Harvey Koh on Shaping Inclusive Markets
Harvey Koh, managing director at the social change consulting firm FSG, presented at SOM as a guest of the Global Social Entrepreneurship club in November 2017 on research conducted in partnership with the Rockefeller Foundation.
Over the past decade, both FSG and Rockefeller have been exploring how market-based solutions can create social impact. In order to maximize the likelihood that these solutions will indeed result in the desired equitable outcomes, they are re-focusing their work on economic inclusion and equity. Koh defines an inclusive economy as “one that expands opportunities for more broadly shared prosperity, especially for those facing the greatest barriers to advancing their well-being.”
Koh is based in Mumbai, where he has spent the last six years developing and scaling businesses that benefit the poor, including low-income housing, decentralized water plants, and market-based models for improving sanitation and family planning. Throughout his career, Koh has tried to answer two fundamental questions: What business models are truly effective at serving the poor? And, how do we scale these models to make significant impact?
The Rockefeller Foundation has identified five characteristics—Koh lightheartedly calls them “terribly utopian”—that distinguish inclusive economies: they are equitable, participatory, growing, sustainable, and stable. By equitable, Koh means that all groups, regardless of religion, gender, or caste, are able to take advantage of opportunities for upward mobility and are adequately rewarded for the value they contribute. By participatory, he means that people can understand the norms to start businesses, find jobs, or otherwise engage in economic life. The increasing distribution of technology accelerates participation, but Koh warns that technology alone does not redistribute power. By growing, he means that enough goods and services are produced to enable overall community well-being. He notes that sustainability is also a key characteristic of inclusive economics because it represents intergenerational well-being and assures that progress today does not come at the expense of future generations. Finally, stability is critical because economic shocks and stresses disproportionately impact poor and vulnerable communities.
There are some examples of businesses that point toward an inclusive economy, and Koh uses them to understand how to drive progress in other markets. He shared one such example: Amul, a dairy cooperative in Gujarat, India, is jointly owned by 3.6 million farmers and has $4.1 billion in annual sales. With roots in the Indian independence movement, it meets the five criteria of inclusive economies (though Koh recognizes the imperfectness of the sustainability metric given dairy releases significant greenhouse gases). Importantly, it was innovations in market rules and support from the government alongside business that made Amul successful financially and socially.
The Amul case reinforces the concept that business models are essential to creating value, but that ownership and control are important in sharing that value. “We tend to think about business value in terms of value created for shareholders,” he says. “We take out all the costs until we’re left with profit, and that’s the ‘value’ created for shareholders.” One of the costs subtracted from revenue on an income statement is salary expenses, which encourages the perception of employees as costs. Koh proposes the alternative perspective that employees are actually the value creators.
Koh believes MBA skills are valuable, but students who want to bring about meaningful social change must be able to navigate both business and political dynamics. For students at SOM, he recommends learning about political economy and social movements to develop their leadership skills in both business and politics. He ended his presentation by reminding students that the “system itself has the potential for change,” but that creating a genuinely inclusive economy will take time, persistence and innovation.
The Shaping Inclusive Markets report can be found at: https://www.fsg.org/publications/shaping-inclusive-markets
By Jesse Dubow