –economic actors with high capital and bargaining power- find few incentives to share their economic gains with emerging groups. A Brazilian association of small farmers in Bahía took up one such fight. The nonprofit Apaeb managed to go beyond the cultivation of raw fiber to the production and commercialization of mats and rugs. With meager funds they had to struggle against legislation that inhibited the creation of small producers’ coops, against political forces that faced losing a grip on certain agricultural communities, and against the commercial interests and monopolistic practices of retailers. Apaeb is an exceptional case in its success and illustrates well the many forces that constrain the possibilities for changes in the living conditions of low-income communities.
Another rare occurrence is for low-income groups to have a voice in the public policy debate. Linking social capital remains on the wish list of many groups. However, as the saying goes “there is the exception that confirms the rule.” Organized recyclers in Colombia have summoned legal assistance to fight for their rights. Not only have their struggles faced an apathetic response from the state, but also increasing trends favoring privatization of waste management. Yet, the recyclers have achieved three legal victories in the past few years: first, they were able to change a piece of legislation that gave the state and individuals ownership over trash; they also changed another law that required utilities to have shareholders; and affirmative action policies were set in place to favor recyclers in Bogotá’s clean-up services.
Success stories have at least two caveats: they stress the possibilities, not the structural barriers that must be overcome; and they provide the possibility for governments to “get off the hook.” The accomplishments of profit or nonprofit organizations as they provide a much needed service for low-income populations (such as health care), encourages some public officials to stop doing what they should be doing.
In the realm of possibilities, social transformations can result from market initiatives that engage low-income sectors. The opportunities to generate bonding social capital are being replenished with new experiences in very diverse areas; and the private sector has been instrumental in many organizing efforts by low-income groups. However, the cases in which these groups have benefited from bridging and linking social capital are few and far between. Few organizing efforts have been able to overcome the challenges and lack of resources of which income is just but one. Poverty alleviation through business is happening in selected locations. Whether it can work on a large scale remains to be seen.
Roberto Gutiérrez is an Associate Professor in the School of Management at the University of Los Andes. He currently chairs the Social Enterprise Knowledge Network (SEKN). Iván Darío Lobo is an Instructor in the School of Management at the University of Los Andes. Both collaborate with the Program on Social Initiatives (IESO for its acronym in Spanish) at the University of Los Andes.