How business and society can work together towards solving the social problems of the world
By Suresh Prabhu, Union Minister for Railways, Government of India at the Shared Value Summit
“What we need in India particularly is how to make sure that business can work along with the government to bring in prosperity to a large number of people in the country.”
“In the long-term business cannot grow if the customers are losing. A sustainable business model cannot be one where one can benefit at the expense of the other.”
Marrying The Goals of Business & Society
Usually, we feel that there has to be an adversarial relationship between society and business. This is because those who are engaged in economic activities try to earn profits and are supposed to be better off than the rest of the society. So the general feeling goes that we have been deprived, and somebody else is benefiting at my expense. The society seems to be the victim and business appears to be the beneficiary.
However, presumption or assumption is not necessarily based on empirical evidence. We have seen that business could also contribute significantly to the well-being of the society. What is considered a business is a creation of a public good that contributes to the development of several societal needs. Therefore, to consider one against the other is not always correct.
Typically we expect initiatives for the development of the society mostly from the government and others from non-government organizations (NGOs) and the civil society. We have seen a model wherein the government did everything including economic activity, which has not necessarily produced the type of result that was necessary. In fact, many times the contrary has happened. A lot of wealth, which could have been created, has been destroyed and as a consequence the society has been at the receiving end.
This model continues in some pockets, but such places are now becoming fewer in numbers. What we need in India particularly is how to make sure that business can work along with the government to bring in prosperity to a large number of people in the country. Whatever new products are created, new services are offered could help people access something, which they always needed but were not able to get. We need to develop a model for how the business and society can benefit at the same time.
In fact, they benefit at the same time always. Once we start considering a society as consumers or customers, you can never have a model wherein customers can lose, and business can gain. It could happen in the short term, and that’s why we have a number of institutions that have been created including the Competition Commission of India, which addresses the issues of monopolistic practices so that customers are not exploited.
But in the long-term business cannot grow if the customers are losing. A sustainable business model cannot be one where one can benefit at the expense of the other.
We need a business model in India for the country as a whole in which effort should be made to get the private sector to play a significant role in terms of offering a type of goods and services that people need. A very famous economic dictum says that mere desire doesn’t constitute a demand unless it’s backed by purchasing power. So that’s always the case but having said that if you do not bring more and more people into the marketplace, the business does not benefit. So then, how do you marry both? Here, C.K. Prahalad (management guru) said something fascinating about how could we target the people at the bottom of the pyramid and make them our customers.
Win-Win Model for Government, Society & Business
What we need is to figure is how we allow every citizen of India to access all kinds of goods and services that he aspires for, how we create more and more purchasing power for them. It is the role of state policy to create more purchasing power so that people will have more money in their pocket, which they can use to access services and goods. Many programs that we have launched including direct cash transfers aim at this. These programs provide a choice to the customer in terms of what he wants to buy and not spend on something he doesn’t have a choice to buy. As long as we offer a choice to the customer, he or she can choose to spend it on saying educational purposes or on health needs.
We want to make sure that we have a model in India through which we take care of the vulnerable sections of the society effectively by way of offering institutional support and safety mechanisms, so they do not get exploited. At the same time, this will allow innovation to take place in the marketplace, which only multiple entrants can offer. The state alone cannot make it happen and therefore, to make this model work is in the long-term interest of the country is where businesses come into the picture.
Business is also drawn from the people of the society. If you create a great supply chain model, hundreds of thousands of people become part of the supply chain. Would they not be a part of the society? In fact, now they become both customers as well as partners of the business chain. For instance, the farmers are part of business. They are doing an economic activity. Farmers are paid for what they produce, and that is how they get purchasing power but if there are no markets or business links at all with the farm and the marketplace, how would they get that money.
Creating Shared Value
It is necessary to make a proper business model that can work. I am happy that you are talking about the shared value concept and raising the question of how to come up with shared values for business and the society so they can work in close harmony with each other and benefit from mutuality of interest. But how they align those interests to create the mutuality of interest is a challenge.
To achieve this, we need different institutions, different ideas to come forward, different people to play a part as well as enlightened leadership for business. Enlightened leadership in business is imperative, as it understands the need to align these interests in an efficient manner, which could fasten the process.
The government’s role will be to allow these forces to play and at the same time prevent anybody from exploiting that section of the society that doesn’t have ability to understand the nuisances of all these new models. For instance we need customer protection to check people from offering products that are not what they promises to be. We have a law. We need a regulator, and we have a one. We have a competition commission to prevent businesses from joining hands to exploit markets.
We need institutions, and we need informed choices to be made so that we not only create customer awareness but also ultimately align the interests of the society and business together in the long-term interest of the society. A sustainable business model can bring in effective outcomes, which can result in better social and public goods.
At the end of the day, the business can never benefit if the customer base doesn’t increase. The customer base cannot grow unless there is this alignment of interest and more and more people benefit from it. So business has a vested interest in the development of the society. Societies are the beneficiary of new ideas coming to the marketplace, so there is already a shared interest, but it is how this shared interest is aligned with a public policy. That’s what the role of the government is which I am sure will be the outcome of this conference, a takeaway for us to take forward.
These are transcribed interviews, and we have tried to retain the tone of the verbal conversation