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Impact Inclusion in Latin America: Generating a Positive Impact on Societies Through Market Mechanisms

in countries where governments are weak and not capable of providing social services, the use of markets to build inclusive societies is becoming a common practice that can present an alternative for building a sustainable future in the region

Inclusion can be seen as a right or as the outcome of initiatives that have a positive impact on excluded populations. In Latin America and around the world, nonprofit organizations (NPOs) have mostly adopted a political role to claim the right of excluded groups to access certain rights, such as social justice, living in a clean environment, among others, to directly increase their life quality. However, this article argues that the latter perspective, which we call impact inclusion, has gained traction in practice because it offers a more contextualized approach by centrally considering market mechanisms to address the challenges of inclusion.

To explore this issue in relation to the challenges in Latin America, we published the chapter “Latin American Context: The Challenge of Managing Advocacy and Impact Inclusion”, included in the Routledge Companion to Nonprofit Management, co-authored with Urs Jäger, from INCAE Business School in Costa Rica and executive director of VIVA Idea, and Roberto Gutiérrez, professor at Universidad de los Andes in Colombia.

In line with development institutions, we believe that inclusion is a key challenge for the functioning of societies. However, inclusion has not been widely addressed since conventional research has focused on countries in the developed world, where the emergence of states and markets over the centuries gave rise to functioning democratic institutions that embrace marginalized groups.

A Historical Latin American Perspective

The emergence of organized civil society in European countries differs from Latin American history, where democracies are weak or non-functioning and exclude large parts of the population from societal benefits granted by the state, such as decent pensions, health insurance, unemployment insurance, health services, etc. The development of markets and democratic institutions was far from ideal because, in most of the region, the Creole families that led the independence processes imposed European institutional structures, reproducing the colonial order that hindered the emergence of the public spaces and democratic cultures that could bring about the inclusion of diverse groups of society. Consequently, the constitutional laws of Latin American countries were not promulgated in relation to contextual social needs, but simply copied European and North American standards and laws. This created systems with  weak formal institutional support that failed to consider the diversity of existing groups, thereby excluding a large part of the actors from the development and modernization process. At present, numerous individuals and groups are still excluded from formal institutional mechanisms—for example, people living in poverty and informality in urban contexts and indigenous communities living in rural areas.

NPOs emerged at the beginning of the 16th century to counteract the process of the Spanish elites accumulating wealth and power. Their initial activities were based on charity, mainly through missionaries from the Catholic Church. The independence movements in the 19th century produced a shift in the provision of social services, in part, from the church to governments. At that point, the NPOs sought to empower the poor through education and financial aid. But the arrival of the Mexican Revolution (1910 to 1920) was the first turning point in the politicization of NPOs, reclaiming inclusion as a political right that should be delivered by the state. Various social movements proposed structures to increase the political participation of the excluded actors.

During the 1960s, NPOs in many Latin American countries contributed to an alternative political discourse to the elite model. Cooperatives subsequently underwent a boom, as governments and the Catholic Church set up programs to foster development and incorporate the poor who were outside the formal system into the workforce. However, in many cases, governments and the economic elites sought to thwart the emergence of NPOs that advocated for political inclusion in urban and rural areas.

In the 1970s, during the military dictatorships in Argentina, Bolivia, Chile, and Uruguay, cooperatives were suppressed, eliminated, or controlled by popular movements. They then began to organize social protests, obtaining the support of foreign organizations to defend human rights, citizen participation, and the creation of opposition movements. Despite the heterogeneous nature of NPOs, their common goal of fighting for democracy brought many of them together.

The Evolution Toward Impact Inclusion to Include Excluded Actors Through Market Mechanisms

By the 1990s, when the majority of the authoritarian regimes in the region had come to an end, the Latin American political context reflected a huge diversity of trends. At the World Summit for Social Development, held in Copenhagen in 1995, participants proposed that NPOs should assume state responsibilities to cover basic needs. Many Latin American NPOs toned down their revolutionary nature to adapt to an approach similar to that of the private sector, receiving support from all sides of the political spectrum. As public spending decreased, outsourcing to NPOs for the implementation of social programs increased. This reliance has diminished the critical positions of NPOs. In fact, over the past three decades, NPOs have been working on gender, educational, cultural, health, productive, economic, and environmental inclusion.

However, the inefficiency of Latin American governments in offering social services, such as decent pensions or unemployment insurance, reinforces the challenge of assuming an impact inclusion role and moving on from the characteristic activist perspective of previous decades. As a result of the inefficiencies of formal government institutions, social welfare provision became a combination of a security structure that grants benefits to people linked to productive activities, and a welfare structure divided between government organizations and NPOs. The actions of several governments in the region have, in many cases, generated a patron-client relationship between the state and NPOs with social economy orientations regarding their social demands.

Therefore, the term social entrepreneurship brought to the discussion of inclusion a more contextualized vision of a government that is incapable of solving inclusion challenges in the region. We call this “impact inclusion,” which is related to the participation of the private sector in discussions and actions regarding well-being, public goods, and social impact. The transformation of corporations into impact enterprises is taking place without a legal framework. Enterprises that promote inclusion usually arise from expanding into a new market by including in their value chain excluded actors, such as entrepreneurs living in poverty or indigenous communities, or from offering a new product to low-income markets. This is in line with one of the region’s enormous challenges: achieving the inclusion of informal actors, such as small businesses, self-employed workers, and unregistered micro-enterprises. Roughly 130 million Latin Americans have an informal non-agricultural job (the number would be much higher if agricultural jobs were considered).

Impact inclusion could leave informality in the past as an unresolved challenge in the region, by integrating it into the current structures. For instance, in mining, many actors are not included in the strategic decisions and benefits of this industry. Market collaborations could help to shift from conflict to collaboration between multinational corporations and the communities in which they operate. Something similar occurs in the food industry. For example, many multinational companies buy organic fruit and vegetables from indigenous communities given their high quality, which stems from ancestral practices that respect nature. This means that the market could enable a horizontal relationship between the parties, and the informal and excluded actor engages with the formal structures of societies.

What Do We Need to Learn to Follow the Impact Inclusion Paradigm?

In a context like Latin America, where governments have been incapable of providing sufficient social benefits to eliminate poverty and guarantee rights, the activist perspective of inclusion loses ground. There is no point in asking for rights if the state is not empowered nor efficient to deliver them. Latin American constitutions and legislations are full of rights in the formality of the written word, but that are not fulfilled in practice. Many people contend that we need state modernization processes. The problem is that they take decades, even when successful.

A perspective that invites us to act is that of impact inclusion through market mechanisms, which this article defends. For this we need both NPOs and companies that are capable of carrying out social and environmental impact initiatives through market mechanisms. So far, markets have failed to do this, leading many people to believe that they are to blame for the current situation of climate change and social injustice.

A relevant question, in this sense, would be: How can we devise markets so that they value social justice and nature? How can we manage to devise sustainable development from markets, which are ultimately the most efficient valuation mechanism that human beings have invented? Many companies and startups focus on answering this question through action. For example, in Mexico, Iluméxico is a company that provides solar energy to excluded rural communities, while Altitude is a firm that integrates women living in poverty into the textile industry’s value chain.

In countries where government organizations are weak but have the political will to provide social services, public-private partnerships appear to be an effective option. But in countries where governments are not even capable of doing that, the use of markets to build inclusive societies is becoming a common practice that can present an alternative for building a sustainable future in the region