Conglomerates and Inclusive Growth: The Answer to Uneven Development?

The modern corporate conglomerate is the single most powerful human invention. -  Professor Benito Teehankee

On March 30, 2017, Professor Benito Teehankee presented his thesis on the role conglomerates could take to help ease the uneven development. The conference was organized by the Center for Philippine Futuristic Studies and Growth with the tile "Visioning the Role of Conglomerates in the Philippine Inclusive Growth Development Roadmap."

Professor Teehankee’s paper recognizes the importance of business, it is the most powerful and most fundamental way to uplift the lives of people. To him, the modern corporate conglomerate is the single most powerful human invention. Nonetheless, with the current structure, even with the continuous growth of the economy and capital markets, poverty and hunger is still rising. The cause of which, he opines, is money creation through financial institutions such as derivatives. He also attributes the problem to globalization, structural problems and labor practices. He remarks that conglomerates are creating enormous wealth with the use of non-inclusive practices such as precarious labor and concentrated share ownership.

His answer to the perennial problem of poverty is including inclusive growth in corporate policies of conglomerates. Inclusive growth is defined as the distribution of revenue share where basic needs are met.  This will increase the number of Filipinos that would be able to have the opportunity for integral human development, setting the stage for poverty alleviation. As a consequence, Filipinos standard of living will rise and their quality of life will be improved, creating an economic pyramid that would be middle heavy.

Some ideas discussed were directing efforts on increasing the quality of jobs with higher wages and better working conditions and increasing public float of shares to 50% or higher to name a few. The key, he points out, is to stabilize the economy by creating jobs fostering productivity and improving capacity.

Striking Views
Arthur Alvendia of Chairman of ReGeneSys Biotech Solutions believes that inclusiveness is not a distribution issue but a structural or institutional issue.  He says, solutions to the perennial problem of uneven development do not work because the structure or institution keeps it from working. Therefore, the focus must be shifted to different organizational forms, moving away from corporate business models. The solution, he states, lies with finding ways to make small producers big through other forms of organizations. An example of which is the integrated business organization of tea farmers in Kenya where small farmers are linked together to create a big organization.

Meantime, Carlos S.V. Valdes, Chairman of the Advisory Board of Carlos J. Valdes & Co CPAs, opines inclusiveness is not a problem of conglomerates or families. He concludes that the crux of the issue lies with international government policies that perpetuate uneven development. He takes issue with the fixed/foreign currency exchange rate system. Through the system, Philippine produced commodities and goods are purchased at a lower price because the cost of labor is much cheaper due to currency conversion.

A Testament to the Power of a Conglomerate: the Ayala Corporation
Managing Director & Group Head of Ayala Corporation, Paolo Borromeo, relates that his corporation has included the concept of shared value as part of its day to day operations since 2012. Hence, Ayala Corporation’s investments has been delivering measurable social and financial value with a wide reach. He cites the progress in Nuvali, the acquisition of University of Nueva Caceres, the establishment of APEC schools as well as providing housing options to communities at the lower half of the pyramid, as examples of his company’s commitment to sharing value to Philippine society.

There are many avenues that a corporation especially a conglomerate can use to spread the economic benefit to the people. A popular one is social entrepreneurship where the business is focused on a mission in order to create and sustain social value.1  However, with the thesis of Professor Teehankee, businesses could still effect a substantial change in the society even if it does not primarily operate towards a social mission.

1Dees, Gregory. "News." The Meaning of “Social Entrepreneurship” | Duke I&E. Accessed May 14, 2017.