In July 2017, the G20 Summit brought together representatives from the world’s largest economies. Participants discussed the significant challenges facing the global economy and released the G20 Leaders’ Declaration, which notes that “strong, sustainable, balanced and inclusive growth . . . remains our highest priority.” The declaration advocates a reduction in global income inequality and the development of sustainable supply chains.
What Is Inclusive Growth?
Inclusive, equitable, or sustainable growth is economic growth that raises living standards for everyone and respects the human rights of all communities and all participants in the global economy. According to the declaration, an inclusive economy provides abundant work opportunities that pay a living wage. It also stresses that to be truly inclusive, countries must strive toward social goals like providing ample access to education and fighting discriminatory practices.
How Companies Can Promote Equitable Growth
Supply chains are an area where individual companies can make a significant impact. Companies can answer the declaration’s call to closely scrutinize supply chains and to source materials and products from responsible suppliers. The declaration notes that global supply chains can be engines for “job creation and balanced economic growth.” However, the reverse is also true. There’s no way for companies to know what side their supply chains fall on without careful vetting. Using frameworks like the UN Guiding Principles on Business and Human Rights, companies may want to investigate whether any of their suppliers or contractors are paying insufficient wages, allowing hazardous working conditions, harming the environment, or relying on forced labor. When it comes to supply chains, ignorance is not bliss.
In order to maximize effectiveness in this area, interested businesses can use a two-pronged approach: First, they can integrate sustainable thinking into the culture and second, they can extend that culture to suppliers. According to EY, many leading companies consider suppliers an extension of the business itself. After all, without necessary supplies businesses would not be able to carry out their core functions. Even if a sustainable supplier carries higher short-term costs, these may be recouped in the long term through increased resiliency and decreased chances of adverse action.
Perhaps most importantly, businesses can select suppliers who are transparent and collaborative. Without this element, it is impossible to get ahead of potential problems.
Why Inclusive Growth Is Good for Business
The humanitarian case for equitable growth is self-evident. But inequitable growth is an externality. As such, it may receive insufficient attention from individual firms, though they would be wise to pay attention to this particular externality, since it can quickly come home to roost.
A failure to perform due diligence on compensation practices can lead to lawsuits and bad PR. Companies that don’t investigate their supply chains can end up embroiled in crisis as consumers become increasingly aware of where products come from. One of the best-known examples of this was the so-called McLibel case, in which McDonald’s sued two activists for libel after they distributed a leaflet criticizing many of the corporation’s practices, including its wages and the treatment of animals by its suppliers. After a protracted battle, the court ruled that McDonald’s was indeed responsible for animal cruelty and suppressing wages in the sector. If this wasn’t bad enough, the company also received ardent criticism for the lawsuit itself. The European Court of Human Rights determined that given the disparity in resources, the British government allowed the activists’ freedom of expression to be violated in the suit.
Supply chain management is also a component of business resiliency. To be successful, businesses must anticipate and adapt to wider changes. “Leaders anticipate and focus on megatrends such as political stability and its impacts on the supplier workforce; climate change and its impacts on resource availability and commodity prices; and energy dependency and its impacts on production in order to secure business continuity,” according to a report by EY.
Finally, empowering the global workforce and paying employees fairly may expand the pool of potential consumers, who can then drive demand for a company’s products. Companies that limit themselves to selling to globalization’s current winners may run out of room to grow. In this, the consumer goods sector is especially vulnerable, as their business model relies on a large population with disposable income. As business magnate Edward Filene put it: “Low wages—wages which do not permit the wage-earning population to buy the abundance which they are now able to produce—are as bad for employers as they are for employees.”
How Sustainable Growth Benefits Society
Just as no man is an island, every firm is part of a complex economy influenced by the prosperity (or lack thereof) of its community as a whole. The G20 Leaders’ Declaration posits that if financial leaders are equally invested in everyone’s prosperity, everyone will benefit. For example, the declaration points out that women participate in the labor force at lower rates than men and are paid less on average. This is a loss to everyone, because society as a whole misses out on the contributions women could make to the economy if they had the chance to participate on equal terms. As more people contribute to the global economy, society gains from their participation and the perspectives they bring to the business world.
In the declaration’s own words: “We can achieve more together than by acting alone.”